This is filed purusant to Rule 497(e).
File Nos. 333-137564 and No. 811-07732.
[LOGO]
ALLIANCEBERNSTEIN
Investments
ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
1345 Avenue of the Americas
New York, New York 10105
October 27, 2006
Dear Stockholders:
The Board of Directors (the "Directors") of Alliance World Dollar Government
Fund, Inc. ("AWDGF") is pleased to invite you to a Special Meeting of
Stockholders of AWDGF (the "Meeting") to be held on Tuesday, December 12, 2006.
At this Meeting, we are asking you to approve the acquisition of the assets and
the assumption of the liabilities of AWDGF by Alliance World Dollar Government
Fund II, Inc. ("AWDGF II") and the dissolution of AWDGF. The proposed
acquisition is described in more detail in the attached Prospectus/Proxy
Statement.
AWDGF II is much larger than AWDGF, with a similar investment objective and
slightly broader investment policies. We anticipate that the proposed
acquisition will result in benefits to the stockholders of AWDGF as more fully
discussed in the Prospectus/Proxy Statement.
The Directors of AWDGF have given careful consideration to the proposed
acquisition and have concluded that the acquisition is in the best interests of
AWDGF and its stockholders. The Directors recommend that you vote "for" the
proposed acquisition of AWDGF by AWDGF II.
If the acquisition of AWDGF by AWDGF II is approved by stockholders of
AWDGF, each AWDGF stockholder will receive shares of AWDGF II having an
aggregate net asset value ("NAV") equal to the aggregate NAV of the
stockholder's shares in AWDGF. AWDGF would then cease operations. You will not
be assessed any sales charges or other stockholder fees in connection with the
proposed acquisition.
We welcome your attendance at the Meeting. If you are unable to attend, we
encourage you to authorize proxies to cast your vote. The Altman Group, Inc.
(the "Proxy Solicitor"), a proxy solicitation firm, has been selected to assist
in the proxy solicitation process. If we have not received your proxy as the
date of the Meeting approaches, you may receive a telephone call from the Proxy
Solicitor to remind you to submit your proxy. No matter how many shares you
own, your vote is important.
Sincerely,
Marc O. Mayer
President
[LOGO]
ALLIANCEBERNSTEIN
Investments
ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
1345 Avenue of the Americas
New York, New York 10105
(800) 221-5672
NOTICE OF A SPECIAL MEETING OF STOCKHOLDERS
SCHEDULED FOR DECEMBER 12, 2006
To the stockholders of Alliance World Dollar Government Fund, Inc. ("AWDGF"), a
Maryland corporation:
Notice is hereby given that a Special Meeting of the Stockholders of AWDGF
(the "Meeting") will be held at 1345 Avenue of the Americas, 41st Floor, New
York, New York 10105 on Tuesday, December 12, 2006, at 11:30 a.m., Eastern
Time, to consider and vote on the following proposal, which is more fully
described in the accompanying Prospectus/Proxy Statement dated October 27, 2006:
1. To approve an Agreement and Plan of Acquisition and Liquidation (the
"Plan") among AWDGF, Alliance World Dollar Government Fund II, Inc.
("AWDGF II"), a Maryland corporation, and AllianceBernstein L.P.
providing for the acquisition by AWDGF II of all of the assets and
assumption of all of the liabilities of AWDGF in exchange for shares of
AWDGF II (the "Proposal"). A vote in favor of this Proposal by the
stockholders of AWDGF also will constitute a vote in favor of the
dissolution of AWDGF and termination of its registration under the
Investment Company Act of 1940, as amended.
2. To transact any other business that may properly come before the Meeting
and any adjournments or postponements thereof.
Any stockholder of record of AWDGF at the close of business on October 13,
2006 (the "Record Date") is entitled to notice of, and to vote at, the Meeting
or any adjournments or postponements thereof. Proxies are being solicited on
behalf of the Board of Directors. Each stockholder who does not expect to
attend the Meeting and vote in person is requested to complete, date, sign and
promptly return the enclosed proxy card, or to submit voting instructions by
telephone as described on the enclosed proxy card.
By Order of the Board of
Directors,
Marc O. Mayer
President
New York, New York
October 27, 2006
YOUR VOTE IS IMPORTANT
Please indicate your voting instructions on the enclosed proxy card, sign
and date it, and return it in the envelope provided, which needs no postage if
mailed in the United States. Your vote is very important no matter how many
shares you own. In order to save any additional costs of further proxy
solicitation and to allow the Meeting to be held as scheduled, please complete,
date, sign and return your proxy card promptly.
--------------------------------------------------------------------------------
AllianceBernstein(R) and the AB Logo are registered trademarks and service
marks used by permission of the owner AllianceBernstein L.P.
PROSPECTUS/PROXY STATEMENT
Acquisition of the Assets and Assumption of the Liabilities of
ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
By, and in Exchange for Shares of,
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II, INC.
October 27, 2006
TABLE OF CONTENTS
Questions and Answers 4
Proposal -- Approval of an Agreement and Plan of Acquisition and Liquidation among AWDGF II,
AWDGF and AllianceBernstein L.P. 6
Summary 7
Comparison of Operating Expense Ratios 7
Comparison of Investment Advisory Fees 7
Comparison of Investment Objectives and Policies 7
Principal Risks 9
Federal Income Tax Consequences 9
Service Providers 9
Comparison of Stockholder Services 10
Comparison of Business Structures 10
Information about the Proposed Transaction 11
Introduction 11
Description of the Plan 11
Reasons for the Acquisition 12
Description of Securities to be Issued 13
Dividends and Other Distributions 14
Surrender and Exchange of AWDGF Stock Certificates 14
Federal Income Tax Consequences 14
Capitalization Information 15
Trading History and Share Price Data 15
Information about the Funds 15
Management of the Funds 15
Advisory Agreement and Fees 15
Administrator 16
Other Service Providers 16
Voting Information 17
Legal Matters 17
Experts 18
Financial Highlights 18
Appendix A -- Fee Table 19
Appendix B -- Comparison of Investment Objectives and Policies 21
Appendix C -- Description of Principal Risks of the Funds 33
Appendix D -- Other Information 35
Appendix E -- Form of Agreement and Plan of Acquisition and Liquidation among Alliance World
Dollar Government Fund II, Inc., Alliance World Dollar Government, Inc. and
AllianceBernstein L.P. 39
2
Appendix F -- Capitalization 54
Appendix G -- Trading History and Share Price Data 55
Appendix H -- Legal Proceedings 56
Appendix I -- Share Ownership Information 58
Appendix J -- Financial Highlights 59
3
QUESTIONS AND ANSWERS
The following questions and answers provide an overview of key features of the
proposed acquisition and of the information contained in this Prospectus/Proxy
Statement. Please review the full Prospectus/Proxy Statement before casting
your vote.
1. What is this document and why did we send it to you?
This is a combined Prospectus/Proxy Statement that provides you with
information about the proposed acquisition (the "Acquisition") of the assets
and liabilities of Alliance World Dollar Government Fund, Inc. ("AWDGF") by
Alliance World Dollar Government Fund II, Inc. ("AWDGF II") and the subsequent
dissolution of AWDGF. (AWDGF II and AWDGF are each a "Fund" and collectively,
the "Funds"). This document also solicits your vote on the Acquisition by
requesting that you approve the Agreement and Plan of Acquisition and
Liquidation dated as of September 20, 2006 (the "Plan"), among AWDGF II, AWDGF
and AllianceBernstein L.P. (the "Adviser").
On September 13, 2006, the Directors approved and declared advisable the
Acquisition of AWDGF by AWDGF II and the subsequent dissolution of AWDGF and
directed that the Acquisition and dissolution be submitted to the stockholders
for approval at a Special Meeting of Stockholders to be held on December 12,
2006, 11:30 a.m., Eastern Time (the "Meeting"). You are receiving this
Prospectus/Proxy Statement because you own shares of AWDGF. Each stockholder of
record of AWDGF as of the close of business on the record date has the right
under applicable legal and regulatory requirements to vote on the Acquisition
and dissolution. The Acquisition will not occur unless it is approved by AWDGF
stockholders. This Prospectus/Proxy Statement contains the information you
should know before voting on the proposed Acquisition.
You may contact a Fund at 1-800-221-5672 or write to a Fund at 1345 Avenue of
the Americas, New York, NY 10105.
2. Who is eligible to vote on the Acquisition?
Stockholders of record of AWDGF at the close of business on October 13, 2006
(the "Record Date") are entitled to notice of and to vote at the Meeting or any
adjournment or postponement of the Meeting. If you owned shares of AWDGF on the
Record Date, you have the right to vote even if you subsequently sold your
shares.
Each share is entitled to one vote. Shares represented by properly executed
proxies, unless revoked before or at the Meeting, will be voted according to
stockholders' instructions. If you sign and return a proxy card but do not fill
in a vote, your shares will be voted "FOR" the Acquisition. If any other
business properly comes before the Meeting, your shares will be voted at the
discretion of the persons named as proxies.
3. How will the Acquisition work?
The Plan provides for (i) the transfer of all of the assets of AWDGF to AWDGF
II, (ii) the assumption by AWDGF II of all of the liabilities of AWDGF and the
subsequent redemption of shares of AWDGF, (iii) the liquidating distribution to
AWDGF stockholders of shares of AWDGF II, equal in aggregate net asset value
("NAV") to the NAV of their former AWDGF shares and (iv) the dissolution of
AWDGF.
As a result of the Acquisition, stockholders of AWDGF will no longer hold
shares of AWDGF, and instead, will become stockholders of AWDGF II having the
same aggregate NAV as the shares of AWDGF that they held immediately before the
Acquisition. Please note that AWDGF stockholders who do not participate in
AWDGF's Dividend Reinvestment Plan will receive cash in lieu of fractional
shares. You will not be assessed any sales charges or other stockholder fees in
connection with the proposed Acquisition. The Acquisition will not occur unless
it is approved by the stockholders of AWDGF.
4
4. Why is the Acquisition being proposed?
Based on the recommendation of the Adviser, the Board of Directors of AWDGF
(the "Board") concluded that participation by AWDGF in the proposed Acquisition
is in the best interests of AWDGF and its stockholders. The Board also
concluded that the proposed Acquisition would not dilute stockholders'
interests. In reaching this conclusion, the Board considered, among other
things, the Funds' similar investment objectives and investment policies,
expense benefits for stockholders of AWDGF expected to result from the
Acquisition, the investment performance and trading history of the Funds, the
costs of the Acquisition, and the tax-free nature of the Acquisition.
5. When will the Acquisition take place?
If the stockholders of AWDGF approve the Acquisition on December 12, 2006, the
Acquisition is expected to take place in the first quarter of 2007.
6. Where May I Find Additional Information Regarding the Funds?
Additional information about the Funds is available in the Statement of
Additional Information ("SAI") dated October 27, 2006 that has been filed with
the Securities and Exchange Commission ("SEC") in connection with this
Prospectus/Proxy Statement. The SAI and each Fund's Annual Report to
Stockholders, which contain audited financial statements for the Funds'
respective fiscal years, are incorporated by reference into this
Prospectus/Proxy Statement. In addition, the Semi-Annual Report for AWDGF for
the six months ended April 30, 2006 and the Annual Report for AWDGF II for the
12 months ended March 31, 2006 are also incorporated by reference into this
Prospectus/Proxy Statement. To request a copy of any of these documents, please
call AllianceBernstein Investments, Inc. at (800) 227-4618.
All of this information is filed with the SEC. You may view or obtain these
documents from the SEC:
In person: at the SEC's Public Reference Room in Washington, D.C.
By phone: 202-551-8090 (for information on the operations of the Public
Reference Room only)
By mail: Public Reference Section, Securities and Exchange Commission,
Washington, DC 20549-0102 (duplicating fee required)
By electronic mail: publicinfo@sec.gov (duplicating fee required)
On the Internet: www.sec.gov
The shares of the Funds are listed and publicly traded on the New York Stock
Exchange ("NYSE") under the following symbols: AWDGF - "AWG" and AWDGF II -
"AWF." Reports, proxy statements and other information concerning the Funds may
be inspected at the offices of the NYSE. Additional copies of the annual and
semi-annual reports, as well as the Prospectus/Proxy Statement and SAI, are
available upon request without charge by writing to or calling the address and
telephone number listed below.
By Mail: AllianceBernstein Investor Services, Inc.
P.O. Box 786003
San Antonio, TX 78278-6003
By Phone: For Information: (800) 221-5672
For Literature: (800) 227-4618
Other Important Things to Note:
. You may lose money by investing in the Fund.
. The SEC has not approved or disapproved these securities or passed upon
the adequacy of this Prospectus/Proxy Statement. Any representation to
the contrary is a criminal offense.
5
PROPOSAL
APPROVAL OF AN AGREEMENT AND PLAN OF ACQUISITION AND LIQUIDATION
AMONG AWDGF II, AWDGF AND ALLIANCEBERNSTEIN L.P.
On September 13, 2006, the Board of Directors of AWDGF declared advisable
and voted to approve the Plan and the Acquisition, subject to the approval of
the stockholders of AWDGF. The Plan provides for (i) the transfer of all of the
assets of AWDGF to AWDGF II, (ii) the assumption by AWDGF II of all of the
liabilities of AWDGF, (iii) the liquidating distribution to AWDGF stockholders
of shares of AWDGF II, equal in aggregate NAV to the NAV of their former AWDGF
shares and (iv) the dissolution of AWDGF.
Each AWDGF stockholder will receive the number of full shares of AWDGF II,
plus fractional shares for stockholders that participate in a Dividend
Reinvestment and Cash Purchase Plan ("DRIP") and cash in lieu of any fractional
shares for non-DRIP participating stockholders, having an aggregate NAV that is
equal to the aggregate NAV of the stockholder's shares of AWDGF. Stockholders
of AWDGF will recognize no gain or loss, except with respect to any cash
received in lieu of fractional AWDGF II shares by non-DRIP participating
stockholders. If approved by stockholders of AWDGF, the Acquisition is expected
to occur in the first quarter of 2007.
An exchange of AWDGF shares for AWDGF II shares at NAV may result in AWDGF
stockholders' receiving AWDGF II shares with an aggregate market value on the
date of exchange that is higher or lower than the market value of their shares
immediately prior to the exchange. The reason for this difference is that the
market price for shares of the Funds in relation to their NAVs may be
different, i.e., a Fund's shares may trade at different discounts or premiums
to its NAV.
The stockholders of AWDGF must approve the Acquisition for it to occur.
Approval of the Acquisition requires the affirmative vote of the holders of a
majority of the votes entitled to be cast. The Acquisition does not require
approval of the stockholders of AWDGF II.
A quorum for the transaction of business by stockholders of AWDGF at the
Meeting will consist of the presence in person or by proxy of the holders of a
majority of the shares of AWDGF entitled to vote at the Meeting.
The Board of Directors of AWDGF concluded that participation by AWDGF in the
proposed Acquisition is in the best interests of AWDGF and its stockholders.
The Board also concluded that the proposed Acquisition would not dilute
stockholders' interests. In reaching this conclusion, the Board considered,
among other things, the similar investment strategies of the Funds, the expense
benefits for the stockholders expected to result from the Acquisition, the cost
thereof, and the tax-free nature of the Acquisition.
For a more complete discussion of the factors considered by the Board in
approving the Acquisition, see "Reasons for the Acquisition" in Information
About the Proposed Transaction.
6
SUMMARY
The following summary highlights differences between the Funds. This summary
is not complete and does not contain all of the information that you should
consider before voting on the Acquisition. For more complete information,
please read this entire document. Note that certain information is presented as
of March 31, 2006. At the September 13, 2006 Special Meeting of the Board of
Directors of AWDGF referred to below ("September 13 Special Meeting"), the
Adviser represented to the Board that, if the information was updated, it would
not differ in any material respect.
Comparison of Operating Expense Ratios
AWDGF, because of its small asset size, has higher operating costs and
therefore a higher expense ratio. The Acquisition is expected to result in an
operating expense ratio, excluding interest expense, for the combined Fund that
is lower than the current expense ratio of AWDGF. The current and estimated
combined Fund expense ratios, before interest expense, as of March 31, 2006,
are set forth below:
Projected Total
Total Operating Operating
Expense Ratio Expense Ratio
(as of March 31, 2006) Reduction
---------------------- ---------------
AWDGF 1.36% .34%
AWDGF II 1.03% .01%
Combined Fund 1.02% (pro forma) --
As the table indicates, the Acquisition would benefit AWDGF stockholders
through a sizeable reduction in expenses before interest expense. The Fee
Table, attached hereto as Appendix A, describes the fees and expenses of each
Fund as of March 31, 2006 and includes expenses for the combined Fund on a pro
forma basis assuming that the Acquisition is approved by stockholders of AWDGF.
Comparison of Investment Advisory Fees
Since October 1, 2005, the advisory fee rates for each of AWDGF and AWDGF II
are identical. The advisory fee rates for the Funds are as follows:
Advisory
Fee Rates
---------
AWDGF .90%
AWDGF II .90%*
Combined Fund .90%
--------
* The effective advisory fee rate for AWDGF II, as of March 31, 2006, was
.95%, which is a blended rate because prior to October 1, 2005, the Fund
paid the Adviser an advisory fee at an annual rate of 1.00%.
Comparison of Investment Objectives and Policies
The Funds' investment objectives and strategies are similar but AWDGF II has
a somewhat broader strategy that allows for investments of up to 20% of its
assets in corporate fixed-income securities. The following table shows the
Funds' investment objectives and certain principal investment strategies.
AWDGF AWDGF II
---------------------------------------- -------------------------------------------
Investment AWDGF's investment objective is to seek AWDGF II's primary investment ob-
Objective: high current income by investing ex- jective is to seek high current income. Its
clusively in fixed income securities de- secondary investment objective is capital
nominated in U.S. dollars. appreciation.
7
AWDGF AWDGF II
--------------------------------------------- ---------------------------------------------
Principal Investment . Under normal circumstances, the Fund . The Fund invests, under normal circum-
Strategies: invests at least 80% of its net assets in stances, at least 80% of its total assets
U.S. dollar-denominated debt obliga- in U.S. dollar-denominated debt secu-
tions issued or guaranteed by foreign rities issued or guaranteed by foreign
governments and zero coupon obliga- governments, including Sovereign
tions issued or guaranteed by the U.S. Debt Obligations.
Government, its agencies or in- . The Fund may invest up to 20% of its
strumentalities, including participation total assets in U.S. corporate fixed in-
in loans between foreign governments come securities.
and financial institutions, and interests . Substantially all of the Fund's assets
in entities organized and operated for are invested in high yield, high risk
the purpose of restructuring the (i.e., below investment grade) debt
investment characteristics of instru- securities.
ments issued or guaranteed by foreign
governments ("Sovereign Debt
Obligations").
. Under normal circumstances, the Fund
invests at least 75% of its total assets
in (i) Sovereign Debt Obligations and
(ii) Zero Coupon Obligations.
. Substantially all of the Fund's assets
are invested in high yield, high risk
(i.e., below investment grade) debt
securities.
As the table above shows, each Fund invests a majority of its assets in
Sovereign Debt Obligations. In addition, the Funds are subject to similar
investment strategies and have the same portfolio management team. However, as
noted above, AWDGF II may invest up to 20% of its total assets in U.S.
corporate fixed income securities whereas AWDGF normally does not invest in
corporate fixed-income securities. A more detailed comparison of the investment
strategies and policies of the Funds is provided in Appendix B. You can find
additional information on the Funds in the SAI.
At the Special Meeting of the Board of Directors of AWDGF II held on
September 13, 2006, the Board of Directors of AWDGF II approved a change in
AWDGF II's investment policies to allow it to invest in
non-U.S. Dollar-denominated debt securities as well as U.S. Dollar-denominated
debt securities. Under the policies approved by the Board, AWDGF II would also
be able to invest without limit in emerging market and developed market
government securities as well as in debt securities of U.S. and non-U.S.
corporate issuers. The Adviser expects that these broader guidelines will allow
the combined Fund access to broader investment opportunities over time. The
combined Fund will continue to invest a substantial portion of its assets in
high yield, below investment grade securities. In connection with these policy
changes, the Board approved a change in AWDGF II's name to AllianceBernstein
Global High Income Fund, Inc.
The contemplated policy changes are dependent on AWDGF II's stockholders
approving the elimination of a fundamental policy that requires AWDGF II to
invest at least 65% of its assets in U.S. Dollar-denominated Sovereign Debt
Obligations. The 65% limitation policy would not permit the combined Fund to
invest, without limit, in non-U.S. Dollar-denominated debt securities. The
Acquisition is not contingent on AWDGF II's stockholders approving the
elimination of this fundamental policy. If the proposal is not approved by its
stockholders, AWDGF II's investment guidelines will be expanded only with
respect to 35% of its assets. The Board believes that AWDGF stockholders should
benefit over time from the broadened investment mandate of AWDGF II, regardless
of whether the elimination of the fundamental policy is approved by AWDGF II's
stockholders. However, AWDGF stockholders should recognize that AWDGF II's
broader investment universe, both now and as it is proposed to be further
broadened, involves greater risk than that of AWDGF.
8
In connection with the Acquisition, at the September 13 Special Meeting, the
Board of Directors of AWDGF approved adoption of a new policy, upon approval of
the Acquisition, that AWDGF may invest up to 20% of its net assets in corporate
fixed income securities, which include debt securities, convertible securities
and preferred stocks of corporate issuers. In addition to the adoption of that
policy, the Board of Directors also granted the Adviser the authority to
operate AWDGF pursuant to the same investment policies and restrictions that
govern AWDGF II. Each of the foregoing changes is subject to AWDGF stockholders
approving the Acquisition.
The intent of these changes is to allow the repositioning of AWDGF's
portfolio to align it with the broader investment strategies of AWDGF II prior
to the effective date of the Acquisition. The costs of the portfolio
repositioning are expected to be approximately $75,000, or $0.01 per share.
Upon the recommendation of the Adviser, the Board determined that it would be
appropriate for AWDGF to pay the costs of the portfolio repositioning because
AWDGF's stockholders would derive the greatest benefits from the Acquisition.
Principal Risks
Each Fund is subject to market risk, interest rate risk, foreign risk,
emerging markets risk, and currency risk. A description of each of these and
other risks is provided in Appendix C.
Federal Income Tax Consequences
No gain or loss will be recognized by the AWDGF stockholders except with
respect to cash received in lieu of fractional shares of AWDGF II by non-DRIP
stockholders, as a result of the Acquisition. The aggregate tax basis of the
shares of AWDGF II received by a stockholder of AWDGF (including any fractional
shares to which the stockholder may be entitled) will be the same as the
aggregate tax basis of the stockholder's shares of AWDGF, decreased by any cash
received and increased by any gain recognized with respect to cash received in
lieu of fractional shares by non-DRIP stockholders. The holding period of the
shares of AWDGF II received by a stockholder of AWDGF (including any fractional
shares to which the stockholder may be entitled) will include the holding
period of the shares of AWDGF held by the stockholder, provided that such
shares are held as capital assets by the stockholder of AWDGF at the time of
the Acquisition. The holding period and tax basis of each asset of AWDGF in the
hands of AWDGF II as a result of the Acquisition will be the same as the
holding period and tax basis of each such asset in the hands of AWDGF prior to
the Acquisition. Any gain or loss realized by a stockholder of AWDGF upon
receipt of cash in lieu of fractional shares of AWDGF II by non-DRIP
stockholders will be recognized by the stockholder and measured by the
difference between the amount of cash received and the basis of the fractional
share and, provided that the AWDGF shares surrendered constitute capital assets
in the hands of the stockholder, will be capital gain or loss. This tax
information is based on the advice of Seward & Kissel LLP, counsel to each of
the Funds. It is a condition to the closing of the Acquisition that such advice
be confirmed in a written opinion of counsel. An opinion of counsel is not
binding on the Internal Revenue Service.
AWDGF has realized capital gains and capital loss carryforwards, which would
partially offset these gains leaving no capital loss carryforwards that would
be transferred in the Acquisition. It is anticipated that AWDGF will make a
distribution of capital gains to stockholders prior to the closing of the
Acquisition.
The per share amount of capital loss carryforwards of AWDGF II before the
Acquisition, as of March 31, 2006, was $1.15 per share and, after giving effect
to the Acquisition as if it occurred on such date, the per share amount of
capital loss carryforwards of the combined Fund will be $1.02 per share. The
decrease in per share amount is due to the spreading of losses remaining
available over the merged share base based on the estimated share conversion
ratio. AWDGF's stockholders would potentially benefit from the increased amount
of losses available, but, as a practical matter, we do not believe that this
will affect AWDGF's stockholders since we do not expect the redeployment of the
combined Fund's assets or its continuing investments to result in substantial
capital gains.
Service Providers
The Funds have the same service providers, which will continue in their
capacity after the Acquisition.
9
Comparison of Stockholder Services
The stockholder services of each Fund are generally the same. The DRIP,
which is available to the Funds' stockholders, provides automatic reinvestment
of dividends and capital gain distributions in additional Fund shares. The DRIP
also allows stockholders to make optional cash investments in Fund shares
through a plan agent. Assuming the Acquisition is approved, the DRIP
stockholders of AWDGF will automatically be enrolled in the DRIP for AWDGF II.
A more detailed discussion of the DRIP and other stockholder services and
procedures is provided in Appendix D.
Comparison of Business Structures
Each Fund is organized as a Maryland corporation and is governed by its
Charter, Bylaws and Maryland law. Generally, there are no significant
differences between the Funds in terms of their respective corporate
organizational structure. For more information on the comparison of the
business structure of the Funds, see Appendix D.
10
INFORMATION ABOUT THE PROPOSED TRANSACTION
Introduction
This Prospectus/Proxy Statement is provided to you to solicit your proxy for
exercise at the Meeting to approve the acquisition of the assets and assumption
of the liabilities of AWDGF by AWDGF II and the subsequent liquidation and
dissolution of AWDGF. The Meeting will be held at 1345 Avenue of the Americas,
41st Floor, New York, New York 10105 at 11:30 a.m., Eastern Time, on
December 12, 2006. This Prospectus/Proxy Statement, the accompanying Notice of
the Special Meeting of Stockholders and the enclosed proxy card are being
mailed to stockholders of AWDGF on or about October 27, 2006.
Description of the Plan
As provided in the Plan, AWDGF II will acquire all the assets and assume all
the liabilities of AWDGF at the effective time of the Acquisition (the
"Effective Time"). In return, AWDGF II will issue, and AWDGF will distribute to
its stockholders, a number of full and fractional shares of AWDGF II (and cash
in lieu of fractional shares for non-DRIP stockholders), determined by dividing
the net value of all the assets of AWDGF by the NAV of one share of AWDGF II.
For this purpose, the Plan provides the times for and methods of determining
the net value of the assets of each Fund. The Plan provides that stockholders
of AWDGF will be credited with shares of AWDGF II (or cash in lieu of
fractional shares for non-DRIP stockholders) corresponding to the aggregate NAV
of the AWDGF's shares that the stockholder holds of record at the Effective
Time.
Following the distribution of shares of AWDGF II in full liquidation of
AWDGF, AWDGF will wind up its affairs, and liquidate and dissolve as soon as is
reasonably practicable after the Acquisition. In the event the Acquisition does
not receive the required stockholder approval, AWDGF will continue its
operations and its Directors will consider what future action, if any, is
appropriate.
The projected expenses of the Acquisition, largely those for legal,
accounting, printing and proxy solicitation expenses, are estimated to total
approximately $236,000, or $0.03 per share, and will be borne by AWDGF.
The Acquisition is expected to occur in the first quarter of 2007. The
Acquisition is conditioned upon approval of the Plan by AWDGF stockholders and
AWDGF satisfying the terms of the Plan. Under applicable legal and regulatory
requirements, none of AWDGF's stockholders will be entitled to exercise
objecting stockholders' appraisal rights, i.e., to demand the fair value of
their shares in connection with the Acquisition. Therefore, stockholders will
be bound by the terms of the Acquisition under the Plan. However, any
stockholder of AWDGF may sell shares of the Fund's common stock on the NYSE
prior to the Acquisition. The shares of AWDGF may cease trading on the NYSE
beginning several days prior to the date of the Acquisition. Any cessation of
trading will be accomplished in compliance with NYSE rules, including issuance
of a press release.
After the Acquisition, AWDGF's shares of common stock will be removed from
listing on the NYSE. In addition, AWDGF's shares of common stock will be
withdrawn from registration under the Securities Exchange Act of 1934 and AWDGF
will deregister as an investment company under the Investment Company Act of
1940, as amended (the "1940 Act") and will dissolve under Maryland law.
Completion of the Acquisition is subject to certain conditions set forth in
the Plan, some of which may be waived by a party to the Plan. The Plan may be
amended in any mutually agreed manner, except that no amendment may be made
subsequent to stockholder approval of the Acquisition that materially alters
the obligations of either party. The parties to the Plan may terminate the Plan
by mutual consent and either party has the right to terminate the Plan under
certain circumstances. Among other circumstances, either party may at any time
terminate the Plan unilaterally upon a determination by the party's Board of
Directors that proceeding with the Plan is not in the best interests of the
Fund or its stockholders.
A copy of a form of the Plan is attached as Appendix E.
11
Reasons for the Acquisition
At the September 13 Special Meeting, the Adviser recommended that the Board
of Directors of AWDGF approve and recommend to the Fund's stockholders for
their approval the proposed Plan and the Acquisition. The Directors considered
the factors discussed below from the point of view of the interests of the Fund
and its stockholders. After careful consideration, the Board of Directors
(including all Directors who are not "interested persons" of the Fund, the
Adviser or its affiliates) determined that the Acquisition would be in the best
interests of the Fund's stockholders and that the interests of existing
stockholders of the Fund would not be diluted as a result of the Acquisition.
The Directors of AWDGF approved the Plan and the Acquisition and recommended
that the stockholders of AWDGF vote in favor of the Acquisition by approving
the Plan.
The Adviser presented the following reasons in favor of the Acquisition:
. The Funds date back to 1992-93, when they were launched in close
succession. AWDGF's current assets are, as of March 31, 2006, $129
million. AWDGF II's current assets are, as of March 31, 2006, $984
million. AWDGF II was modeled after AWDGF and has similar investment
objectives, with a somewhat broader strategy that allows for investments
in corporate fixed-income securities.
. The Adviser discussed with the Board that it believes that the
Acquisition of AWDGF, which is a smaller fund with higher operating
expenses, by its larger counterpart, AWDGF II, would benefit the Fund and
its stockholders. AWDGF and AWDGF II have similar investment strategies
of primarily investing in U.S. Dollar-denominated Sovereign Debt
Obligations. The Adviser believes that AWDGF's stockholders would benefit
from the somewhat broader strategy of AWDGF II because it may also invest
in corporate securities. The Adviser believes that this benefit would be
augmented by virtue of the policy changes that it recommended to, and
were approved by, the Board, which would permit AWDGF II to also invest
in non-U.S. Dollar-denominated debt securities.
. The Adviser discussed that, historically, there has been some disparity
between the Funds' respective performances at NAV, with AWDGF II
generally outperforming AWDGF. The Adviser believes that these
disparities are primarily due to AWDGF II's ability to invest in
corporate debt and its lower expenses. As of July 31, 2006, AWDGF II's
cumulative return for year-to-date, and average annual total returns for
1, 3, 5 and 10 years outperformed AWDGF's returns for the same periods.
The five-year annualized return, for example, was .81% higher for AWDGF
II. On a calendar year basis, AWDGF II outperformed AWDGF in seven of the
last ten years.
At the September 13 Special Meeting, the Directors (with the advice and
assistance of independent counsel) also considered, among other things:
. potential stockholder benefits including (i) the fact that total expenses
before interest expense of the combined Fund would be significantly lower
than the current expenses before interest expense of AWDGF and (ii) the
potential for AWDGF's stockholders to benefit from increased earnings of
the combined Fund due to the higher earnings of AWDGF II, and (iii) the
redeployment of AWDGF's portfolio immediately prior to the Acquisition to
take advantage of AWDGF II's ability to invest in corporate debt
securities;
. the current asset levels of AWDGF and the combined pro forma asset levels
of AWDGF II;
. the historical investment performance of the Funds, including the fact
that AWDGF II's investment performance over time has been better than
that of AWDGF;
. the similar investment objectives and principal investment strategies of
the Funds, as well as the fact that AWDGF II may also invest in corporate
fixed income securities and the proposed change to AWDGF II's fundamental
and non-fundamental investment policies discussed above;
. the distribution and trading history of the two Funds, including the fact
that the trading price of AWDGF II's common stock compared to its NAV
has, over time and currently, been somewhat more favorable than that of
AWDGF (trading price information for the two Funds is provided in
Appendix G);
12
. the amount and type of leverage used by the two Funds;
. the tender offer/repurchase policies of the two Funds, which are very
similar; and
. the portfolio management team, which is the same for AWDGF and AWDGF II,
and will continue to manage the combined portfolios after the Acquisition.
The Directors also considered, among other things:
. the historical and pro forma tax attributes of AWDGF , including that
AWDGF has realized gains and no loss carryforwards and that AWDGF II has
sizeable capital loss carryforwards, although the availability of these
capital loss carry forwards in the combined Fund may not be meaningful
because it is not expected that the redeployment of the Fund's assets or
its continuing investments would result in substantial capital gains;
. the form of the Plan and the terms and conditions of the Acquisition;
. the fact that the Funds have identical advisory fees;
. whether the Acquisition would result in the dilution of stockholders'
interests;
. the number of stockholder accounts and average account sizes of the Funds;
. changes in service providers that would result from the Acquisition;
. the fact that realignment of the investment holdings of AWDGF before the
effective date of the Acquisition is anticipated and associated costs
would be borne by AWDGF;
. the benefits of the Acquisition to persons other than AWDGF and its
stockholders, in particular, the Adviser, which will benefit from the
elimination of monitoring and administering AWDGF, a relatively small
fund that is duplicative of its substantially similar and larger
counterpart, AWDGF II;
. the fact that AWDGF II will assume all the liabilities of AWDGF ;
. the expected federal income tax consequences of the Acquisition;
. whether the Acquisition would be preferable to acquisition by potential
acquirers other than AWDGF II, including funds that are not sponsored by
the Adviser;
. the fact that the costs of the Acquisition will be borne by AWDGF; and
. the fact that the Adviser has agreed to indemnify AWDGF II for a
three-year period against any undisclosed or other liability of AWDGF, to
reimburse AWDGF II for any costs in connection with investigating any
such liability and to continue certain insurance coverage for AWDGF for a
three-year period.
Also at the September 13 Special Meeting, the Board of Directors of AWDGF II
(comprised of the same persons as the Board of AWDGF) approved the proposed
Plan. No vote of stockholders of AWDGF II is required in connection with the
Acquisition.
Description of Securities to be Issued
Under the Plan, AWDGF II will issue additional shares of common stock for
distribution to AWDGF. Under its Charter and Bylaws, AWDGF II may issue up to
100,000,000 shares of common stock, par value $.01 per share. Each share of
AWDGF II represents an equal proportionate interest with other shares of the
Fund. Each share has equal earnings, assets and voting privileges and is
entitled to dividends and other distributions out of the income earned and gain
realized on the assets belonging to the Fund as authorized by the Board of
Directors. Shares of AWDGF II entitle their holders to one vote per full share
and fractional votes for fractional shares held. Shares of AWDGF II issued in
the Acquisition will be fully paid and non-assessable.
13
Dividends and Other Distributions
On or before the Closing Date, as defined in the Plan, AWDGF will, if
necessary, declare and pay as a distribution substantially all of its
undistributed net investment income, net short-term capital gain, net long-term
capital gain and net gains from foreign currency transactions, as applicable,
to maintain its treatment as a regulated investment company.
Surrender and Exchange of AWDGF Stock Certificates
After the Plan's Effective Time, each holder of a certificate (or
certificates) formerly representing shares of AWDGF will be entitled to
receive, upon surrender of the certificate, a certificate representing the
number of AWDGF II shares distributable as a result of the Acquisition.
Promptly, after the Plan's Effective Time, Computershare Trust Company, N.A.
will mail to AWDGF's certificate holders instructions and a letter of
transmittal for use in surrendering the certificates. Please do not send share
certificates at this time. Although the certificates will be deemed for all
purposes to evidence ownership of the equivalent number of AWDGF II shares, no
dividends will be paid to holders of certificates of AWDGF until the holder
surrenders the certificates in accordance with the instructions and letter of
transmittal. Any dividends on AWDGF II shares payable after the Effective Time,
will be paid to the certificate holder, without interest, when that holder
surrenders an AWDGF share certificate for exchange.
Each AWDGF stockholder will receive the number of full shares of AWDGF II,
plus fractional shares for stockholders that participate in a DRIP and cash in
lieu of any fractional shares for non-DRIP stockholders, having an aggregate
NAV that, on the effective date of the Acquisition, is equal to the aggregate
NAV of the stockholder's shares of AWDGF II. Stockholders of AWDGF will
recognize no gain or loss, except with respect to any cash received in lieu of
fractional AWDGF II shares by non-DRIP stockholders.
Federal Income Tax Consequences
Subject to certain stated assumptions contained therein, the Funds will
receive an opinion of Seward & Kissel LLP, its counsel, substantially to the
following effect: (i) the Acquisition will constitute a "reorganization" within
the meaning of section 368(a) of the Code and that the Funds will each be "a
party to a reorganization" within the meaning of section 368(b) of the Code;
(ii) a stockholder of AWDGF will recognize no gain or loss on the exchange of
the stockholder's shares of AWDGF solely for shares of AWDGF II, except with
respect to cash received in lieu of a fractional share of AWDGF II by non-DRIP
stockholders in connection with the Acquisition; (iii) neither AWDGF nor AWDGF
II will recognize any gain or loss upon the transfer of all of the assets of
AWDGF to AWDGF II in exchange for shares of AWDGF II (plus cash in lieu of
certain fractional shares by non-DRIP stockholders) and the assumption by AWDGF
II of the liabilities of AWDGF pursuant to a Plan or upon the distribution of
shares of AWDGF II to stockholders of AWDGF (and cash to non-DRIP stockholders
for their fractional shares) in exchange for shares of AWDGF; (iv) the holding
period and tax basis of the assets of AWDGF acquired by AWDGF II will be the
same as the holding period and tax basis that AWDGF had in such assets
immediately prior to the Acquisition; (v) the aggregate tax basis of shares of
AWDGF II received in connection with the Acquisition by each stockholder of
AWDGF (including any fractional share to which the stockholder may be entitled)
will be the same as the aggregate tax basis of the shares of AWDGF surrendered
in exchange therefore, decreased by any cash received by non-DRIP stockholders
and increased by any gain recognized on the exchange; (vi) the holding period
of shares of AWDGF II received in connection with the Acquisition by each
stockholder of AWDGF (including any fractional share to which the stockholder
may be entitled) will include the holding period of the shares of AWDGF
surrendered in exchange therefor, provided that such AWDGF shares constitute
capital assets in the hands of the stockholder as of the Closing Date;
(vii) AWDGF II will succeed to the capital loss carryovers of AWDGF, if any,
under section 381 of the Code, but the use by AWDGF II of any such capital loss
carryovers (and of capital loss carryovers of AWDGF II) may be subject to
limitation under section 383 of the Code; and (viii) any gain or loss realized
by a non-DRIP stockholder of AWDGF upon the receipt of cash for a fractional
share of AWDGF II to which the stockholder is entitled will be recognized to
the stockholder and measured by the difference between the amount of cash
received and the basis of the fractional share and, provided that the AWDGF
shares surrendered constitute capital assets in the hands of
14
the stockholder, will be capital gain or loss. This opinion of counsel will not
be binding on the Internal Revenue Service or a court and there is no assurance
that the Internal Revenue Service or a court will not take a view contrary to
those expressed in the opinion.
Stockholders of AWDGF are encouraged to consult their tax advisers regarding
the effect, if any, of the Acquisition in light of their individual
circumstances. Because the foregoing only relates to the federal income tax
consequences of the Acquisition, those stockholders also are encouraged to
consult their tax advisers as to state and local tax consequences, if any, of
the Acquisition.
Capitalization Information
For information on the existing and pro forma capitalization of the Funds,
see Appendix F.
Trading History and Share Price Data
For information on the trading history and share price data for the Funds,
see Appendix G.
INFORMATION ABOUT THE FUNDS
AWDGF and AWDGF II are each a non-diversified, closed-end management
investment company registered under the 1940 Act and organized as a Maryland
corporation in 1992 and 1993, respectively.
Management of the Funds
The Board of Directors of each Fund directs the management of the business
and affairs of the Fund. Each Board of Directors approves all significant
agreements between the respective Fund and persons or companies furnishing
services to it, including a Fund's agreements with the Adviser and the Fund's
administrator, custodian and transfer and dividend disbursing agent. The
day-to-day operations of a Fund are delegated to its officers and the Fund's
Adviser, subject to the Fund's investment objective and policies and to general
supervision by the Fund's Board of Directors. Subsequent to the consummation of
the Acquisition, the directors and officers of AWDGF II will continue to serve
as the directors and officers of the combined Fund. Messrs. Paul J. DeNoon,
Fernando Grisales, Michael Mon, Douglas Peebles and Matthew Sheridan, members
of the Adviser's Global Fixed Income Emerging Market Investment Team, are
primarily responsible for day-to-day management of AWDGF's and AWDGF II's
portfolios. Mr. DeNoon is a Senior Vice President of the Adviser with which he
has been associated since prior to 2001. Mr. Grisales is an Assistant Vice
President of the Adviser with which he has been associated since October 2001.
Messrs. Mon and Sheridan are Vice Presidents of the Adviser with which they
have been associated since prior to 2001. Mr. Peebles is an Executive Vice
President of the Adviser with which he has been associated since prior to 2001.
Subsequent to the consummation of the Acquisition, Messrs. DeNoon, Grisales,
Mon, Peebles and Sheridan will continue to be primarily responsible for
day-to-day management of the combined Fund.
The SAI provides additional information about the portfolio managers'
compensation, other accounts managed by the portfolio managers, and the
portfolio managers' ownership of securities in AWDGF II.
Advisory Agreement and Fees
Each Fund's investment adviser is AllianceBernstein L.P., 1345 Avenue of the
Americas, New York, New York 10105. The Adviser is a leading international
investment adviser managing client accounts with assets as of June 30, 2006
totaling more than $625 billion (of which more than $88 billion represented the
assets of investment companies). As of June 30, 2006, the Adviser managed
retirement assets for many of the largest public and private employee benefit
plans (including 41 of the nations' FORTUNE 100 companies), for public employee
retirement funds in 37 states, for investment companies, and for foundations,
endowments, banks and insurance companies worldwide. The 45 registered
investment companies managed by the Adviser, comprising 126 separate investment
portfolios, currently have approximately 4.0 million stockholder accounts.
15
Under each Fund's advisory agreement with the Adviser (the "Advisory
Agreement"), the Adviser provides office space, 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.
Under the Advisory Agreements of AWDGF and AWDGF II, each of the Funds pays the
Adviser an advisory fee at an annual rate of .90% of its average weekly net
assets. Prior to October 1, 2005, each of the Funds paid the Adviser an
advisory fee at an annual rate of 1.00% of its average weekly net assets. Such
fee is accrued daily and paid monthly.
The Advisory Agreements by their terms continue in effect from year to year
if such continuance is specifically approved, at least annually, by a majority
vote of the directors of a Fund who neither are interested persons of the Fund
nor have any direct or indirect financial interest in the Advisory Agreement,
cast in person at a meeting called for the purpose of voting on such approval.
A discussion regarding the basis for the Board of Directors approving the
investment advisory contracts of AWDGF and AWDGF II is available in AWDGF's
Annual Report to Stockholders for AWDGF's fiscal year ended October 31, 2005
and AWDGF II's Semi-Annual Report for the six months ended September 30, 2005,
respectively.
The Adviser is the subject of certain legal proceedings instituted by the
SEC and the Office of the New York Attorney General. A discussion of those
proceedings is presented in Appendix H.
Administrator
Under administration agreements, the Adviser serves as administrator for
AWDGF and AWDGF II. Under the administration agreements, the Adviser performs
standard administration services for the Funds.
Pursuant to an Administration Agreement, effective October 1, 2005, each of
AWDGF and AWDGF II pays the Adviser an administrative fee in the amount of
$106,000 and $107,000 per year, respectively, for its costs incurred for
providing administrative services, however that the reimbursement may not
exceed the prior fee of .15% of average weekly net assets. Prior to October 1,
2005, each of the Funds paid the Adviser an administration fee at an annual
rate of .15% of its average weekly net assets.
Other Service Providers
AllianceBernstein Investor Services, Inc. ("ABIS"), an affiliate of the
Adviser, provides stockholder services for the Funds. The Funds compensate ABIS
for these services. The Bank of New York, One Wall Street, New York, NY 10286,
serves as custodian for AWDGF and AWDGF II. Computershare Trust Company N.A.
(formerly known as Equiserve Trust Company), P.O. Box 43010, Providence, RI
02940, serves as the Funds' transfer agent. The Bank of New York and
Computershare Trust Company will serve, respectively, as custodian and transfer
agent for the combined Fund. Ernst & Young LLP serves as the Funds' independent
registered public accounting firm.
16
VOTING INFORMATION
The Board of Directors of AWDGF has fixed the close of business on
October 13, 2006 as the Record Date for the determination of stockholders
entitled to notice of, and to vote at, the Meeting and at any adjournments
thereof. Appendix I to this Prospectus/Proxy Statement lists the total number
of AWDGF's shares outstanding as of August 15, 2006. It also identifies holders
of more than five percent of shares of each Fund, and contains information
about the executive officers and Directors of each Fund and their shareholdings
in each Fund.
Those stockholders who hold shares directly and not through a broker or
nominee (that is, a stockholder of record) may authorize their proxies to cast
their votes by completing a proxy card and returning it by mail in the enclosed
postage-paid envelope as well as telephoning toll free 1-800-331-5817. Owners
of shares held through a broker or nominee (who is the stockholder of record
for those shares) should follow directions provided to the stockholder by the
broker or nominee to submit voting instructions. Instructions to be followed by
a stockholder of record to submit a proxy via telephone, including use of the
Control Number on the stockholder's proxy card, are designed to verify
stockholder identities, to allow stockholders to give voting instructions and
to confirm that stockholder instructions have been recorded properly.
Stockholders who authorize proxies by telephone should not also return a proxy
card. A stockholder of record may revoke that stockholder's proxy at any time
prior to exercise thereof by giving written notice to the Secretary of the
applicable Fund at 1345 Avenue of the Americas, New York, New York 10105, by
authorizing a later-dated proxy (either by signing and mailing another proxy
card or, by telephone as indicated above), or by personally attending and
voting at the Meeting.
Properly executed proxies may be returned with instructions to abstain from
voting or to withhold authority to vote (an "abstention") or represent a broker
"non-vote" (which is a proxy from a broker or nominee indicating that the
broker or nominee has not received instructions from the beneficial owner or
other person entitled to vote shares on a particular matter with respect to
which the broker or nominee does not have the discretionary power to vote).
Approval of the Proposal requires the affirmative vote of the holders of a
majority of the votes entitled to be cast. Abstentions and broker non-votes
will be considered present for purposes of determining the existence of a
quorum for the transaction of business but will have the effect of a vote
against the Proposal.
If any proposal, other than the Proposal, properly comes before the Meeting,
the shares represented by proxies will be voted on all such proposals in the
discretion of the person or persons voting the proxies. AWDGF has not received
notice of, and is not aware of, any other matter to be presented at the Meeting.
A quorum for the transaction of business by stockholders of AWDGF at the
Meeting will consist of the presence in person or by proxy of the holders of a
majority of the shares of the Fund entitled to vote at the Meeting. In the
event that a quorum is not represented at the Meeting or, even if a quorum is
so present, in the event that sufficient votes in favor of the position
recommended by the Board of Directors on the Proposal are not timely received,
the Chairman of the Board of Directors may authorize, or the persons named as
proxies may propose and vote for, one or more adjournments of the Meeting with
no other notice than announcement at the Meeting, up to 120 days after the
Record Date, in order to permit further solicitation of proxies. Shares
represented by proxies indicating a vote against the Proposal will be voted
against adjournment.
AWDGF has engaged The Altman Group, Inc. (the "Proxy Solicitor"), 60 East
42nd Street, Suite 405, New York, New York 10165 to assist in soliciting
proxies for the Meeting. The Proxy Solicitor will receive a fee of
approximately $14,000 from the Fund for its solicitation services, plus
reimbursement of out-of-pocket expenses.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for AWDGF by
Seward & Kissel LLP. Seward & Kissel LLP will rely upon the opinion of Venable
LLP for certain matters relating to Maryland law.
17
EXPERTS
The audited financial statements and financial highlights in the
Prospectus/Proxy Statement and the SAI have been included in reliance on the
report of Ernst & Young LLP, the independent registered public accounting firm
for the Funds, 5 Times Square, New York, NY 10036, given on its authority as
experts in auditing and accounting.
FINANCIAL HIGHLIGHTS
Financial highlights information for the Funds is available at Appendix J.
THE DIRECTORS RECOMMEND THAT YOU VOTE FOR THE
ACQUISITION OF THE ASSETS AND LIABILITIES OF ALLIANCE WORLD DOLLAR GOVERNMENT
FUND, INC. BY ALLIANCE WORLD DOLLAR GOVERNMENT FUND II, INC.
AND THE DISSOLUTION OF ALLIANCE WORLD DOLLAR GOVERNMENT
FUND, INC.
18
APPENDIX A
FEE TABLE
The purpose of the tables below is to assist an investor in understanding
the various costs and expenses that a stockholder bears directly and indirectly
from an investment in the Funds. The tables allow you to compare the sales
charges and expenses of each Fund as of March 31, 2006, and the estimates for
the pro forma combined Fund in its first year following the Acquisition.
AWDGF II
AWDGF AWDGF II (pro forma)
----- -------- -----------
Shareholder Transaction Expenses
Sales Load (as a percentage of offering price) None None None
Dividend Reinvestment Plan Fees(a) None None None
Annual Expenses (as a percentage of net assets attributable to
common shares)
Management Fees .90% .90% .90%
Interest Payments on Borrowed Funds .09% .08% .08%
Other Expenses .46% .13% .12%(b)
Total Annual Expenses(c) 1.45% 1.11% 1.10%
Total Annual Expenses Net of Interest Payment on Borrowed
Funds 1.36% 1.03%(d) 1.02%
--------
(a)There are no charges with respect to shares issued directly by a Fund to
satisfy the dividend reinvestment requirements. However, each participant
will pay a pro-rata share of brokerage commissions incurred with respect to
a Fund's dividend reinvestment plan agent's open market purchases of shares.
In each case, the cost per share of shares purchased for each stockholder's
account will be the average cost, including brokerage commissions, of any
shares purchased in the open market plus the cost of any shares issued by a
Fund.
(b)Based on estimated expenses.
(c)In connection with the Acquisition, there are certain other transaction
expenses, largely those for legal, accounting, printing and proxy
solicitation expenses, and costs associated with the repositioning of
AWDGF's portfolio to align it with the investment strategies of AWDGF II
prior to the effective date of the Acquisition. The Board of Directors of
each Fund reviewed the fees and expenses that will be borne directly or
indirectly by the Funds in connection with the Acquisition. After
considering various alternatives for allocating these costs, the Board of
Directors of AWDGF agreed that, in the event the Acquisition is approved and
completed, the Acquisition and portfolio repositioning costs will be borne
by AWDGF because it will derive significant benefits as a result of the
Acquisition. The Fund would bear these costs even if the Acquisition is not
approved by AWDGF stockholders. The table below summarizes each Fund's net
assets at March 31, 2006, projected annual savings as a result of the
Acquisition, allocation of the Acquisition and portfolio repositioning costs
to AWDGF in dollars and percentages, an estimated pay-back period (in years)
and the resulting effect on each Fund's NAV per share at March 31, 2006. The
projected annual expense savings are generally not expected to be
immediately realized. If an AWDGF stockholder sells his or her shares prior
to the estimated pay-back period, then that stockholder may not realize any
of the projected expense savings resulting from the reduced expense ratio of
the combined Fund. The NAV per share of AWDGF will be reduced at the closing
date of the Acquisition to reflect the allocation of the Acquisition and
portfolio repositioning costs to AWDGF. The numbers presented in the table
are estimates; actual results may differ.
Projected Acquisition and Portfolio Estimated
Annual Repositioning Costs Payback Period Effect on NAV
Net Assets Savings (Dollars/Percentage) (In Years) per Share
------------ --------- ------------------------- -------------- -------------
AWDGF $129,364,129 $439,838 311,000/100% 0.71 .035
AWDGF II 983,787,664 98,379 0/0%
Total Expenses 311,000/100%
(d)Assumes that the current lower advisory fee and the conversion of the
administrative fee from a fixed fee to a reimbursement of expenses subject
to a 0.15% cap were in effect for a full year.
19
EXAMPLE
You would pay the following on a $1,000 investment assuming a 5% annual
return. The Example assumes the reinvestment of all dividends and distributions
at net asset value and reflects all recurring and nonrecurring fees.
AWDGF II
AWDGF AWDGF II (pro forma)
----- -------- -----------
After 1 Year $ 15 $ 11 $ 11
After 3 Years $ 46 $ 35 $ 35
After 5 Years $ 79 $ 61 $ 61
After 10 Years $174 $135 $134
The projected post-Acquisition pro forma Annual Fund Expenses and Example
presented above are based upon numerous material assumptions, including that
(1) the current contractual agreements will remain in place and (2) certain
fixed costs involved in operating the AWDGF are eliminated. Although these
projections represent good faith estimates, there can be no assurance that any
particular level of expenses or expense savings will be achieved, because
expenses depend on a variety of factors, including the future level of fund
assets, many of which are beyond the control of AWDGF II or the Adviser.
Consequently, the Example should not be considered a representation of future
expenses. Actual expenses may be greater or less than those shown.
20
APPENDIX B
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
Investment Objective
AWDGF AWDGF II Differences
------------------------------- -------------------------------- ------------------------------
Investment The Fund's investment ob- The Fund's primary invest- As a practical matter, the
Objective jective is to seek high current ment objective is to seek high Funds' primary investment
income by investing ex- current income. Its secondary objectives are identical.
clusively in fixed income investment objective is capital
securities denominated in appreciation. (F)
U.S. dollars. (F)
Investment Policies/1/
Status The Fund is non-diversified. The Fund is None.
non-diversified.
Investment The Fund will invest, under The Fund will normally invest As a practical matter, the
Policies normal circumstances, at least at least 80% of its total assets Funds' investment policies
80% of its net assets in U.S. in U.S. dollar-denominated are substantially the same
dollar denominated debt obli- debt securities issued or guar- because both Funds invest
gations issued or guaranteed anteed by foreign govern- primarily in Sovereign Debt
by foreign governments and ments, including Obligations, with the ex-
zero coupon obligations is- participations in loans be- ception that AWDGF II may
sued or guaranteed by the tween foreign governments also invest in corporate fixed
U.S. Government, its agencies and financial institutions and income securities.
or instrumentalities. interests in entities organized
and operated for the purpose
Under normal circumstances, of restructuring the invest-
the Fund invests at least 75% ment characteristics of
of its total assets in a instruments issued or guaran-
combination of (i) U.S. teed by foreign governments
dollar-denominated debt ("Sovereign Debt
obligations issued or guaran- Obligations"). The balance of
teed by foreign governments, the Fund's investment portfo-
including participations in lio, up to 20% of its total as-
loans between foreign sets, may be invested in U.S.
governments and financial corporate fixed income secu-
institutions, and interests in rities.
entities organized and oper-
ated for the purpose of re- The Fund will invest at least
structuring the investment 65% of its total assets in Sov-
characteristics of instruments ereign Debt Obligations. (F)
issued or guaranteed by for-
eign governments ("Sovereign The Fund will emphasize in-
Debt Obligations") and (ii) vestments in the Sovereign
zero coupon obligations is- Debt Obligations of countries
sued or guaranteed by the that are considered emerging
U.S. government, its agencies market countries at the time
or instrumentalities ("Zero of purchase.
Coupon Obligations"). (F)
The Fund invests substantially
all of its assets in Sovereign
Debt Obligations and Zero
Coupon Obligations.
--------
/1/ Policies with the notation "F" are fundamental policies, which means that
they may not be changed without a stockholder vote.
21
AWDGF AWDGF II Differences
------------------------------- ------------------------------- --------------------------
Securities of The Fund will not invest 25% The Fund will not invest 25% As a practical matter, the
Any One or more of its total assets in or more of its total assets in Funds' investment policies
Country the Sovereign Debt Obliga- the Sovereign Debt Obliga- are identical.
tions of any one country. tions of any one of Argentina,
Brazil, Mexico, Morocco, the
Philippines, Russia or Ven-
ezuela (or of any other single
foreign country), and the Fund
does not expect to invest more
than 5% of its total assets in
the Sovereign Debt Obliga-
tions of any other single for-
eign country.
High Yield Substantially all of the Substantially all of the Fund's In practice, the Funds'
Debt Securities Fund's assets may be in- investments in Sovereign investment policies are
vested in high yield, high risk Debt Obligations and U.S. identical.
debt securities that are low- corporate fixed income secu-
rated (i.e., below investment rities will be in high yield,
grade) or unrated and in both high risk debt securities that
cases that are considered to are low-rated (i.e., below in-
be predominantly speculative vestment grade) or unrated
as regards the issuer's ca- and in both cases that are
pacity to pay interest and considered to be predom-
repay principal. inantly speculative as regards
the issuer's capacity to pay
interest and repay principal.
Structured The Fund may invest up to The Fund may invest up to None.
Securities 25% of its total assets in 25% of its total assets in
interests in entities organized interests in entities organized
and operated solely for the and operated solely for the
purpose of restructuring the purpose of restructuring the
investment characteristics of investment characteristics of
Sovereign Debt Obligations. Sovereign Debt Obligations.
22
AWDGF AWDGF II Differences
-------------------------------- -------------------------------- -------------------------------
Loan The Fund may invest in fixed The Fund may invest in fixed The Funds' investment poli-
Participations and floating rate loans and floating rate loans cies are essentially identical.
and ("Loans") arranged through ("Loans") arranged through
Assignments private negotiations between private negotiations between
an issuer of Sovereign Debt an issuer of Sovereign Debt
Obligations and one or more Obligations and one or more
financial institutions financial institutions
("Lenders"). The Fund's in- ("Lenders"). The Fund's in-
vestments in Loans are ex- vestments in Loans are ex-
pected in most instances to be pected in most instances to be
in the form of participations in the form of participations
in Loans ("Participations") in Loans ("Participations")
and assignments of all or a and assignments of all or a
portion of Loans portion of Loans
("Assignments") from third ("Assignments") from third
parties. The Fund may invest parties. The Fund may invest
up to 25% of its total assets up to 25% of its total assets
in Participations and in Participations and
Assignments. The govern- Assignments. The govern-
ment that is the borrower on ment that is the borrower on
the Loan will be considered the Loan will be considered
by the Fund to be the issuer by the Fund to be the issuer
of a Participation or Assign- of a Participation or Assign-
ment for purposes of the ment for purposes of the
Fund's fundamental invest- Fund's fundamental invest-
ment policy that it will not ment policy that it will not
invest 25% or more of its to- invest 25% or more of its to-
tal assets in securities of is- tal assets in securities of is-
suers conducting their suers conducting their
principal business activities principal business activities
in the same industry (for this in the same industry (i.e.,
purpose, each foreign foreign government).
government is treated as a
separate industry).
Concentration The Fund will not invest 25% The Fund will not invest 25% None.
or more of its total assets or more of its total assets
(valued at the time of (valued at the time of
investment) in securities of investment) in securities of
issuers conducting their prin- issuers conducting their prin-
cipal business activities in the cipal business activities in the
same industry, except that same industry, except that
this restriction does not apply this restriction does not apply
to U.S. Government Secu- to U.S. Government Secu-
rities. (F) rities. (F)
23
AWDGF AWDGF II Differences
------------------------------- -------------------------------- --------------------------
Loans The Fund will not make loans The Fund will not make loans None.
except through (i) the pur- except through (i) the pur-
chase of debt obligations in chase of debt obligations in
accordance with its invest- accordance with its invest-
ment objective and policies; ment objective and policies;
(ii) the lending of portfolio (ii) the lending of portfolio
securities; or (iii) the use of securities; or (iii) the use of
repurchase agreements. (F) repurchase agreements. (F)
Borrowing and The Fund may not borrow The Fund may not borrow As a practical matter, the
Senior money or issue senior secu- money or issue senior secu- Funds' investment policies
Securities rities, except that the Fund rities, except that (a) the are the same.
may borrow from a bank or Fund may borrow from a
other entity in a privately ar- bank or other entity in a pri-
ranged transaction for (i) the vately arranged transaction
repurchase and/or tenders for for (i) the repurchase and/or
its shares or to pay dividends tenders for its shares or to
for purposes of complying pay dividends for purposes of
with the Internal Revenue complying with the Internal
Code of 1986, as amended, if Revenue Code of 1986, as
after such borrowing there is amended, if after such bor-
asset coverage of at least rowing there is asset cover-
300% as defined in the 1940 age of at least 300% as
Act and (ii) temporary pur- defined in the 1940 Act and
poses in an amount not ex- (ii) temporary purposes in an
ceeding 5% of the value of amount not exceeding 5% of
the total assets of the the value of the total assets of
Fund. (F) the Fund ; (b) the Fund may
enter into reverse repurchase
agreements and dollar rolls;
and (c) the Fund may write
put and call options. (F)
24
AWDGF AWDGF II Differences
-------------------------------- -------------------------------- -----------
Borrowings The Fund may borrow from a The Fund may borrow from a None.
bank or other entity in a pri- bank or other entity in a pri-
vately arranged transaction to vately arranged transaction to
the maximum extent permit- the maximum extent permit-
ted under the 1940 Act, but ted under the 1940 Act, but
only in order to finance the only in order to finance the
repurchase and/or tenders of repurchase and/or tenders of
its shares or to pay dis- its shares or to pay dis-
tributions for purposes of tributions for purposes of
complying with the Code. complying with the Code.
The 1940 Act requires the The 1940 Act requires the
Fund to maintain "asset Fund to maintain "asset
coverage" of not less than coverage" of not less than
300% of its "senior securities 300% of its "senior securities
representing indebtedness" as representing indebtedness" as
those terms are defined and those terms are defined and
used in the 1940 Act. In addi- used in the 1940 Act. In addi-
tion, the Fund may not pay tion, the Fund may not pay
any cash dividend or make any cash dividend or make
any cash distribution to any cash distribution to
stockholders if, after the stockholders if, after the
dividend or distribution, there dividend or distribution, there
would be less than 300% as- would be less than 300% as-
set coverage of a senior secu- set coverage of a senior secu-
rity representing rity representing
indebtedness for borrowings indebtedness for borrowings
(excluding for this purpose (excluding for this purpose
certain evidences of certain evidences of
indebtedness made to a bank indebtedness made to a bank
or other entity and privately or other entity and privately
arranged, and not intended to arranged, and not intended to
be publicly distributed). be publicly distributed).
The Fund may also borrow The Fund may also borrow
for temporary purposes in an for temporary purposes in an
amount not exceeding 5% of amount not exceeding 5% of
the value of the total assets of the value of the total assets of
the Fund. Such borrowings the Fund. Such borrowings
are not subject to the asset are not subject to the asset
coverage restrictions set forth coverage restrictions set forth
in the preceding paragraph. in the preceding paragraph.
25
AWDGF AWDGF II Differences
------------------------------- ------------------------------- ------------------------------
Money Market The Fund may also at any The Fund may also at any As a practical matter, the
Instruments time temporarily invest funds time, with respect to up to Funds' investment policies
awaiting reinvestment or held 20% of its total assets, are the same.
for reserves for dividends and temporarily invest funds
other distributions to stock- awaiting reinvestment or held
holders in such U.S. dollar- for reserves for dividends and
denominated money market other distributions to stock-
instruments. holders in such U.S. dollar-
denominated money market
instruments.
Zero Coupon The Zero Coupon Obliga- AWDGF II does not have an
Obligations tions in which the Fund may investment policy to invest in
invest include Treasury bills zero coupon obligations.
and the principal components
of U.S. Treasury bonds, U.S.
Treasury notes and obliga-
tions of U.S. government
agencies or instrumentalities.
Options The Fund may write covered Same. None.
put and call options and pur-
chase put and call options
that are traded on U.S. and
foreign securities exchanges
and over-the-counter, includ-
ing options on market in-
dices. The Fund may also
write call options for cross-
hedging purposes. There are
no specific limitations on the
Fund's writing and purchas-
ing of options.
Warrants The Fund may invest in war- The Fund may invest in war- None.
rants, which are securities rants, which are securities
permitting, but not obligat- permitting, but not obligat-
ing, their holder to subscribe ing, their holder to subscribe
for other securities. The Fund for other securities. The Fund
may invest in warrants for may invest in warrants for
debt securities or warrants for debt securities or warrants for
equity securities that are ac- equity securities that are ac-
quired as units with debt in- quired as units with debt in-
struments. struments.
26
AWDGF AWDGF II Differences
------------------------------- -------------------------------- -----------
Illiquid The Fund may invest up to The Fund may invest up to None.
Securities 50% of its total assets in 50% of its total assets in secu-
securities that are not readily rities that are not readily mar-
marketable. These securities ketable. These securities
include, among others, (i) include, among others, (i) di-
direct placements or other rect placements or other secu-
securities that are subject to rities which are subject to
legal or contractual re- legal or contractual re-
strictions on resale or for strictions on resale or for
which there is no readily which there is no readily
available market (e.g., trad- available market (e.g., trading
ing in the security is sus- in the security is suspended
pended or, in the case of or, in the case of unlisted
unlisted securities, market securities, market makers do
makers do not exist or will not exist or will not entertain
not entertain bids or offers), bids or offers), and (ii) re-
and (ii) repurchase agree- purchase agreements not
ments not terminable within terminable within seven days.
seven days. Securities eligi- Securities eligible for resale
ble for resale under Rule under Rule 144A under the
144A under the Securities Securities Act, that have legal
Act, that have legal or con- or contractual restrictions on
tractual restrictions on resale resale but have a readily
but have a readily available available market, are not
market, are not deemed secu- deemed securities not readily
rities not readily marketable marketable for purposes of
for purposes of this limi- this limitation.
tation.
Interest Rate The Fund may enter into inter- The Fund may enter into inter- None.
Transactions est rate swaps and may pur- est rate swaps and may pur-
chase or sell (i.e., write) chase or sell (i.e., write)
interest rate caps and floors. interest rate caps and floors.
The Fund expects to enter The Fund expects to enter
into these transactions into these transactions
primarily to preserve a return primarily to preserve a return
or spread on a particular in- or spread on a particular in-
vestment or portion of its vestment or portion of its
portfolio. The Fund may also portfolio. The Fund may also
enter into these transactions enter into these transactions
to protect against any in- to protect against any in-
crease in the price of secu- crease in the price of secu-
rities the Fund anticipates rities the Fund anticipates
purchasing at a later date. purchasing at a later date.
The Fund does not intend to The Fund does not intend to
use these transactions in a use these transactions in a
speculative manner. speculative manner.
27
AWDGF AWDGF II Differences
-------------------------------- -------------------------------- -----------
Forward The Fund may enter into The Fund may enter into None.
Commitments forward commitments for the forward commitments for the
purchase or sale of securities. purchase or sale of securities.
Such transactions may in- Such transactions may in-
clude purchases on a "when- clude purchases on a "when-
issued" basis or purchases or issued" basis or purchases or
sales on a "delayed delivery" sales on a "delayed delivery"
basis. In some cases, a for- basis. In some cases, a for-
ward commitment may be ward commitment may be
conditioned upon the occur- conditioned upon the occur-
rence of a subsequent event, rence of a subsequent event,
such as approval and con- such as approval and con-
summation of a debt re- summation of a debt re-
structuring (i.e., a "when, as structuring (i.e., a "when, as
and if issued" trade). and if issued" trade).
Loans of The Fund may make secured The Fund may make secured None.
Portfolio loans of its portfolio secu- loans of its portfolio secu-
Securities rities to entities with which it rities to entities with which it
can enter into repurchase can enter into repurchase
agreements, provided that agreements, provided that
cash and/or U.S. Government cash and/or U.S. Government
Securities equal to at least Securities equal to at least
100% of the market value of 100% of the market value of
the securities loaned are de- the securities loaned are de-
posited and maintained by posited and maintained by
the borrower with the Fund. the borrower with the Fund.
The Fund does not lend port- The Fund will not lend portfo-
folio securities in excess of lio securities in excess of
30% of the value of its total 30% of the value of its total
assets, nor lend its portfolio assets, nor lend its portfolio
securities to any officer, securities to any officer,
director, employee or affiliate director, employee or affiliate
of the Fund or Alliance. of the Fund or the Adviser.
28
AWDGF AWDGF II Differences
--------------------------------- --------------------------------- -----------
Repurchase The Fund may enter into re- The Fund may enter into re- None.
Agreements purchase agreements pertain- purchase agreements pertain-
ing to the types of securities in ing to the types of securities in
which it invests with member which it invests with member
banks of the Federal Reserve banks of the Federal Reserve
System or "primary dealers" System or "primary dealers"
(as designated by the Federal (as designated by the Federal
Reserve Bank of New York) Reserve Bank of New York)
in securities in which the in securities in which the
Fund may invest. The Fund Fund may invest. The Fund
may enter into repurchase may enter into repurchase
agreements with respect to up agreements with respect to up
to 35% of its total assets. The to 35% of its total assets. The
Fund currently enters into Fund currently enters into
repurchase agreements only repurchase agreements only
with its custodian and such with its custodian and such
primary dealers. primary dealers.
Reverse The Fund may also use re- The Fund may also use re- None.
Repurchase verse repurchase agreements verse repurchase agreements
Agreements and dollar rolls as part of its and dollar rolls as part of its
and Dollar investment strategy. investment strategy.
Rolls
Standby The Fund may from time to The Fund may from time to None.
Commitment time enter into standby time enter into standby
Agreements commitment agreements. commitment agreements.
The Fund enters into such The Fund will enter into such
agreements only for the pur- agreements only for the pur-
pose of investing in the secu- pose of investing in the secu-
rity underlying the rity underlying the
commitment at a yield and commitment at a yield and
price that are considered ad- price that are considered ad-
vantageous to the Fund and vantageous to the Fund and
that are unavailable on a firm that are unavailable on a firm
commitment basis. The Fund commitment basis. The Fund
will not enter into a standby will not enter into a standby
commitment with a remain- commitment with a remain-
ing term in excess of 45 days ing term in excess of 45 days
and will limit its investment and will limit its investment
in such commitments so that in such commitments so that
the aggregate purchase price the aggregate purchase price
of the securities subject to the of the securities subject to the
commitments, together with commitments, together with
the value of portfolio secu- the value of portfolio secu-
rities that are not readily rities that are not readily
marketable, will not exceed marketable, will not exceed
50% of its assets taken at the 50% of its assets taken at the
time of acquisition of such time of acquisition of such
commitment of security. commitment of security.
29
AWDGF AWDGF II Differences
-------------------------------- -------------------------------- -----------------------
Pledge, The Fund may not pledge, The Fund may not pledge, None.
Hypothecate, hypothecate, mortgage or hypothecate, mortgage or
Mortgage or otherwise encumber its as- otherwise encumber its as-
Encumber sets, except to secure permit- sets, except to secure permit-
Assets ted borrowings. (F) ted borrowings. (F)
Investments The Fund may not invest in The Fund may not invest in None.
for Control companies for the purpose of companies for the purpose of
exercising control. (F) exercising control. (F)
Short Sales The Fund may not make The Fund may not make None.
short sales of securities or short sales of securities or
maintain a short position, maintain a short position,
unless at all times when a unless at all times when a
short position is open it owns short position is open it owns
an equal amount of such an equal amount of such
securities or securities con- securities or securities con-
vertible into or exchangeable vertible into or exchangeable
for, without payment of any for, without payment of any
further consideration, secu- further consideration, secu-
rities of the same issue as, rities of the same issue as,
and equal in amount to, the and equal in amount to, the
securities sold short ("short securities sold short ("short
sales against the box"), and sales against the box"), and
unless not more than 10% of unless not more than 10% of
the Fund's net assets (taken the Fund's net assets (taken
at market value) is held as at market value) is held as
collateral for such sales at collateral for such sales at
any one time (it being the any one time (it being the
Fund's present intention to Fund's present intention to
make such sales only for the make such sales only for the
purpose of deferring realiza- purpose of deferring realiza-
tion of gain or loss for federal tion of gain or loss for federal
income tax purposes). (F) income tax purposes). (F)
Real Estate The Fund may not purchase The Fund may not purchase In practice, the Funds'
or sell real estate, except that or sell real estate, except that investment policies are
it may purchase and sell it may purchase and sell identical.
securities of companies securities of companies
which deal in real estate or which deal in real estate or
interests therein and secu- interests therein and secu-
rities that are secured by real rities that are secured by real
estate, provided such secu- estate, provided such secu-
rities are Sovereign Debt rities are securities of the
Obligations. (F) type in which the Fund may
invest. (F)
30
AWDGF AWDGF II Differences
------------------------------- ------------------------------- --------------------------
Oil, Gas and The Fund may not invest in The Fund may not invest in None.
Minerals interests in oil, gas, or other interests in oil, gas, or other
mineral exploration or devel- mineral exploration or
opment programs. (F) development programs. (F)
Margin The Fund may not purchase The Fund may not purchase None.
securities on margin, except securities on margin, except
for such short-term credits as for such short-term credits as
may be necessary for the may be necessary for the
clearance of transactions. (F) clearance of transactions. (F)
Underwriting The Fund may not act as an The Fund will not act as an As a practical matter, the
Securities underwriter of securities, underwriter of securities, Fund's investment policies
except that the Fund may except that the Fund may are identical.
acquire restricted securities acquire restricted securities
under circumstances in under circumstances in
which, if such securities were which, if such securities were
sold, the Fund might be sold, the Fund might be
deemed to be an underwriter deemed to be an underwriter
for purposes of the Securities for purposes of the Securities
Act. (F) Act.
Commodities The Fund will not purchase The Fund may not purchase As a practical matter, the
or sell commodities or com- or sell commodities or com- Funds' investment policies
modity contracts. modity contracts, including are identical.
futures contracts (except
forward commitment con-
tracts or contracts for the fu-
ture acquisition or delivery of
debt securities). (F)
Portfolio The Fund may engage in ac- The Fund is actively man- As a practical matter, the
Turnover tive short-term trading to aged and, in some cases in Funds' investment policies
benefit from yield disparities response to market con- are identical.
among different issues of ditions, the Fund's portfolio
securities, to seek short-term turnover may exceed 100%.
profits during periods of fluc-
tuating interest rates or for
other reasons. Such trading
will increase the Fund's rate
of turnover and the incidence
of short-term capital gain
taxable as ordinary income.
Alliance anticipates that the
annual turnover in the Fund
will not be in excess of 500%
(excluding turnover of secu-
rities having a maturity of
one year or less).
31
AWDGF AWDGF II Differences
------------------------------ --------------------------------- ---------------------------
Investments in In accordance with the 1940 The Fund may invest in other The Funds' investment poli-
Other Act, the Fund may invest up investment companies whose cies are identical.
Investment to 10% of its total assets in investment objectives and
Companies securities of other investment policies are consistent with
companies. In addition, under those of the Fund. In accord-
the 1940 Act the Fund may ance with the 1940 Act, the
not own more than 3% of the Fund may invest up to 10%
total outstanding voting stock of its total assets in securities
of any investment company of other investment compa-
and not more than 5% of the nies. In addition, under the
value of the Fund's total as- 1940 Act the Fund may not
sets may be invested in the own more than 3% of the to-
securities of any investment tal outstanding voting stock
company. of any investment company
and not more than 5% of the
value of the Fund's total as-
sets may be invested in the
securities of any investment
company.
32
APPENDIX C
DESCRIPTION OF PRINCIPAL RISKS OF THE FUNDS
Among the principal risks of investing in a Fund are market risk, interest
rate risk, credit risk, leverage risk, foreign (non-U.S.) risk, emerging market
risk, currency risk, derivatives risk, liquidity risk and management risk. Each
of these risks is more fully described below. Each Fund could become subject to
additional risks because the types of investments made by each Fund can change
over time.
Market Risk and This is the risk that the value of a Fund's investments will fluctuate as the
Net Asset Value of Shares stock or bond markets fluctuate and that prices overall will decline over
shorter- or longer-term periods. Shares of common stock of closed-end
investment companies, such as the Funds, frequently trade at a discount
to their NAVs. Whether an investor will realize gains or losses upon the
sale of shares of a Fund does not depend directly upon changes in the
Fund's NAV, but rather upon whether the market price of the shares at
the time of sale is above or below the investor's purchase price for the
shares. The market price of the shares of each Fund is determined by
such factors as relative demand for and supply of the shares in the mar-
ket, general market and economic conditions, changes in the Fund's
NAV and other factors beyond the control of the Fund. This market risk
is separate and distinct from the risk that each Fund's NAV may de-
crease.
Interest Rate Risk Changes in interest rates will affect the yield and value of a Fund's
investments in fixed-income securities. When interest rates rise, the value
of a Fund's investments tends to fall and this decrease in value may not
be offset by higher interest income from new investments. Interest rate
risk is generally greater for Funds that invest in fixed-income securities
with longer maturities or durations.
Credit Risk This is the risk that the issuer or the guarantor of a fixed-income security,
or the counterparty to a derivatives or other contract, will be unable or
unwilling to make timely payments of interest or principal, or to other-
wise honor its obligations. The issuer or guarantor may default causing a
loss of the full principal amount of a security and any accrued interest.
The degree of risk for a particular security may be reflected in its credit
rating. Investments in fixed-income securities with lower ratings tend to
have a higher probability that an issuer will default or fail to meet its
payment obligations.
Leverage Risk When a Fund borrows money or otherwise leverages its portfolio, it may
be volatile because leverage tends to ex-aggregate the effect of any in-
crease or decrease in the value of a Fund's investments. A Fund may cre-
ate leverage through the use of reverse repurchase arrangements, forward
contracts or dollar rolls or by borrowing money.
33
Foreign (Non-U.S.) Risk A Fund's investments in foreign (non-U.S.) 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. Foreign companies usually are not subject to the
same degree of regulation as U.S. issuers. Reporting, accounting, and
auditing standards of foreign countries differ, in some cases significantly,
from U.S. standards. Nationalization, expropriation or confiscatory tax-
ation, currency blockage, political changes, or diplomatic developments
could adversely affect a Fund's investments in a foreign country. These
risks are heightened for emerging market countries because there may be
more economic, political and social instability, and investments in
companies in emerging markets may have more risk because these secu-
rities may be more volatile and less liquid. To the extent a Fund invests
in a particular country or geographic region, the Fund may have more
significant risk due to market changes or other factors affecting that
country or region, including political instability and unpredictable eco-
nomic conditions.
Emerging Market Risk
Foreign investment risk may be particularly high to the extent a Fund
invests in emerging market securities of issuers based in countries with
developing economies. These securities may present market, credit, cur-
rency, liquidity, legal, political and other risks different from, or greater
than, the risks of investing in developed foreign (non-U.S.) countries.
Currency Risk
This is the risk that fluctuations in the exchange rates between the U.S.
Dollar and foreign (non-U.S.) currencies may negatively affect the value
of a Fund's investments or reduce the returns of a Fund. When AWDGF
II expands its investments to non-U.S. Dollar-denominated debt secu-
rities, the Fund will be exposed to increased currency risk.
Derivatives Risk
The Funds may use derivatives. These investment strategies may be risk-
ier than other investment strategies and may result in greater volatility for
a Fund, particularly during periods of market declines.
Liquidity Risk
Liquidity risk exists when particular investments are difficult to purchase
or sell, possibly preventing a Fund from selling out of these illiquid secu-
rities at an advantageous time or price. Derivatives and securities involv-
ing substantial market and credit risk tend to involve greater liquidity
risk.
Non-Diversification Risk
A Fund may have more risk if it is "non-diversified" meaning that it can
invest more of its assets in a smaller number of companies than many
other funds.
Management Risk
Each Fund is subject to management risk because it is an actively man-
aged investment portfolio. The Adviser will apply its investment tech-
niques and risk analyses in making investment decisions for each Fund,
but there can be no guarantee that its decisions will produce the desired
results.
34
APPENDIX D
OTHER INFORMATION
The following information provides only a summary of the key features of the
organizational structure, governing documents, and stockholder services of the
Funds.
Each Fund is organized as a Maryland corporation. The Bylaw provisions that
govern each of the Funds are the same. Unless noted below, there are no
significant differences between the Funds in terms of their respective
corporate organizational structures.
The procedures available to a Fund's stockholders for calling stockholders'
meetings and for the removal of directors are the same. Under the Funds'
charters, a director may be removed only for cause at a meeting duly called and
at which a quorum is present by the affirmative vote of the holders of 75% of
all the votes entitled to be cast for the election of directors.
Stockholder-requested special meetings of stockholders for any purpose may be
called by a Fund's Secretary only upon the written request of holders of shares
entitled to cast not less than a majority of the votes entitled to be cast at a
meeting.
Except as otherwise required by law, the presence in person or by proxy of
the holders of a majority of the shares entitled to be cast constitutes a
quorum at any meeting of stockholders of a Fund. Under Maryland law, a Maryland
corporation generally cannot dissolve, amend its charter, merge, sell all or
substantially all of its assets, engage in a share exchange or engage in
similar transactions outside the ordinary course of business, unless approved
by the affirmative vote of stockholders entitled to cast at least two-thirds of
the votes entitled to be cast on the matter. However, a Maryland corporation
may provide in its charter for approval of these matters by a lesser
percentage, but not less than a majority of all of the votes entitled to be
cast on the matter. Subject to various exceptions, each Fund's charter
generally provides for approval of charter amendments and extraordinary
transactions by the stockholders entitled to cast at least a majority of the
votes entitled to be cast on the matter. The Bylaws of each Fund provides that
each director shall be elected by the affirmative vote of the holders of a
majority of the votes entitled to be cast thereon. For other matters not
requiring a vote under the 1940 Act, when a quorum is present, the affirmative
vote of a majority of the votes cast shall decide any question brought before
such meeting unless a statute or charter requires a higher voting margin.
Shares of Common Stock of the Funds
There are no subscription/preemptive or exchange rights under any of the
charters. Each share of a Fund has equal voting, dividend, distribution and
liquidation rights. Stockholders are entitled to one vote per share. All voting
rights for the election of directors are non-cumulative, which means that the
holders of more than 50% of the shares of common stock of a Fund can elect 100%
of the directors then nominated for election if they choose to do so and, in
such event, the holders of the remaining shares of common stock will not be
able to elect any directors. Under the rules of the NYSE applicable to listed
companies, each Fund is required to hold an annual meeting of stockholders each
year.
Distributions
The Funds intend to distribute all of their net investment income. Dividends
from such net investment income will be declared and paid monthly to
stockholders. All net realized long or short-term capital gains, if any, will
be distributed at least annually. To permit a Fund to maintain a more stable
monthly distribution, a Fund may, from time to time, pay out less than the
entire amount of net investment income and net realized short-term capital
gains earned in any particular period. Any such amount retained by a Fund would
be available to stabilize future distributions. As a result, distributions paid
by a Fund for any particular period may be more or less than the amount of net
investment income and net realized short-term capital gains actually earned by
the Fund during such period. There are no assurances that a Fund will be able
to maintain a constant level of monthly distributions to stockholders.
Distributions are taxable to stockholders as ordinary income or capital
gains. Stockholders may be proportionately liable for taxes on income and gains
of a Fund but stockholders not subject to tax on their income
35
will not be required to pay tax on amounts distributed to them. A Fund
distributes written notice to stockholders regarding the tax status of all
distributions made during each calendar year.
Dividend Reinvestment Plans
Stockholders of a Fund whose shares are registered in their own names may
elect to be participants in a Fund's Dividend Reinvestment and Cash Purchase
Plan (the "DRIP"), under which dividends and capital gain distributions to
stockholders will be paid or reinvested in additional shares of the Fund (the
"Dividend Shares"). Assuming the Acquisition is approved, the DRIP stockholders
of AWDGF will automatically be enrolled in the DRIP for AWDGF II. Computershare
Trust Company (the "Agent") acts as the agent for participants under the AWDGF
II DRIP. Stockholders whose shares are held in the name of a broker or nominee
will automatically have distributions reinvested by the broker or nominee in
additional shares under the DRIP, unless the automatic reinvestment service is
not provided by the particular broker or nominee or the stockholder elects to
receive distributions in cash.
Stockholders who do not elect to participate in the DRIP will receive all
distributions in cash paid by check mailed directly to the stockholder of
record (or, if the shares are held in street or other nominee name, then to the
nominee) by Computershare Trust Company as dividend paying agent.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income taxes that may be payable (or required to be
withheld) on dividends and distributions.
A stockholder who has elected to participate in the DRIP may withdraw from
the DRIP at any time. There will be no penalty for withdrawal from the DRIP and
stockholders who have previously withdrawn from the DRIP may rejoin it at any
time. Changes in elections must be in writing and should include the
stockholder's name and address as they appear on the share certificate. An
election to withdraw from the DRIP will, until such election is changed, be
deemed to be an election by a stockholder to take all subsequent distributions
in cash. An election will be effective only for a distribution declared and
having a record dated of at least 10 days after the date on which the election
is received. A stockholder whose shares are held in the name of a broker or
nominee should contact such broker or nominee concerning changes in that
stockholder's election.
All correspondence concerning the DRIP for AWDGF II should be directed to
Computershare Trust Company, P.O. Box 43011, Providence, RI 02940-3011.
Repurchase of Shares
Each Fund's Board of Directors has determined that it would be in the
interest of stockholders of a Fund to attempt to reduce or eliminate any market
value discount should it exist. To that end, each Fund's Board of Directors
presently contemplates that a Fund would from time to time take action either
to repurchase in the open market or to make a tender offer for its own shares
at net asset value. AWDGF II's policy also states that the Fund would take such
actions and the Board would only consider such actions if the Fund's shares had
been trading at a discount to NAV in excess of 5% as of the last day of each
week in the 12 weeks preceding a Board meeting. The Boards of Directors
presently intend each quarter to consider the making of a tender offer. A Board
of Directors may at any time, however, decide that a Fund should not make a
tender offer.
Any tender offer made by a Fund will be at a price equal to the NAV of the
shares on a date subsequent to receipt by the Fund of all tenders. Each offer
will be made and stockholders notified in accordance with the requirements of
the Securities and Exchange Act of 1934 and the 1940 Act, either by publication
or mailing or both. Each offering document will contain such information as is
prescribed by such laws and the rules and regulations promulgated thereunder.
When a tender offer is authorized to be made by a Board of Directors, a
stockholder wishing to accept the offer will be required to tender all (and not
less than all) of the shares owned by such stockholder (or attributed to the
stockholder for federal income tax purposes under Section 318 of the Code). A
Fund will purchase all shares tendered in accordance with the terms of the
offer unless it determines to accept none of them (based upon one of the
conditions set forth above). Each person tendering shares will be required to
submit a check in the amount of $25.00, payable to the Fund, which will be used
to help defray the costs associated with effecting the tender offer. This
$25.00 fee will be imposed upon each tendering stockholder any of
36
whose tendered shares are purchased in the offer, and will be imposed
regardless of the number of shares purchased. A Fund expects the cost to the
Fund of effecting a tender offer will exceed the aggregate of all such fees
received from those who tender offer their shares. Costs associated with the
tender offer will be charged against capital. During the period of the tender
offer, a Fund's stockholders will be able to obtain the Fund's current net
asset value by use of a toll-free telephone number.
Certain Anti-Takeover Provisions of the Funds' Charters and Bylaws
The Funds presently have provisions in their Charters and Bylaws (together,
the "Charter Documents") that are intended to limit (i) the ability of other
entities or persons to acquire control of a Fund, (ii) a Fund's freedom to
engage in certain transactions, or (iii) the ability of a Fund's directors or
stockholders to amend the Charter Documents or effect changes in the Fund's
management. These provisions of the Charter Documents may be regarded as
"anti-takeover" provisions.
The Board of Directors of each Fund is divided into three classes, each
having a term of three years. Each class of Directors serves for a three year
term. Accordingly, only those directors in one class may be changed in any one
year, and it would require two years to change a majority of the Board of
Directors (although under Maryland law procedures are available for the removal
of directors even if they are not then standing for reelections and under SEC
regulations procedures are available for including stockholder proposals in
management's annual proxy statement). Such a system of electing directors may
have the effect of maintaining the continuity of management and, thus, make it
more difficult for a Fund's stockholders to change the majority of directors.
Generally, under a Fund's Charter, the affirmative vote of the holders of a
majority of the votes entitled to be cast is required for the consolidation of
the Fund with another corporation, a merger of the Fund with or into another
corporation (except for certain mergers in which the Fund is the successor), a
statutory share exchange in which the Fund is not the successor, a sale or
transfer of all or substantially all of the Fund's assets, the dissolution of
the Fund and certain amendments to the Fund's Charter. In addition, the
affirmative vote of 75% (which is higher than that required under Maryland law
or the 1940 Act) of the outstanding shares of common stock of a Fund is
required generally to authorize any of the following transactions or to amend
the provisions of the Charter relating to such transactions:
(i)merger, consolidation or statutory share exchange of the Fund with or
into any corporation, person or other entity;
(ii)issuance of any securities of the Fund to any corporation, person or
other entity for cash;
(iii)sale, lease or exchange of all or any substantial part of the assets of
the Fund to any corporation, person or other entity (except assets
having an aggregate fair market value of less than $1,000,000); or
(iv)sale, lease or exchange to the Fund, in exchange for securities of the
Fund, of any assets of any corporation, person or other entity (except
assets having an aggregate fair market value of less than $1,000,000);
if such corporation, person or entity is directly, or indirectly through
affiliates, the beneficial owner of more than 5% of the outstanding shares of
the Fund (a "principal stockholder"). However, such vote would not be required
where, under certain conditions, the Board of Directors approves the
transaction, although in certain cases involving merger, consolidation or
statutory share exchange or sale of all or substantially all of a Fund's assets
the affirmative vote of a majority of the outstanding shares of the Fund would
nevertheless be required.
The provisions of the Charter Documents described above and a Fund's right
to repurchase or make a tender offer for its common stock could have the effect
of depriving the owners of shares of opportunities to sell their shares at a
premium over prevailing market prices, by discouraging a third party from
seeking to obtain control of the Fund in a tender offer or similar transaction.
The overall effect of these provisions is to render more difficult the
accomplishment of a merger or the assumption of control by a principal
stockholder. However, they provide the advantage of potentially requiring
persons seeking control of the Fund to negotiate with its management regarding
the price to be paid and facilitating the continuity of the Fund's management
and investment objective and policies. The Board of Directors of each Fund has
considered the foregoing anti-takeover provisions and concluded that they are
in the best interests of the Fund and its stockholders.
37
Indemnification and Liability of Directors and Officers
The charters of each of the Funds generally provides for the indemnification
of officers and directors, as applicable, to the full extent permitted by law.
This indemnification does not protect any such person against any liability to
a Fund 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 satisfaction of such person's
office.
Maryland law permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (i) actual receipt of an improper benefit or profit in money,
property or services or (ii) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. Each Fund's charter
contains such a provision which eliminates directors' and officers' liability
to the maximum extent permitted by Maryland law. This indemnification does not
protect any such person against any liability to a Fund 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 satisfaction of such person's office.
38
APPENDIX E
FORM OF AGREEMENT AND PLAN OF ACQUISITION AND LIQUIDATION
RELATING TO THE ACQUISITION OF ALL OF THE ASSETS AND LIABILITIES OF
ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
This Agreement and Plan of Acquisition and Liquidation (the "Plan") is made
as of this [ ] day of [ ], 2006, by and among (the "Acquiring
Fund"), a Maryland corporation, (the "Acquired Fund"), a Maryland
corporation, and AllianceBernstein L.P. (the "Adviser").
WHEREAS, the Acquiring Fund and the Acquired Fund are closed-end management
investment companies registered with the Securities and Exchange Commission
(the "SEC") under the Investment Company Act of 1940, as amended (the "1940
Act") and the Securities Exchange Act of 1934, as amended (the "1934 Act") and
shares of common stock of each Fund are currently purchased and sold on the New
York Stock Exchange (the "NYSE");
WHEREAS, the parties desire that the Acquiring Fund acquire the assets and
assume the liabilities of the Acquired Fund in exchange for shares of equal net
asset value of the Acquiring Fund and the distribution of such shares of the
Acquiring Fund to the stockholders of the Acquired Fund (the "Acquisition") and
that the Acquired Fund thereafter liquidate and dissolve; and
WHEREAS, the parties intend that the Acquisition qualify as a
"reorganization" within the meaning of section 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "Code"), and any successor
provisions, and that with respect to the Acquisition, the Acquiring Fund and
the Acquired Fund will each be a "party to a reorganization" within the meaning
of section 368(b) of the Code;
Now, therefore, the Acquiring Fund and the Acquired Fund agree as follows:
1. Definitions
In addition to the terms elsewhere defined herein, each of the following
terms shall have the meaning indicated for that term as follows:
1933 Act Securities Act of 1933, as amended.
Acquiring Fund Share A share of common stock of the Acquiring Fund.
Assets All assets of any kind and all interests, rights, privileges and powers of or
attributable to the Acquired Fund or its shares, as appropriate, whether or
not determinable at the appropriate Effective Time and wherever located,
including, without limitation, all cash, cash equivalents, securities, claims
(whether absolute or contingent, known or unknown, accrued or un-
accrued or conditional or unmatured), contract rights and receivables
(including dividend and interest receivables) owned by the Acquired
Fund or attributable to its shares and any deferred or prepaid expense,
other than unamortized organizational expenses, shown as an asset on the
Acquired Fund's books.
Closing Date Shall be on such date following the date that stockholders of the Ac-
quired Fund approve the Plan, as the parties may agree.
Effective Time 5:00 p.m. Eastern Time on the Closing Date, or such other time as the
parties may agree to in writing.
Financial Statements The audited financial statements of the relevant Fund for its most re-
cently completed fiscal year and, if applicable, the unaudited financial
statements of that Fund for its most recently completed semi-annual
period.
Fund The Acquiring Fund and/or the Acquired Fund, as the case may be.
39
Liabilities All liabilities, expenses and obligations of any kind whatsoever of the
Acquired Fund, whether known or unknown, accrued or unaccrued, abso-
lute or contingent or conditional or unmatured, except that expenses of
the Acquisition, if any, contemplated hereby to be paid by the Acquired
Fund pursuant to Section 25 of this Plan, which shall not be assumed or
paid by the Acquiring Fund, shall not fall within the definition of
Liabilities for purposes of this Plan.
N-14 Registration Statement The Registration Statement of the Acquiring Fund on Form N-14 under
the 1940 Act that will register the Acquiring Fund Shares to be issued in
the Acquisition and will include the proxy materials necessary for the
stockholders of the Acquired Fund to approve the Acquisition.
Valuation Time The close of regular session trading on the NYSE on the Closing Date,
when for purposes of the Plan, the Acquiring Fund determines its net as-
set value per Acquiring Fund Share and the Acquired Fund determines
the net value of the Assets.
NAV A Fund's net asset value is calculated by valuing and totaling assets and
then subtracting liabilities and then dividing the balance by the number of
shares that are outstanding.
2. Regulatory Filings
The Acquiring Fund shall promptly prepare and file the N-14 Registration
Statement with the SEC, and the Acquiring Fund and the Acquired Fund also shall
make any other required or appropriate filings with respect to the actions
contemplated hereby.
3. Stockholder Action
As soon as practicable after the effective date of the N-14 Registration
Statement, the Acquired Fund shall hold a stockholders meeting to consider and
approve the Acquisition and this Plan and such other matters as the Board of
Directors may determine. Such approval by the stockholders of the Acquired Fund
shall, to the extent necessary to permit the consummation of the transactions
contemplated herein without violating any investment objective, policy or
restriction of the Acquired Fund, be deemed to constitute approval by the
stockholders of a temporary amendment of any investment objective, policy or
restriction that would otherwise be inconsistent with or violated upon the
consummation of such transactions solely for the purpose of consummating such
transactions.
4. Transfer of the Acquired Fund's Assets.
The Acquiring Fund and the Acquired Fund shall take the following steps with
respect to the Acquisition, as applicable:
(a)On or prior to the Closing Date, the Acquired Fund shall pay or provide
for the payment of all of the Liabilities, expenses, costs and charges
of or attributable to the Acquired Fund that are known to the Acquired
Fund and that are due and payable prior to or as of the Closing Date.
(b)Prior to the Effective Time, except to the extent prohibited by Rule
19b-1 under the 1940 Act, the Acquired Fund will declare to Acquired
Fund shareholders of record a dividend or dividends which, together with
all previous such dividends, shall have the effect of distributing
(a) all the excess of (i) Acquired Fund's investment income excludable
from gross income under section 103(a) of the Code over (ii) Acquired
Fund's deductions disallowed under section 265 and 171(a)(2) of the
Code, (b) all of Acquired Fund's investment company taxable income (as
defined in Code section 852), (computed in each case without regard to
any deduction for dividends paid), and (c) all of Acquired Fund's net
realized capital gain (as defined in Code section 1222), if any (after
reduction for any capital loss
40
carryover), in each case for both the taxable year ending on [ ],
and the short taxable year beginning on [ ], and ending on the
Closing Date. Such dividends will be made to ensure continued
qualification of the Acquired Fund as a "regulated investment company"
for tax purposes and to eliminate fund-level tax.
(c)At the Effective Time, pursuant to Articles of Transfer accepted for
record by the State Department of Assessments and Taxation of Maryland
(the "SDAT"), the Acquired Fund shall assign, transfer, deliver and
convey the Assets to the Acquiring Fund, subject to the Liabilities. The
Acquiring Fund shall then accept the Assets and assume the Liabilities
such that at and after the Effective Time (i) the Assets at or after the
Effective Time shall become and be assets of the Acquiring Fund, and
(ii) the Liabilities at the Effective Time shall attach to the Acquiring
Fund, and shall be enforceable against the Acquiring Fund to the same
extent as if initially incurred by the Acquiring Fund.
(d)Within a reasonable time prior to the Closing Date, the Acquired Fund
shall provide, if requested, a list of the Assets to the Acquiring Fund.
The Acquired Fund may sell any asset on such list prior to the Effective
Time. After the Acquired Fund provides such list, the Acquired Fund will
not acquire any additional securities or permit to exist any
encumbrances, rights, restrictions or claims not reflected on such list,
without the approval of the Acquiring Fund. Within a reasonable time
after receipt of the list and prior to the Closing Date, the Acquiring
Fund will advise the Acquired Fund in writing of any investments shown
on the list that the Acquiring Fund has determined to be inconsistent
with its investment objective, policies and restrictions. The Acquired
Fund will dispose of any such securities prior to the Closing Date to
the extent practicable and consistent with applicable legal
requirements, including the Acquired Fund's investment objectives,
policies and restrictions. In addition, if the Acquiring Fund determines
that, as a result of the Acquisition, the Acquiring Fund would own an
aggregate amount of an investment that would exceed a percentage
limitation applicable to the Acquiring Fund, the Acquiring Fund will
advise the Acquired Fund in writing of any such limitation and the
Acquired Fund shall dispose of a sufficient amount of such investment as
may be necessary to avoid the limitation as of the Effective Time, to
the extent practicable and consistent with applicable legal
requirements, including the Acquired Fund's investment objectives,
policies and restrictions.
(e)The Acquired Fund shall assign, transfer, deliver and convey the Assets
to the Acquiring Fund at the Effective Time on the following basis:
(1)The value of the Assets less the Liabilities, both determined as of
the Valuation Time, shall be divided by the then NAV of one Acquiring
Fund Share, and, in exchange for the transfer of the Assets, the
Acquiring Fund shall simultaneously issue and deliver to the Acquired
Fund the number of full Acquiring Fund Shares so determined that are
allocable to all shares held by or for those stockholders of the
Acquired Fund on a stockholder by stockholder basis plus fractional
Acquiring Fund Shares, rounded to the second decimal place or such
other decimal place as the parties may agree to in writing, allocable
to those stockholders of the Acquired Fund that at the Effective Time
participate in the Acquired Fund's Dividend Reinvestment Plan ("DRIP
Stockholders"), regardless of whether the shares of the Acquired Fund
with respect to which such fractional Acquiring Fund Shares are to be
issued and delivered are held by or for the DRIP Stockholders
directly or in the Acquired Fund's Dividend Reinvestment Plan. The
Acquiring Fund shall at the same time deliver to the Acquired Fund
cash in lieu of any fractional Acquiring Fund Shares allocable to
those stockholders of the Acquired Fund that are not DRIP
Stockholders;
(2)The NAV of the Acquiring Fund Shares to be delivered to the Acquired
Fund shall be determined as of the Valuation Time in accordance with
the Acquiring Fund's then applicable valuation procedures, and the
net value of the Assets to be conveyed to the Acquiring Fund shall be
determined as of the Valuation Time in accordance with the then
applicable valuation procedures of the Acquired Fund; and
(3)The portfolio securities of the Acquired Fund shall be made available
by the Acquired Fund to , as custodian for the Acquiring
Fund (the "Custodian"), for examination no later than
41
five business days preceding the Valuation Time. On the Closing Date,
such portfolio securities and all the Acquired Fund's cash shall be
delivered by the Acquired Fund to the Custodian for the account of
the Acquiring Fund, such portfolio securities to be duly endorsed in
proper form for transfer in such manner and condition as to
constitute good delivery thereof in accordance with the custom of
brokers or, in the case of portfolio securities held in the U.S.
Treasury Department's book-entry system or by The Depository Trust
Company, Participants Trust Company or other third party
depositories, by transfer to the account of the Custodian in
accordance with Rule 17f-4, Rule 17f-5 or Rule 17f-7, as the case may
be, under the 1940 Act and accompanied by all necessary federal and
state stock transfer stamps or a check for the appropriate purchase
price thereof. The cash delivered shall be in the form of currency or
certified or official bank checks, payable to the order of
, the Custodian, or shall be wired to an account pursuant
to instructions provided by the Acquiring Fund.
(f)Promptly after the Closing Date, the Acquired Fund will deliver to the
Acquiring Fund a Statement of Assets and Liabilities of the Acquired
Fund as of the Closing Date.
5. Liquidation and Dissolution of the Acquired Fund, Registration of Acquiring
Fund Shares and Access to Records.
The Acquired Fund and the Acquiring Fund also shall take the following
steps, as applicable:
(a)At or as soon as reasonably practical after the Effective Time, the
Acquired Fund shall liquidate and dissolve by transferring pro rata to
its stockholders of record, the Acquiring Fund Shares and cash it
receives pursuant to Section 4(e)(1) of this Plan. The Acquiring Fund
shall record on its books the ownership by the Acquired Fund's
stockholders of the Acquiring Fund Shares so transferred to such
stockholders, and the Acquired Fund shall simultaneously cancel on its
books all of the issued and outstanding shares of the Acquired Fund. The
Acquiring Fund shall not issue certificates representing Acquiring Fund
Shares to replace certificates representing Acquired Fund shares unless
the Acquired Fund share certificates are first surrendered to the
Acquiring Fund.
Following distribution by the Acquired Fund to its stockholders of all
the Acquiring Fund Shares delivered to the Acquired Fund, the Acquired
Fund shall wind up its affairs and shall take all steps as are necessary
and proper to liquidate and dissolve as soon as is reasonably possible
after the Effective Time, including filing of Articles of Dissolution
with SDAT.
(b)At and after the Closing Date, the Acquired Fund shall provide the
Acquiring Fund and its transfer agent with immediate access to: (i) all
records containing the names, addresses and taxpayer identification
numbers of all of the Acquired Fund's stockholders and the number and
percentage ownership of the outstanding shares of the Acquired Fund
owned by stockholders as of the Effective Time, and (ii) all original
documentation (including all applicable Internal Revenue Service forms,
certificates, certifications and correspondence) relating to the
Acquired Fund stockholders' taxpayer identification numbers and their
liability for or exemption from back-up withholding. The Acquired Fund
shall preserve and maintain, or shall direct its service providers to
preserve and maintain, records with respect to the Acquired Fund as
required by Section 31 of, and Rules 31a-1 and 31a-2 under, the 1940 Act.
6. Certain Representations and Warranties of the Acquired Fund.
The Acquired Fund represents and warrants to the Acquiring Fund as follows:
(a)The Acquired Fund is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Maryland. The
Acquired Fund is registered with the SEC as a closed-end management
investment company under the 1940 Act and is duly registered with the
SEC under the 1934 Act, and such registrations will be in full force and
effect as of the Effective Time.
(b)The Acquired Fund has the power and all necessary federal, state and
local qualifications and authorizations to own all of the Assets, to
carry on its business, to enter into this Plan and to consummate the
transactions contemplated herein.
42
(c)The Board of Directors of the Acquired Fund has duly authorized the
execution and delivery of this Plan and the transactions contemplated
herein. Duly authorized officers of the Acquired Fund have executed and
delivered the Plan. The Plan represents a valid and binding contract,
enforceable in accordance with its terms, subject as to enforcement to
bankruptcy, insolvency, reorganization, arrangement, moratorium, and
other similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles. The execution and
delivery of this Plan does not, and, subject to the approval of
stockholders referred to in Section 3 hereof, the consummation of the
transactions contemplated by this Plan will not, violate the Acquired
Fund's Charter, its Bylaws or any material agreement to which the
Acquired Fund is subject. Except for the approval of its stockholders,
the Acquired Fund does not need to take any other action to authorize
its officers to effectuate this Plan and the transactions contemplated
herein.
(d)The Acquired Fund has qualified as a regulated investment company under
Part I of Subchapter M of Subtitle A, Chapter 1, of the Code, in respect
of each taxable year since the commencement of its operations and
intends to continue to qualify as a regulated investment company for its
taxable year ending upon its liquidation.
(e)The information pertaining to the Acquired Fund included within the N-14
Registration Statement when filed with the SEC, when Part A of the N-14
Registration Statement is distributed to stockholders, at the time of
the stockholders meeting of the Acquired Fund for approval of the
Acquisition and at the Effective Time shall (i) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act
and the 1940 Act, and the rules and regulations thereunder and
applicable state securities laws, and (ii) not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements made therein
not misleading.
(f)The Acquired Fund has duly authorized and validly issued all of its
issued and outstanding shares of common stock, and all such shares are
fully paid and non-assessable and were offered for sale and sold in
conformity with the registration requirements of all applicable federal
and state securities laws. There are no outstanding options, warrants or
other rights to subscribe for or purchase any of the shares of the
Acquired Fund, nor are there any securities convertible into shares of
the Acquired Fund.
(g)The Acquired Fund shall operate its business in the ordinary course
between the date hereof and the Effective Time. Such ordinary course of
business will include the declaration and payment of customary dividends
and distributions and any other dividends and distributions referred to
in Section 4(b) hereof.
(h)At the Effective Time, the Acquired Fund will have good and marketable
title to the Assets and full right, power and authority to assign,
transfer, deliver and convey the Assets.
(i)The Financial Statements of the Acquired Fund, a copy of which has been
previously delivered to the Acquiring Fund, fairly present the financial
position of the Acquired Fund as of the Acquired Fund's most recent
fiscal year-end and the results of the Acquired Fund's operations and
changes in the Acquired Fund's net assets for the periods indicated.
(j)To the knowledge of the Acquired Fund, the Acquired Fund has no
liabilities, whether or not determined or determinable, other than the
Liabilities disclosed or provided for in its Financial Statements or
Liabilities incurred in the ordinary course of business subsequent to
the date of the most recent Financial Statement referencing Liabilities.
(k)To the knowledge of the Acquired Fund, except as has been disclosed in
writing to the Acquiring Fund, no claims, actions, suits, investigations
or proceedings of any type are pending or threatened against the
Acquired Fund or any of its properties or assets or any person whom the
Acquired Fund may be obligated to indemnify in connection with such
litigation, proceeding or investigation. Subject to the foregoing, there
are no facts that the Acquired Fund has reason to believe are likely to
form the basis for the institution of any such claim, action, suit,
investigation or proceeding against the Acquired Fund. The Acquired Fund
is not a party to nor subject to the provisions of any order, decree or
judgment of
43
any court or governmental body that adversely affects, or is reasonably
likely to adversely affect, its financial condition, results of
operations, or the Assets or its ability to consummate the transactions
contemplated by the Plan.
(l)Except for agreements entered into or granted in the ordinary course of
its business, in each case under which no material default exists, and
this Plan, the Acquired Fund is not a party to or subject to any
material contract or other commitments, which if terminated, may result
in material liability to the Acquired Fund or under which (whether or
not terminated) any material payment for periods subsequent to the
Closing Date will be due from the Acquired Fund.
(m)The Acquired Fund has filed its federal income tax returns, copies of
which have been previously made available to the Acquiring Fund, for all
taxable years for which such returns are due and has paid all taxes
payable pursuant to such returns. All of the Acquired Fund's tax
liabilities will have been adequately provided for on its books. No such
return is currently under audit and no unpaid assessment has been
asserted with respect to such returns. To the best of the Acquired
Fund's knowledge, it will not have any tax deficiency or liability
asserted against it or question with respect thereto raised, and it will
not be under audit by the Internal Revenue Service or by any state or
local tax authority for taxes in excess of those already paid. The
Acquired Fund will timely file its federal income tax return for each
subsequent taxable year including its current taxable year.
(n)For federal income tax purposes, the Acquired Fund qualifies as a
"regulated investment company," and the provisions of section 851
through 855 of the Code apply to the Acquired Fund for the remainder of
its current taxable year beginning [ ], and will continue to apply
through the Closing Date.
(o)Since the date of the Financial Statements of the Acquired Fund, there
has been no material adverse change in its financial condition, results
of operations, business, or Assets. For this purpose, negative
investment performance shall not be considered a material adverse change.
(p)The Acquired Fund's investment operations from inception to the date
hereof have been in compliance in all material respects with the
investment policies and investment restrictions set forth in its
prospectus or prospectuses and statement or statements of additional
information as in effect from time to time, except as previously
disclosed in writing to the Acquiring Fund.
(q)The Acquiring Fund Shares to be issued to the Acquired Fund pursuant to
paragraph 4(e)(1) will not be acquired for the purpose of making any
distribution thereof other than to the Acquired Fund Stockholders as
provided in paragraph 4(e)(1).
(r)The Acquired Fund, or its agents, (i) holds a valid Form W-8Ben,
Certificate of Foreign Status of Beneficial Owner for United States
Withholding (or other appropriate series of Form W-8, as the case may
be) or Form W-9, Request for Taxpayer Identification Number and
Certification, for each Acquired Fund stockholder of record, which Form
W-8 or Form W-9 can be associated with reportable payments made by the
Acquired Fund to such stockholder, and/or (ii) has otherwise timely
instituted the appropriate backup withholding procedures with respect to
such stockholder as provided by Section 3406 of the Code and the
regulations thereunder.
7. Certain Representations and Warranties of Acquiring Fund.
The Acquiring Fund represents and warrants to the Acquired Fund as follows:
(a)The Acquiring Fund is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Maryland. The
Acquiring Fund is registered with the SEC as a closed-end management
investment company under the 1940 Act and is duly registered with the
SEC under the 1934 Act, and such registrations will be in full force and
effect as of the Effective Time.
(b)The Acquiring Fund shall operate its business in the ordinary course
between the date hereof and the Effective Time. Such ordinary course of
business will include the declaration and payment of customary dividends
and distributions and any other dividends and distributions referred to
in Section 4(b) hereof.
44
(c)The Acquiring Fund has the power and all necessary federal, state and
local qualifications and authorizations to own all of its assets, to
carry on its business, to enter into this Plan and to consummate the
transactions contemplated herein.
(d)The Board of Directors of the Acquiring Fund has duly authorized
execution and delivery of this Plan and the transactions contemplated
herein. Duly authorized officers of the Acquiring Fund have executed and
delivered the Plan. The Plan represents a valid and binding contract,
enforceable in accordance with its terms, subject as to enforcement to
bankruptcy, insolvency, reorganization, arrangement, moratorium and
other similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles. The execution and
delivery of this Plan does not, and the consummation of the transactions
contemplated by this Plan will not violate the Charter of the Acquiring
Fund, its Bylaws or any material agreement to which the Acquiring Fund
is subject. Except for the approval of its Board, the Acquiring Fund
does not need to take any other action to authorize its officers to
effectuate the Plan and the transactions contemplated herein.
(e)The Acquiring Fund has qualified as a regulated investment company under
Part I of Subchapter M of Subtitle A, Chapter 1, of the Code, in respect
of each taxable year since the commencement of its operations and
qualifies and intends to continue to qualify as a regulated investment
company for its current taxable year.
(f)The N-14 Registration Statement, when filed with the SEC, when Part A of
the N-14 Registration Statement is distributed to stockholders, at the
time of the stockholder meeting of the Acquired Fund for approval of the
Acquisition and at the Effective Time, insofar as it relates to the
Acquiring Fund shall (i) comply in all material respects with the
applicable provisions of the 1933 Act, the 1934 Act and the 1940 Act,
and the rules and regulations thereunder and applicable state securities
laws and (ii) not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
(g)The Acquiring Fund has duly authorized and validly issued all issued and
outstanding Acquiring Fund Shares, and all such shares are fully paid
and non-assessable and were offered for sale and sold in conformity with
the registration requirements of all applicable federal and state
securities laws. The Acquiring Fund has duly authorized the Acquiring
Fund Shares referred to in Section 4(e) hereof to be issued and
delivered to the Acquired Fund as of the Effective Time. When issued and
delivered, such Acquiring Fund Shares shall be validly issued, fully
paid and non-assessable, and no stockholder of the Acquiring Fund shall
have any preemptive right of subscription or purchase in respect of any
such share. There are no outstanding options, warrants or other rights
to subscribe for or purchase any Acquiring Fund Shares, nor are there
any securities convertible into Acquiring Fund Shares.
(h)To the knowledge of the Acquiring Fund, except as has been disclosed in
writing to the Acquiring Fund, no claims, actions, suits, investigations
or proceedings of any type are pending or threatened against the
Acquiring Fund or any of its properties or assets or any person whom the
Acquiring Fund may be obligated to indemnify in connection with such
litigation, proceeding or investigation. Subject to the foregoing, there
are no facts that the Acquiring Fund currently has reason to believe are
likely to form the basis for the institution of any such claim, action,
suit, investigation or proceeding against the Acquiring Fund. The
Acquiring Fund is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body that
adversely affects, or is reasonably likely to adversely affect its
financial condition, results of operations, its assets or its ability to
consummate the transactions contemplated by this Plan.
(i)Except for agreements entered into or granted in the ordinary course of
its business, in each case under which no material default exists, the
Acquiring Fund is not a party to or subject to any material contract,
debt instrument, employee benefit plan, lease, franchise, license or
permit of any kind or nature whatsoever.
45
(j)The Acquiring Fund has filed its federal income tax returns, copies of
which have been previously made available to the Acquired Fund, for all
taxable years for which such returns are due and has paid all taxes
payable pursuant to such returns. All of the Acquiring Fund's tax
liabilities will have been adequately provided for on its books. No such
return is currently under audit and no unpaid assessment has been
asserted with respect to such returns. To the best of the Acquiring
Fund's knowledge, it will not have any tax deficiency or liability
asserted against it or question with respect thereto raised, and it will
not be under audit by the Internal Revenue Service or by any state or
local tax authority for taxes in excess of those already paid. The
Acquiring Fund will timely file its federal income tax return for each
subsequent taxable year including its current taxable year.
(k)For federal income tax purposes, the Acquiring Fund qualifies as a
"regulated investment company," and the provisions of section 851
through 855 of the Code apply to the Acquiring Fund for the remainder of
its current taxable year beginning [ ], and will continue to apply
through the Closing Date.
(l)The Financial Statements of the Acquiring Fund, a copy of which has been
previously delivered to the Acquired Fund, fairly present the financial
position of the Acquiring Fund's most recent fiscal year-end and the
results of the Acquiring Fund's operations and changes in the Acquiring
Fund's net assets for the period indicated.
(m)Since the date of the Financial Statements of the Acquiring Fund, there
has been no material adverse change in its financial condition, results
of operations, business or assets. Negative investment performance shall
not be considered a material adverse change.
(n)The Acquiring Fund's investment operations from inception to the date
hereof have been in compliance in all material respects with the
investment policies and investment restrictions set forth in its
prospectus or prospectuses and statement or statements of additional
information as in effect from time to time, except as previously
disclosed in writing to the Acquired Fund.
(o)The Acquiring Fund will use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and
such other state securities laws as it may deem appropriate in order to
continue its operations after the Closing Date.
8. Conditions to the Obligations of the Acquiring Fund and the Acquired Fund.
The obligations of the Acquiring Fund and the Acquired Fund with respect to
the Acquisition shall be subject to the following conditions precedent:
(a)The stockholders of the Acquired Fund shall have approved the
Acquisition in the manner required by the Charter of the Acquired Fund,
its Bylaws and applicable law. If stockholders of the Acquired Fund fail
to approve the Acquisition as required, that failure shall release the
Funds of their obligations under this Plan.
(b)The Acquiring Fund and the Acquired Fund shall have delivered to the
other party a certificate dated as of the Closing Date and executed in
its name by its Secretary or an Assistant Secretary, in a form
reasonably satisfactory to the receiving party, stating that the
representations and warranties of the Acquiring Fund or the Acquired
Fund, as applicable, in this Plan that apply to the Acquisition are true
and correct in all material respects at and as of the Valuation Time.
(c)The Acquiring Fund and the Acquired Fund shall have performed and
complied in all material respects with each of its representations and
warranties required by this Plan to be performed or complied with by it
prior to or at the Valuation Time and the Effective Time.
(d)There has been no material adverse change in the financial condition,
results of operations, business, properties or assets of the Acquiring
Fund or the Acquired Fund since the date of the most recent Financial
Statements. Negative investment performance shall not be considered a
material adverse change.
46
(e)The Acquiring Fund and the Acquired Fund shall have received an opinion
of Seward & Kissel LLP reasonably satisfactory to each of them,
substantially to the effect that for federal income tax purposes:
(1)the Acquisition will constitute a "reorganization" within the meaning
of section 368(a) of the Code and that the Acquiring Fund and the
Acquired Fund will each be "a party to a reorganization" within the
meaning of section 368(b) of the Code;
(2)a stockholder of the Acquired Fund will recognize no gain or loss on
the exchange of the stockholder's shares of the Acquired Fund solely
for Acquiring Fund Shares, except with respect to cash received in
lieu of a fractional share of the Acquiring Fund in connection with
the Acquisition;
(3)neither the Acquired Fund nor the Acquiring Fund will recognize any
gain or loss upon the transfer of all of the Assets to the Acquiring
Fund in exchange for Acquiring Fund Shares (plus cash in lieu of
fractional shares) and the assumption by Acquiring Fund of the
Liabilities pursuant to this Plan or upon the distribution of
Acquiring Fund Shares and cash to stockholders of the Acquired Fund
in exchange for their respective shares of the Acquired Fund;
(4)the holding period and tax basis of the Assets acquired by the
Acquiring Fund will be the same as the holding period and tax basis
that the Acquired Fund had in such Assets immediately prior to the
Acquisition;
(5)the aggregate tax basis of the Acquiring Fund Shares received in
connection with the Acquisition by each stockholder of the Acquired
Fund (including any fractional share to which the stockholder may be
entitled) will be the same as the aggregate tax basis of the shares
of the Acquired Fund surrendered in exchange therefor, decreased by
any cash received and increased by any gain recognized on the
exchange;
(6)the holding period of the Acquiring Fund Shares received in
connection with the Acquisition by each stockholder of the Acquired
Fund (including any fractional share to which the stockholder may be
entitled) will include the holding period of the shares of the
Acquired Fund surrendered in exchange therefor, provided that such
Acquired Fund shares constitute capital assets in the hands of the
stockholder as of the Closing Date;
(7)The Acquiring Fund will succeed to the capital loss carryovers of the
Acquired Fund, if any, under section 381 of the Code, but the use by
the Acquiring Fund of any such capital loss carryovers (and of
capital loss carryovers of the Acquiring Fund) may be subject to
limitation under section 383 of the Code; and
(8)any gain or loss realized by a stockholder of the Acquired Fund upon
the sale of a fractional share of the Acquiring Fund to which the
stockholder is entitled will be recognized to the stockholder and
measured by the difference between the amount of cash received and
the basis of the fractional share and, provided that the Acquired
Fund shares surrendered constitute capital assets in the hands of the
stockholder, will be a capital gain or loss.
The opinion will be based on certain factual certifications made by
officers of the Funds and will also be based on customary assumptions
and subject to certain qualifications. The opinion is not a guarantee
that the tax consequences of the Acquisition will be as described above.
Notwithstanding this subparagraph (e), Seward & Kissel LLP will express
no view with respect to the effect of the Acquisition on any transferred
asset as to which any unrealized gain or loss is required to be
recognized at the end of a taxable year (or on the termination or
transfer thereof) under federal income tax principles. Each Fund shall
agree to make and provide additional representations to Seward & Kissel
LLP with respect to the Funds that are reasonably necessary to enable
Seward & Kissel LLP to deliver the tax opinion. Notwithstanding anything
in this Plan to the contrary, neither Fund may waive in any material
respect the conditions set forth under this subparagraph (e).
47
(f)The N-14 Registration Statement shall have become effective under the
1933 Act as to the Acquiring Fund Shares, and the SEC shall not have
instituted and to the knowledge of the Acquiring Fund is not
contemplating instituting, any stop order suspending the effectiveness
of the N-14 Registration Statement.
(g)No action, suit or other proceeding shall be threatened or pending
before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection
with, the Acquisition.
(h)The SEC shall not have issued any unfavorable advisory report under
Section 25(b) of the 1940 Act nor instituted any proceeding seeking to
enjoin consummation of the Acquisition under Section 25(c) of the 1940
Act.
(i)Neither party shall have terminated this Plan with respect to the
Acquisition pursuant to Section 13 of this Plan.
(j)The NYSE shall have approved, upon official notice of issuance, the
listing of the Acquiring Fund Shares to be issued and delivered to the
Acquired Fund pursuant hereto.
9. Conditions to the Obligations of the Acquired Fund.
The obligations of the Acquired Fund with respect to the Acquisition shall
be subject to the following conditions precedent:
(a)The Acquired Fund shall have received an opinion of Seward & Kissel LLP,
counsel to the Acquiring Fund, in form and substance reasonably
satisfactory to the Acquired Fund and dated as of the Closing Date,
substantially to the effect that:
(1)The Acquiring Fund is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Maryland
and is a closed-end, management investment company registered under
the 1940 Act and duly registered under the 1934 Act;
(2)This Plan has been duly authorized, executed and delivered by the
Acquiring Fund and, assuming the N-14 Registration Statement referred
to in Section 2 of this Plan does not contain any material
misstatements or omissions, and assuming due authorization, execution
and delivery of this Plan by the Acquired Fund, represents a legal,
valid and binding contract, enforceable in accordance with its terms,
subject to the effect of bankruptcy, insolvency, moratorium,
fraudulent conveyance and transfer and similar laws relating to or
affecting creditors' rights generally and court decisions with
respect thereto, and further subject to the application of equitable
principles in any proceeding, whether at law or in equity or with
respect to the enforcement of provisions of the Plan and the effect
of judicial decisions which have held that certain provisions are
unenforceable when their enforcement would violate an implied
covenant of good faith and fair dealing or would be commercially
unreasonable or when default under the Plan is not material;
(3)The Acquiring Fund Shares to be delivered as provided for by this
Plan are duly authorized and upon delivery will be validly issued,
fully paid and non-assessable by the Acquiring Fund;
(4)The execution and delivery of this Plan did not, and the consummation
of the Acquisition will not, violate the Charter of the Acquiring
Fund, its Bylaws or any agreement of the Acquiring Fund known to such
counsel, after reasonable inquiry; and
(5)To the knowledge of such counsel, no consent, approval, authorization
or order of any federal or state court or administrative or
regulatory agency, other than the acceptance of record of Articles of
Transfer by the SDAT, is required for the Acquiring Fund to enter
into this Plan or carry out its terms, except those that have been
obtained under the 1933 Act, the 1934 Act, the 1940 Act and the rules
and regulations under those Acts or that may be required under state
securities laws or subsequent to the Effective Time or when the
failure to obtain the consent, approval, authorization or order would
not have a material adverse effect on the operation of the Acquiring
Fund.
48
In rendering such opinion, Seward & Kissel LLP may (i) rely on the
opinion of Venable LLP as to matters of Maryland law to the extent set
forth in such opinion, (ii) make assumptions regarding the authenticity,
genuineness and/or conformity of documents and copies thereof without
independent verification thereof, (iii) limit such opinion to applicable
federal and state law, (iv) define the word "knowledge" and related
terms to mean the knowledge of attorneys then with such firm who have
devoted substantive attention to matters directly related to this Plan
and (v) rely on certificates of officers or directors of the Acquiring
Fund as to factual matters.
(b)The Acquiring Fund shall have received a letter from the Adviser with
respect to insurance matters in form and substance satisfactory to the
Acquired Fund.
10.Conditions to the Obligations of the Acquiring Fund.
The obligations of the Acquiring Fund with respect to the Acquisition shall
be subject to the following conditions precedent:
(a)The Acquiring Fund shall have received an opinion of Seward & Kissel
LLP, counsel to the Acquired Fund, in form and substance reasonably
satisfactory to the Acquiring Fund and dated as of the Closing Date,
substantially to the effect that:
(1)The Acquired Fund is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Maryland
and is a closed-end management investment company registered under
the 1940 act and duly registered under the 1934 Act;
(2)This Plan has been duly authorized, executed and delivered by the
Acquired Fund and, assuming the N-14 Registration Statement referred
to in Section 2 of this Plan does not contain any material
misstatements or omissions, and assuming due authorization, execution
and delivery of this Plan by the Acquiring Fund, represents a legal,
valid and binding contract, enforceable in accordance with its terms,
subject to the effect of bankruptcy, insolvency, moratorium,
fraudulent conveyance and transfer and similar laws relating to or
affecting creditors' rights generally and court decisions with
respect thereto, and further subject to the application of equitable
principles in any proceeding, whether at law or in equity or with
respect to the enforcement of provisions of the Plan and the effect
of judicial decisions which have held that certain provisions are
unenforceable when their enforcement would violate an implied
covenant of good faith and fair dealing or would be commercially
unreasonable or when default under the Plan is not material;
(3)The execution and delivery of this Plan did not, and the consummation
of the Acquisition will not, violate the Charter of the Acquired
Fund, its Bylaws or any agreement of the Acquired Fund known to such
counsel, after reasonable inquiry, and no approval of the Plan by
stockholders of the Acquiring Fund is required under its Charter,
Bylaws or applicable law; and
(4)To the knowledge of such counsel, no consent, approval, authorization
or order of any federal or state court or administrative or
regulatory agency, other than the acceptance of record of Articles of
Transfer by the SDAT, is required for the Acquired Fund to enter into
the Plan or carry out its terms, except those that have been obtained
under the 1933 Act, the 1934 Act, the 1940 Act and the rules and
regulations under those Acts or that may be required under state
securities laws or subsequent to the Effective Time or when the
failure to obtain the consent, approval, authorization or order would
not have a material adverse effect on the operation of the Acquired
Fund.
In rendering such opinion, Seward & Kissel LLP may (i) rely on the
opinion of Venable LLP as to matters of Maryland law , (ii) make
assumptions regarding the authenticity, genuineness and/or conformity of
documents and copies thereof without independent verification thereof,
(iii) limit such opinion to applicable federal and state law,
(iv) define the word "knowledge" and related terms to mean the knowledge
of attorneys then with such firm who have devoted substantive attention
to matters directly related to this Plan and (v) rely on certificates of
officers or directors of the Acquired Fund as to factual matters.
49
(b)The Acquiring Fund shall have received a letter from the Adviser
agreeing to indemnify the Acquiring Fund in respect of certain
liabilities of the Acquired Fund in form and substance satisfactory to
the Acquiring Fund.
11.Closing
(a)The Closing shall be held at the offices of the Funds, 1345 Avenue of
the Americas, New York, New York 10105, or at such other time place as
the parties may agree.
(b)In the event that at the Valuation Time (a) the New York Stock Exchange
shall be closed to trading or trading thereon shall be restricted, or
(b) trading or the reporting of trading on said Exchange or elsewhere
shall be disrupted so that accurate appraisal of the value of the net
assets of the Acquired Fund or the Acquiring Fund is impracticable, the
Closing Date shall be postponed until the first business day after the
day when trading shall have been fully resumed and reporting shall have
been restored; provided that if trading shall not be fully resumed and
reporting restored within three business days of the Valuation Time,
this Plan may be terminated by either the Acquired Fund or the Acquiring
Fund upon the giving of written notice to the other party.
(c)The Acquiring Fund will provide to the Acquired Fund evidence
satisfactory to the Acquired Fund that the Acquiring Fund Shares
issuable pursuant to the Acquisition have been credited to the Acquired
Fund's account on the books of the Acquiring Fund. After the Closing
Date, the Acquiring Fund will provide to the Acquired Fund evidence
satisfactory to the Acquired Fund that such Shares have been credited
pro rata to open accounts in the names of the Acquired Fund Stockholders.
(d)At the Closing each party shall deliver to the other such bills of sale,
instruments of assumption of liabilities, checks, assignments, stock
certificates, receipts or other documents as such other party or its
counsel may reasonably request in connection with the transfer of
assets, assumption of liabilities and liquidation contemplated by the
Plan.
12.Survival of Representations and Warranties.
No representations, warranties or covenants in or pursuant to this Plan
(including certificates of officers) hereto shall survive the completion of the
transactions contemplated herein.
13.Termination of Plan.
A majority of either Fund's Board of Directors may terminate this Plan with
respect to that Fund at any time before the applicable Effective Time if:
(i) the Fund's conditions precedent set forth in Sections 8, 9 or 10 as
appropriate, are not satisfied; or (ii) the Board of Directors determines that
the consummation of the Acquisition is not in the best interests of the Fund or
its stockholders and gives notice of such termination to the other party.
14.Governing Law.
This Plan and the transactions contemplated hereby shall be governed,
construed and enforced in accordance with the laws of the State of New York,
except to the extent preempted by federal law, without regard to conflicts of
law principles.
15.Brokerage Fees.
Each party represents and warrants that there are no brokers or finders
entitled to receive any payments in connection with the transactions provided
for in the Plan.
16.Amendments.
The parties may, by agreement in writing authorized by their respective
Board of Directors, amend this Plan at any time before or after the
stockholders of the Acquired Fund approve the Acquisition. However, after
stockholders of the Acquired Fund approve the Acquisition, the parties may not
amend this Plan in a manner that
50
materially alters the obligations of the other party. This Section shall not
preclude the parties from changing the Closing Date or the Effective Time by
mutual agreement.
17.Waivers.
At any time prior to the Closing Date, either party may by written
instrument signed by it (i) waive the effect of any inaccuracies in the
representations and warranties made to it contained herein and (ii) waive
compliance with any of the agreements, covenants or conditions made for its
benefit contained herein. Any waiver shall apply only to the particular
inaccuracy or requirement for compliance waived, and not any other or future
inaccuracy or lack of compliance.
18.Indemnification of Directors.
The Acquiring Fund agrees that all rights to indemnification and all
limitations of liability existing in favor of the Acquired Fund's current and
former Directors and officers, acting in their capacities as such, under the
Acquired Fund's Articles of Incorporation and Bylaws as in effect as of the
date of this Plan shall survive the Acquisition as obligations of the Acquiring
Fund and shall continue in full force and effect, without any amendment
thereto, and shall constitute rights which may be asserted against the
Acquiring Fund, its successors or assigns.
19.Other Matters.
Pursuant to Rule 145 under the 1933 Act, and in connection with the issuance
of any shares to any person who at the time of the Acquisition is, to the
Acquiring Fund's knowledge, an affiliate of a party to the Acquisition pursuant
to Rule 145(c), the Acquiring Fund will cause to be affixed upon the
certificate(s) issued to such person (if any) a legend as follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
EXCEPT TO ACQUIRING FUND (OR ITS STATUTORY SUCCESSOR) UNLESS (I) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SHARES IS EFFECTIVE UNDER
THE SECURITIES ACT OF 1933 OR (II) IN THE OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE FUND, SUCH REGISTRATION IS NOT REQUIRED.
20.Cooperation and Further Assurances.
Each party will cooperate with the other in fulfilling its obligations under
this Plan and will provide such information and documentation as is reasonably
requested by the other in carrying out the Plan's terms. Each party will
provide such further assurances concerning the performance of its obligations
hereunder and execute all documents for or in connection with the consummation
of the Acquisition as, with respect to such assurances or documents, the other
shall deem necessary or appropriate.
21.Updating of N-14 Registration Statement.
If at any time prior to the Effective Time, a party becomes aware of any
untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements made not
misleading in the N-14 Registration Statement, the party discovering the item
shall notify the other party and the parties shall cooperate in promptly
preparing, filing and clearing with the SEC and, if appropriate, distributing
to stockholders appropriate disclosure with respect to the item.
22.Limitation on Liabilities.
The obligations of the Acquired Fund and the Acquiring Fund shall not bind
any of the directors, stockholders, nominees, officers, agents, employees or
agents of the Acquired Fund or the Acquiring Fund personally, but shall bind
only the Acquired Fund or Acquiring Fund, as appropriate. The execution and
delivery of this Plan by an officer of either party shall not be deemed to have
been made by the officer individually or to impose any liability on the officer
personally, but shall bind only the Acquired Fund or the Acquiring Fund, as
appropriate.
51
23.Termination of the Acquired Fund.
If the parties complete the Acquisition, the Acquired Fund shall terminate
its registration under the 1940 Act, the 1933 Act, and the 1934 Act and will
liquidate and dissolve.
24.Notices.
Any notice, report, statement, certificate or demand required or permitted
by any provision of the Plan shall be in writing and shall be given in person
or by telecopy, certified mail or overnight express courier to:
For the Acquired Fund:
[Acquired Fund]
1345 Avenue of the Americas
New York, New York 10105
Attention: Secretary
For the Acquiring Fund:
[Acquiring Fund]
1345 Avenue of the Americas
New York, New York 10105
Attention: Secretary
25.Expenses.
The Acquisition expenses shall be paid by the Acquired Fund.
26.General.
This Plan supersedes all prior agreements between the parties with respect
to the subject matter hereof and may be amended only in writing signed by both
parties. The headings contained in this Plan are for reference only and shall
not affect in any way the meaning or interpretation of this Plan. Whenever the
context so requires, the use in the Plan of the singular will be deemed to
include the plural and vice versa. Nothing in this Plan, expressed or implied,
confers upon any other person any rights or remedies under or by reason of this
Plan. Neither party may assign or transfer any right or obligation under this
Plan without the written consent of the other party.
52
In Witness Whereof, the parties hereto have executed this Plan as of the day
and year first above written.
[Acquired Fund]
Attest:
------------------------------------- By: -------------------------------------
Name:
-------------------------------- Name: --------------------------------
Title:
-------------------------------- Title: --------------------------------
[Acquiring Fund]
Attest:
------------------------------------- By: -------------------------------------
Name:
-------------------------------- Name: --------------------------------
Title:
-------------------------------- Title: --------------------------------
Accepted and agreed with respect to
Section [25] only:
AllianceBernstein L.P.
By: AllianceBernstein Corporation, its General Partner
By: ---------------------------------
Name: -------------------------
Title: -------------------------
53
APPENDIX F
CAPITALIZATION
The following table sets forth (i) the capitalization of the Funds and
(ii) the pro forma capitalization of the combined Fund as adjusted giving
effect to the proposed acquisition of assets at net asset value as of March 31,
2006:
AWDGF II
AWDGF AWDGF II Adjustments* (pro forma)
------------ ------------ ------------ --------------
Total Net Assets $129,364,129 $983,787,664 $(75,000) $1,113,076,793
Shares Outstanding 8,897,497 67,648,715 76,546,212
NAV Per Share $ 14.54 $ 14.54 -- $ 14.54
--------
* Portfolio repositioning costs.
54
APPENDIX G
TRADING HISTORY AND SHARE PRICE DATA
Shares of each of the Funds are traded on the NYSE under the following
symbols: AWDGF - "AWG" and AWDGF II - "AWF." Shares of closed-end management
companies frequently trade at discounts from their NAVs, and the Funds' shares
have also traded at a discount in recent times. The following tables set forth
for each Fund's fiscal quarter within the two most recent fiscal years and each
Fund's fiscal quarter since the beginning of the current fiscal year: (a) the
per share high and low sales prices as reported by the NYSE; (b) the NAV per
share, based on the Fund's computation as of 4:00 p.m. on the last NYSE
business day for the week corresponding to the dates on which the respective
high and low prices were recorded; and (c) the discount or premium to NAV
represented by the high and low sales prices shown. The range of NAVs and of
premiums and discounts for the shares during the periods shown may be broader
than is shown in this table. On September 15, 2006, the closing price per share
was $12.63 and $12.88, the NAV per share was $14.64 and $14.63 and the discount
to NAV was (13.73)% and (11.96)%, for AWDGF and AWDGF II, respectively.
(Discount) or
AWDGF Corresponding Premium to
FYE: October 31 Sales Price Net Asset Value Net Asset Value
--------------- ------------- --------------- ---------------
Quarter Ended High Low High Low High Low
------------- ------ ------ ------ ------ ------ ------
1/31/04 $13.99 $12.55 $14.00 $13.14 1.25% (4.49)%
4/30/04 $13.20 $11.05 $13.80 $12.73 (2.74)% (14.35)%
7/31/04 $11.59 $ 9.90 $12.97 $11.96 (9.91)% (17.22)%
10/31/04 $12.26 $11.44 $13.50 $12.97 (9.19)% (12.61)%
1/31/05 $12.70 $11.85 $13.97 $13.60 (9.09)% (12.87)%
4/30/05 $13.03 $11.44 $14.08 $13.49 (7.46)% (15.20)%
7/31/05 $12.58 $11.74 $14.13 $13.68 (10.97)% (14.48)%
10/31/05 $12.64 $11.99 $14.42 $13.95 (10.49)% (14.71)%
1/31/06 $12.76 $12.09 $14.71 $14.30 (12.95)% (15.45)%
4/30/06 $13.05 $12.15 $14.86 $14.31 (12.18)% (15.09)%
7/31/06 $12.42 $11.85 $14.45 $13.82 (13.50)% (15.44)%
(Discount) or
AWDGF II Corresponding Premium to
FYE: March 31 Sales Price Net Asset Value Net Asset Value
------------- ------------- --------------- ---------------
Quarter Ended High Low High Low High Low
------------- ------ ------ ------ ------ ------ ------
6/30/04 $13.04 $ 9.80 $13.61 $11.91 (4.19)% (17.72)%
9/30/04 $12.23 $11.03 $13.52 $12.52 (9.14)% (12.47)%
12/31/04 $12.41 $11.90 $13.66 $13.55 (9.04)% (13.11)%
3/31/05 $12.79 $11.40 $14.08 $13.39 (9.16)% (15.30)%
6/30/05 $12.42 $11.58 $14.16 $13.47 (11.99)% (14.24)%
9/30/05 $12.61 $12.28 $14.10 $14.06 (10.57)% (13.68)%
12/31/05 $12.74 $11.89 $14.42 $14.00 (11.65)% (15.15)%
3/31/06 $13.16 $12.42 $14.92 $14.45 (11.62)% (14.22)%
6/30/06 $12.70 $12.01 $14.54 $14.02 (12.28)% (14.79)%
55
APPENDIX H
LEGAL PROCEEDINGS
The staff of the U.S. Securities and Exchange Commission ("SEC") and the
Office of the New York Attorney General ("NYAG") have been investigating
practices in the mutual fund industry identified as "market timing" and "late
trading" of mutual fund shares. Certain other regulatory authorities have also
been conducting investigations into these practices within the industry and
have requested that the Adviser provide information to them. The Adviser has
been cooperating and will continue to cooperate with all of these authorities.
Excluding the occurrences of tender offers or stock repurchases, the shares
of a Fund are not redeemable by a Fund, but are traded on an exchange at prices
established by the market. Accordingly, the Fund and its stockholders are not
subject to the market timing and late trading practices that are the subject of
the investigations mentioned above or the lawsuits described below. Please see
below for a description of the agreements reached by the Adviser and the SEC
and NYAG in connection with the investigations mentioned above.
Numerous lawsuits have been filed against the Adviser and certain other
defendants in which plaintiffs make claims purportedly based on or related to
the same practices that are the subject of the SEC and NYAG investigations
referred to above. Some of these lawsuits name one or more of the Funds as a
party. The lawsuits are now pending in the United States District Court for the
District of Maryland pursuant to a ruling by the Judicial Panel on
Multidistrict Litigation transferring and centralizing all of the mutual funds
involving market and late trading in the District of Maryland (the "Mutual Fund
MDL"). Management of the Adviser believes that these private lawsuits are not
likely to have a material adverse effect on the results of operations or
financial condition of a Fund.
On December 18, 2003, the Adviser confirmed that it had reached terms with
the SEC and the NYAG for the resolution of regulatory claims relating to the
practice of "market timing" mutual fund shares in some of the AllianceBernstein
Mutual Funds. The agreement with the SEC is reflected in an Order of the
Commission ("SEC Order"). The agreement with the NYAG is memorialized in an
Assurance of Discontinuation dated September 1, 2004 ("NYAG Order"). Among the
key provisions of these agreements are the following:
(i)The Adviser agreed to establish a $250 million fund (the "Reimbursement
Fund") to compensate mutual fund stockholders for the adverse effects of
market timing attributable to market timing relationships described in
the SEC Order. According to the SEC Order, the Reimbursement Fund is to
be paid, in order of priority, to fund investors based on (i) their
aliquot share of losses suffered by the fund due to market timing, and
(ii) a proportionate share of advisory fees paid by such fund during the
period of such market timing;
(ii)The Adviser agreed to reduce the advisory fees it receives from some of
the AllianceBernstein long-term, open-end retail funds, commencing
January 1, 2004, for a period of at least five years; and
(iii)The Adviser agreed to implement changes to its governance and compliance
procedures. Additionally, the SEC Order contemplates that the Adviser's
registered investment company clients, including the Fund, will
introduce governance and compliance changes.
The shares of the Fund are not redeemable by the Fund, but are traded on an
exchange at prices established by the market. Accordingly, the Fund and its
stockholders are not subject to the market timing practices described in the
SEC Order and are not expected to participate in the Reimbursement Fund. Since
the Fund is a closed-end fund, it will not have its advisory fee reduced
pursuant to the terms of the agreements mentioned above.
On February 10, 2004, the Adviser received (i) a subpoena duces tecum from
the Office of the Attorney General of the State of West Virginia and (ii) a
request for information from West Virginia's Office of the State Auditor,
Securities Commission (the "West Virginia Securities Commission") (together,
the "Information Requests"). Both Information Requests require the Adviser to
produce documents concerning, among other things, any market timing or late
trading in the Adviser's sponsored mutual funds. The Adviser responded to the
Information Requests and has been cooperating fully with the investigation.
56
On April 11, 2005, a complaint entitled The Attorney General of the State of
West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed
against the Adviser, Alliance Capital Management Holding L.P. ("Alliance
Holding"), and various other defendants not affiliated with the Adviser. The
WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia
by the Attorney General of the State of West Virginia. The WVAG Complaint makes
factual allegations generally similar to those in certain of the complaints
related to the lawsuits discussed above. On May 31, 2005, defendants removed
the WVAG Complaint to the United States District Court for the Northern
District of West Virginia. On July 12, 2005, plaintiff moved to remand. On
October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL.
On August 30, 2005, the deputy commissioner of securities of the West
Virginia Securities Commission signed a "Summary Order to Cease and Desist, and
Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The
Summary Order claims that the Adviser and Alliance Holding violated the West
Virginia Uniform Securities Act, and makes factual allegations generally
similar to those in the SEC Order and the NYAG Order. On January 26, 2006, the
Adviser, Alliance Holding, and various unaffiliated defendants filed a Petition
for Writ of Prohibition and Order Suspending Proceedings in West Virginia state
court seeking to vacate the Summary Order and for other relief. The Adviser
intends to vigorously defend against the allegations in the WVAG Complaint.
On June 22, 2004, a purported class action complaint entitled Aucoin, et al.
v. Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed
against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital
Management Corporation, AXA Financial, Inc., AllianceBernstein Investment
Research & Management, Inc., certain current and former directors of the
AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin
Complaint names certain of the AllianceBernstein mutual funds as nominal
defendants. The Fund was not named as a defendant in the Aucoin Complaint. The
Aucoin Complaint was filed in the United States District Court for the Southern
District of New York by an alleged stockholder of an AllianceBernstein mutual
fund. The Aucoin Complaint alleges, among other things, (i) that certain of the
defendants improperly authorized the payment of excessive commissions and other
fees from fund assets to broker-dealers in exchange for preferential marketing
services, (ii) that certain of the defendants misrepresented and omitted from
registration statements and other reports material facts concerning such
payments, and (iii) that certain defendants caused such conduct as control
persons of other defendants. The Aucoin Complaint asserts claims for violation
of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206
and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding
and abetting breaches of common law fiduciary duties. Plaintiffs seek an
unspecified amount of compensatory damages and punitive damages, rescission of
their contracts with the Adviser, including recovery of all fees paid to the
Adviser pursuant to such contracts, an accounting of all fund-related fees,
commissions and soft dollar payments, and restitution of all unlawfully or
discriminatorily obtained fees and expenses.
Since June 22, 2004, nine additional lawsuits making factual allegations
substantially similar to those in the Aucoin Complaint were filed against the
Adviser and certain other defendants. All nine of the lawsuits (i) were brought
as class actions filed in the United States District Court for the Southern
District of New York, (ii) assert claims substantially identical to the Aucoin
Complaint, and (iii) are brought on behalf of stockholders of the Funds.
On February 2, 2005, plaintiffs filed a consolidated amended class action
complaint ("Aucoin Consolidated Amended Complaint") that asserts claims
substantially similar to the Aucoin Complaint and the nine additional lawsuits
referenced above. On October 19, 2005, the District Court dismissed each of the
claims set forth in the Aucoin Consolidated Amended Complaint, except for
plaintiff's claim under Section 36(b) of the Investment Company Act. On
January 11, 2006, the District Court granted defendants' motion for
reconsideration and dismissed the remaining Section 36(b) claim. Plaintiffs
have moved for leave to amend their consolidated complaint.
On October 19, 2005, the District Court granted in part, and denied in part,
defendants' motion to dismiss the Aucoin Complaint and as a result the only
claim remaining is plaintiffs' Section 36(b).
On August 7, 2006, the Mutual Fund MDL signed an Order staying the actions
(including discovery) against the Alliance defendants pending settlement.
The Adviser believes that these matters are not likely to have a material
adverse effect on the Fund or the Adviser's ability to perform advisory
services relating to the Fund.
57
APPENDIX I
SHARE OWNERSHIP INFORMATION
Shares Outstanding
As of August 15, 2006 each Fund had the following number of shares of common
stock outstanding.
Number of Outstanding
Shares of
Fund Common Stock
---- ---------------------
AWDGF 8,897,497
AWDGF II 67,648,715
Ownership of Shares
As of August 15, 2006, the directors and officers of each Fund as a group
beneficially owned less than 1% of the outstanding shares of common stock of
that Fund and, to the knowledge of each Fund, no person owned either of record
or beneficially, 5% or more of the outstanding shares of the Fund.
58
APPENDIX J
FINANCIAL HIGHLIGHTS TABLE
The financial highlights table is intended to help you understand each
Fund's financial performance for the past 5 years. 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). This information has been audited by Ernst & Young LLP, the
independent registered public accounting firm 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.
59
AWDGF II
Year Ended March 31,
----------------------------------------------------
2006 2005 2004(a) 2003 2002
-------- -------- -------- -------- --------
Net asset value, beginning of period $ 13.55 $ 13.59 $ 11.42 $ 10.58 $ 10.37
-------- -------- -------- -------- --------
Income From Investment Operations
Net investment income(b) .90 .87 .99 1.07 1.32
Net realized and unrealized gain (loss) on
investment transactions .99 (.08) 2.36 .83 .19
-------- -------- -------- -------- --------
Net increase in net asset value from operations 1.89 .79 3.35 1.90 1.51
-------- -------- -------- -------- --------
Less: Dividends
Dividends from net investment income (.90) (.83) (1.18) (1.06) (1.30)
-------- -------- -------- -------- --------
Net asset value, end of period $ 14.54 $ 13.55 $ 13.59 $ 11.42 $ 10.58
-------- -------- -------- -------- --------
Market value, end of period $ 12.59 $ 11.80 $ 12.91 $ 10.91 $ 10.32
======== ======== ======== ======== ========
Discount (13.41)% (12.92)% (5.00)% (4.47)% (2.46)%
Total Return
Total investment return based on:(c)
Market value 14.62% (1.96)% 29.27% 17.72% 27.02%
Net asset value 15.28% 6.94% 30.01% 20.20% 16.22%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) $983,788 $916,838 $919,453 $889,435 $823,753
Ratio to average net assets of:
Expenses 1.23% 1.30% 1.29% 1.49% 1.88%
Expenses, excluding interest expense 1.15% 1.28% 1.25% 1.35% 1.29%
Net investment income 6.33% 6.50% 7.65% 10.53% 12.69%
Portfolio turnover rate 79% 147% 158% 121% 178%
--------
(a)As of April 1, 2003, the Fund has adopted the method of accounting for
interim payments on swap contracts in accordance with Financial Accounting
Standards Board Statement No. 133. These interim payments are reflected
within net realized and unrealized gain (loss) on swap contracts, however,
prior to April 1, 2003, these interim payments were reflected within
interest income/expense on the statement of operations. The effect of this
change for the year ended March 31, 2004, was to decrease net investment
income per share by $0.06 and increase net realized and unrealized gain
(loss) on investment transactions per share by $0.06, and decrease the
ratios of net investment income and expenses to average net assets by 0.50%
and 0.20%, respectively.
(b)Based on average shares outstanding.
(c)Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of
each period reported. Dividends and distributions, if any, are assumed, for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's Dividend Reinvestment Plan. Generally, total investment return based
on net asset value will be higher than total investment return based on
market value in periods where there is an increase in the discount or a
decrease in the premium of the market value to the net asset value from the
beginning to the end of such periods. Conversely, total investment return
based on net asset value will be lower than total investment return based on
market value in periods where there is a decrease in the discount or an
increase in the premium of the market value to the net asset value from the
beginning to the end of such periods. Total investment return calculated for
a period of less than one year is not annualized.
60
AWDGF
Six Months
Ended
April 30, Year Ended October 31,
2006 --------------------------------------------------
(unaudited) 2005 2004(a) 2003 2002(b) 2001
----------- -------- -------- -------- ------- -------
Net asset value, beginning of period $ 14.17 $ 13.63 $ 13.05 $ 9.98 $ 9.43 $ 10.45
-------- -------- -------- -------- ------- -------
Income From Investment Operations
Net investment income(c) .40 .78 .77 1.04 1.06 1.36
Net realized and unrealized gain (loss)
on investment transactions .31 .59 .76 2.98 .59 (.95)
-------- -------- -------- -------- ------- -------
Net increase in net asset value from
operations .71 1.37 1.53 4.02 1.65 .41
-------- -------- -------- -------- ------- -------
Less: Dividends and Distributions
Dividends from net investment income (.41) (.83) (.95) (.95) (1.07) (1.36)
Distributions in excess of net
investment income -0- -0- -0- -0- (.02) (.07)
Tax return of capital -0- -0- -0- -0- (.01) -0-
-------- -------- -------- -------- ------- -------
Total dividends and distributions (.41) (.83) (.95) (.95) (1.10) (1.43)
-------- -------- -------- -------- ------- -------
Net asset value, end of period $ 14.47 $ 14.17 $ 13.63 $ 13.05 $ 9.98 $ 9.43
======== ======== ======== ======== ======= =======
Market value, end of period $ 12.39 $ 12.09 $ 12.20 $ 12.70 $ 9.55 $ 10.10
Premium/(Discount) (14.37)% (14.68)% (10.49)% (2.68)% (4.31)% 7.10%
Total Return
Total investment return based on:(d)
Market value 5.89% 5.95% 3.67% 44.12% 5.16% 11.51%
Net asset value 5.52% 11.15% 12.71% 41.71% 17.66% 3.45%
Ratios/Supplemental Data
Net assets, end of period (000's
omitted) $128,761 $126,113 $121,267 $115,986 $88,735 $82,478
Ratio to average net assets of:
Expenses 1.46%(e) 1.54% 1.59% 2.05% 1.87% 3.21%
Expenses, excluding interest
expense 1.37%(e) 1.54% 1.58% 1.63% 1.64% 1.65%
Net investment income 5.53%(e) 5.60% 5.82% 8.80% 10.55% 13.05%
Portfolio turnover rate 43% 86% 198% 131% 197% 202%
--------
(a)As of November 1, 2003, the Fund has adopted the method of accounting for
interim payments on swap contracts in accordance with Financial Accounting
Standards Board Statement No. 133. These interim payments are reflected
within net realized and unrealized gain (loss) on swap contracts, however,
prior to November 1, 2003, these interim payments were reflected within
interest income/expense on the statement of operations. The effect of this
change for the year ended October 31, 2004, was to decrease net investment
income per share by $.09 and increase net realized and unrealized gain
(loss) on investment transactions per share by $.09, and decrease the ratio
of net investment income to average net assets by .67%.
(b)As required, effective November 1, 2001, the Fund has 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. The effect of this change for the year ended
October 31, 2002 was to decrease net investment income per share by $0.02,
increase net realized and unrealized gain on investment per share by $0.02,
and decrease the ratio of net investment income to average net assets from
10.67% to 10.55%. Per share, ratios and supplemental data for periods prior
to November 1, 2001 have not been restated to reflect this change in
presentation.
(c)Based on average shares outstanding.
(d)Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of
the period reported. Dividends and distributions, if any, are assumed, for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's Dividend Reinvestment Plan. Generally, total investment return based
on net asset value will be higher than total investment return based on
market value in periods where there is an increase in the discount or a
decrease in the premium of the market value to the net asset value from the
beginning to the end of such periods. Conversely, total investment return
based on net asset value will be lower than total investment return based on
market value in periods where there is a decrease in the discount or an
increase in the premium of the market value to the net asset value from the
beginning to the end of such periods. Total investment return calculated for
a period of less than one year is not annualized.
(e)Annualized.
61
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II, INC.
1345 Avenue of the Americas
New York, New York
Toll Free (800) 221-5672
STATEMENT OF ADDITIONAL INFORMATION
October 27, 2006
This Statement of Additional Information ("SAI") relates specifically to the
proposed Acquisition (as defined in the Prospectus/Proxy Statement) wherein
Alliance World Dollar Government Fund II, Inc. ("AWDGF II") would acquire all of
the assets and assume all of the liabilities of Alliance World Dollar Government
Fund, Inc. ("AWDGF") in exchange solely for shares of AWDGF II, and cash in lieu
of fractional shares for those stockholders who do not participate in AWDGF's
Dividend Reinvestment and Cash Purchase Plan ("DRIP"). (AWDGF II and AWDGF are
each a "Fund" and collectively, the "Funds").
AllianceBernstein, L.P. (the "Adviser") serves as investment adviser to the
Funds. This SAI is not a prospectus, and should be read in conjunction with the
Prospectus/Proxy Statement for the Funds dated October 27, 2006. This SAI does
not include all information that a prospective investor should consider before
purchasing shares of the Fund, and investors should obtain and read the
Prospectus/Proxy Statement prior to purchasing shares. A copy of the
Prospectus/Proxy Statement may be obtained without charge, by calling
1-800-227-4618. This SAI incorporates by reference the entire Prospectus/Proxy
Statement.
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVES AND POLICIES............................................2
INVESTMENT PRACTICES..........................................................6
INVESTMENT RESTRICTIONS......................................................11
RISK FACTORS AND SPECIAL CONSIDERATIONS......................................12
MANAGEMENT OF THE FUNDS......................................................17
VALUATION OF PORTFOLIO SECURITIES............................................31
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN.................................33
DESCRIPTION OF COMMON STOCK..................................................35
PORTFOLIO TRANSACTIONS.......................................................36
DISTRIBUTIONS................................................................37
TAXATION.....................................................................37
PROXY VOTING.................................................................41
LEGAL MATTERS................................................................42
EXPERTS......................................................................42
FINANCIAL STATEMENTS.........................................................43
APPENDIX A..................................................................A-1
The following supplements the information contained in the Prospectus/Proxy
Statement concerning the Funds. AWDGF II and AWDGF are each a non-diversified
closed-end investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act").
INVESTMENT OBJECTIVES AND POLICIES
GENERAL. The Funds are non-diversied, closed-end management investment
companies. The primary investment objective of AWDGF II is to seek high current
income, with a secondary investment objective of capital appreciation. The
investment objective of AWDGF is to seek high current income by investing
exclusively in fixed income securities denominated in U.S. Dollars. In seeking
to achieve its investment objectives, each Fund invests principally in Sovereign
Debt Obligations (as defined below) and utilizes certain other investment
techniques, including options, futures, forwards and swaps, intended to enhance
income and reduce market risk. AWDGF II may also invest in U.S. corporate fixed
income securities. The Funds are designed primarily for long term investment and
investors should not consider any Fund to be a short-term trading vehicle. As
with all investment companies, there can be no assurance that a Fund's objective
will be achieved.
AWDGF II normally invests at least 80% of its total assets in Sovereign Debt
Obligations (as defined below). The balance of the Fund's investment portfolio,
up to 20% of its total assets, may be invested in U.S. corporate fixed income
securities which include debt securities, convertible securities and preferred
stocks of corporate issuers. AWDGF II has also adopted a fundamental policy that
it will invest at least 65% of its total assets in Sovereign Debt Obligations
(as defined below). AWDGF invests, under normal circumstances, at least 80% of
its net assets in Sovereign Debt Obligations (as defined below) and zero coupon
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("Zero Coupon Bonds"). AWDGF has adopted a fundamental policy
that, under normal circumstances, the Fund will invest at least 75% of its total
assets in (i) Sovereign Debt Obligations (as defined below) and (ii) Zero Coupon
Obligations. Each Fund's investment objective and fundamental policies (and its
investment restrictions set forth below under "Investment Restrictions") may be
changed only with the approval of the holders of a "majority of the Fund's
outstanding voting securities," which means the lesser of (i) 67% of the shares
of the Fund represented at a meeting at which more than 50% of the outstanding
shares are present in person or represented by proxy, or (ii) more than 50% of
the outstanding shares. A Fund's other investment policies described below,
except as set forth under "Investment Restrictions," are not fundamental and may
be changed by the Fund without stockholder approval.
SOVEREIGN DEBT OBLIGATIONS. Sovereign Debt Obligations are U.S.
Dollar-denominated debt securities issued or guaranteed by foreign governments,
including participations in loans between foreign governments and financial
institutions and interests in entities organized and operated for the purpose of
restructuring the investment characteristics of instruments issued or guaranteed
by foreign governments.
Sovereign Debt Obligations held by the Funds will take the form of bonds, notes,
bills, debentures, warrants, short-term paper, loan participations, loan
assignments and interests issued by entities organized and operated for the
purpose of restructuring the investment characteristics of other Sovereign Debt
Obligations.
AWDGF II emphasizes investments in the Sovereign Debt Obligations of countries
that are considered emerging market countries at the time of purchase. A
substantial part of the Fund's investment focus is in the Sovereign Debt
Obligations of Argentina, Brazil, Mexico, Morocco, the Philippines and
Venezuela. AWDGF invests substantially all of its assets in (i) Sovereign Debt
Obligations and (ii) Zero Coupon Obligations.
HIGH YIELD DEBT SECURITIES. Substantially all of AWDGF II's investments in
Sovereign Debt Obligations and U.S. corporate fixed income securities and
AWDGF's assets will be in high yield, high risk debt securities that are
low-rated (i.e., below investment grade) or unrated and in both cases that are
considered to be predominantly speculative as regards the issuer's capacity to
pay interest and repay principal.
STRUCTURED SECURITIES. The Funds may invest in securities issued in structured
financing transactions, which generally involve aggregating various types of
debt in a pool or special purpose entity and then issuing new securities. Each
Fund may invest up to 25% of its total assets in interests in entities organized
and operated solely for the purpose of restructuring the investment
characteristics of Sovereign Debt Obligations. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, of specified instruments (such as commercial bank loans) and the issuance
by that entity of one or more classes of securities ("Structured Securities")
backed by, or representing interests in, the underlying instruments. The cash
flow on the underlying instruments may be apportioned among the newly issued
Structured Securities to create securities with different investment
characteristics such as varying maturities, payment priorities and interest rate
provisions, and the extent of the payments made with respect to Structured
Securities is dependent on the extent of the cash flow on the underlying
instruments. Because Structured Securities of the type in which a Fund
anticipates it will invest typically involve no credit enhancement, their credit
risk generally will be equivalent to that of the underlying instruments.
The Funds are permitted to invest in a class of Structured Securities that is
either subordinated or unsubordinated to the right of payment of another class.
Subordinated Structured Securities typically have higher yields and present
greater risks than unsubordinated Structured Securities.
LOAN PARTICIPATIONS AND ASSIGNMENTS. The Funds may invest in fixed and floating
rate loans ("Loans") arranged through private negotiations between an issuer of
Sovereign Debt Obligations and one or more financial institutions ("Lenders").
The Funds' investments in Loans are expected in most instances to be in the form
of participations in Loans ("Participations") and assignments of all or a
portion of Loans ("Assignments") from third parties. Each Fund may invest up to
25% of its total assets in Participations and Assignments. The government that
is the borrower on the Loan will be considered by a Fund to be the issuer of a
Participation or Assignment for purposes of the Fund's fundamental investment
policy that it will not invest 25% or more of its total assets in securities of
issuers conducting their principal business activities in the same industry (for
this purpose, each foreign government is treated as a separate industry).
A Fund's investment in Participations typically will result in the Fund having a
contractual relationship only with the Lender and not with the borrower. Each
Fund will have the right to receive payments of principal, interest and any fees
to which it is entitled only from the Lender selling the Participation and only
upon receipt by the Lender of the payments from the borrower. In connection with
purchasing Participations, a Fund generally will have no right to enforce
compliance by the borrower with the terms of the loan agreement relating to the
Loan, nor any rights of set-off against the borrower, and the Fund may not
directly benefit from any collateral supporting the Loan in which it has
purchased the Participation. As a result, the Fund may be subject to the credit
risk of both the borrower and the Lender that is selling the Participation. In
the event of the insolvency of the Lender selling a Participation, the Fund may
be treated as a general creditor of the Lender and may not benefit from any
set-off between the Lender and the borrower. Certain Participations may be
structured in a manner designed to avoid purchasers of Participations being
subject to the credit risk of the Lender with respect to the Participation; but
even under such a structure, in the event of the Lender's insolvency, the
Lender's servicing of the Participation may be delayed and the assignability of
the Participation impaired. The Fund will acquire Participations only if the
Lender interpositioned between the Fund and the borrower is a Lender having
total assets of more than $25 billion and whose senior unsecured debt is rated
investment grade (i.e., Baa3 or higher by Moody's or BBB- or higher by S&P) or
higher.
When a Fund purchases Assignments from Lenders it will acquire direct rights
against the borrower on the Loan. Because Assignments are arranged through
private negotiations between potential assignees and potential assignors,
however, the rights and obligations acquired by the Fund as the purchaser of an
assignment may differ from, and be more limited than, those held by the
assigning Lender. The assignability of certain obligations is restricted by the
governing documentation as to the nature of the assignee such that the only way
in which the Fund may acquire an interest in a Loan is through a Participation
and not an Assignment. The Fund may have difficulty disposing of Assignments and
Participations because to do so it will have to assign such securities to a
third party. Because there is no liquid market for such securities, the Fund
anticipates that such securities could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market may have an
adverse impact on the value of such securities and the Fund's ability to dispose
of particular Assignments or Participations when necessary to meet the Fund's
liquidity needs in response to a specific economic event such as a deterioration
in the creditworthiness of the borrower. The lack of a liquid secondary market
for Assignments and Participations also may make it more difficult for the Fund
to assign a value to these securities for purposes of valuing the Fund's
portfolio and calculating its asset value.
ZERO COUPON OBLIGATIONS. AWDGF may invest in Zero Coupon Obligations, including
Treasury bills and the principal components of U.S. Treasury bonds, U.S.
Treasury notes and obligations of U.S. government agencies or instrumentalities.
A zero coupon security pays no interest to its holder during its life. An
investor acquires a zero coupon security at a discounted price from the face
value of the security, which is generally based upon its present value, and
which, depending upon the time remaining until maturity, may be significantly
less than its face value (sometimes referred to as a "deep discount" price).
Upon maturity of the zero coupon security, the investor receives the face value
of the security.
Currently, the only U.S. Treasury security issued without coupons is the
Treasury bill. The zero coupon securities purchased by a Fund may consist of
principal components held in STRIPS form issued through the U.S. Treasury's
STRIPS program, which permits the beneficial ownership of the component to be
recorded directly in the Treasury book-entry system. In addition, in the last
few years a number of banks and brokerage firms have separated ("stripped") the
principal portions ("corpus") from the coupon portions of the U.S. Treasury
bonds and notes and sold them separately in the form of receipts or certificates
representing undivided interests in these instruments (which instruments are
generally held by a bank in a custodial or trust account). The staff of the
Securities and Exchange Commission (the "Commission") has indicated that, in its
view, these receipts or certificates should be considered as securities issued
by the bank or brokerage firm involved and, therefore, unlike those obligations
issued under the U.S. Treasury's STRIPS program, should not be included in the
Fund's categorization of U.S. Government Securities. The Fund disagrees with the
staff's interpretation but has undertaken that it will not invest in such
securities until final resolution of the issue. If such securities are deemed to
be U.S. Government Securities, the Fund will not be subject to any limitations
on their purchase.
Because zero coupon securities trade at a discount from their face or par value
but pay no periodic interest, they are subject to greater fluctuations of market
value in response to changing interest rates than debt obligations of comparable
maturities which make periodic distributions of interest.
Current federal tax law requires that a holder (such as the Funds) of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the holder receives no interest
payment in cash on the security during the year (generally referred to as
"original issue discount" or "OID"). As a result, in order to make the
distributions necessary for a 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, obtained by liquidation of portfolio securities or borrowings if
necessary, greater than the total amount of cash that the Fund has actually
received as interest during the year. The Funds believe, however, that it is
highly unlikely that it would be necessary to liquidate portfolio securities or
borrow money in order to make such required distributions or to meet their
investment objective.
REPURCHASE AGREEMENTS. A repurchase agreement is an agreement by which a Fund
purchases a security and obtains a simultaneous commitment from the seller to
repurchase the security at an agreed upon price and date, normally one day or a
few days later. The resale price is greater than the purchase price, reflecting
an agreed-upon "interest rate" that 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 of the purchased security rather than its coupon rate. During the
term of the repurchase agreement, a Fund monitors on a daily basis the market
value of the securities subject to the agreement and, if the market value of the
securities falls below the resale amount provided under the repurchase
agreement, the seller under the repurchase agreement is required to provide
additional securities equal to the amount by which the market value of the
securities falls below the resale amount. Because a repurchase agreement permits
the Fund to invest temporarily available cash on a fully-collateralized basis,
repurchase agreements permit the Fund to earn a return on temporarily available
cash while retaining "overnight" flexibility in pursuit of investments of a
longer-term nature. Repurchase agreements may exhibit the characteristics of
loans by the Fund.
The obligation of the seller under the repurchase agreement is not guaranteed,
and there is a risk that the seller may fail to repurchase the underlying
security, whether because of the seller's bankruptcy or otherwise. In such
event, a Fund would attempt to exercise its rights with respect to the
underlying security, including possible sale of the securities. The Fund may
incur various expenses in the connection with the exercise of its rights and may
be subject to various delays and risks of loss, including (a) possible declines
in the value of the underlying securities, (b) possible reduction in levels of
income and (c) lack of access to the securities (if they are held through a
third-party custodian) and possible inability to enforce the Fund's rights. Each
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.
Each 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
securities in which the Fund may invest. Each Fund may enter into repurchase
agreements with respect to up to 35% of its total assets. Each Fund currently
enters into repurchase agreements only with its custodian and such primary
dealers.
U.S. CORPORATE FIXED-INCOME SECURITIES. AWDGF II may invest up to 20% of its
total assets in U.S. corporate fixed income securities which include debt
securities, convertible securities and preferred stocks of corporate issuers.
Differing yields on fixed-income securities of the same maturity are a function
of several factors, including the relative financial strength of the issuers.
Higher yields are generally available from securities in the lower rating
categories. When the spread between the yields of lower rated obligations and
those of more highly rated issues is relatively narrow, the Fund may invest in
the latter since they may provide attractive returns with somewhat less risk.
The Fund expects to invest in high yield, high risk lower rated securities
(i.e., securities rated lower than Baa3 by Moody's or BBB- by S&P) and in
unrated securities of comparable credit quality. Unrated securities will be
considered for investment by the Fund when the Adviser believes that the
financial condition of the issuers of such obligations and the protection
afforded by the terms of the obligations themselves limit the risk to the Fund
to a degree comparable to that of rated securities which are consistent with the
Fund's investment objectives and policies.
OTHER SECURITIES. While the principal investment strategies of the Funds
emphasize investment in Sovereign Debt Obligations, a Fund may, where consistent
with its investment objective, invest in securities other than Sovereign Debt
Obligations, including options, warrants, reverse repurchase agreements and
swaps, as discussed below under the caption "Investment Practices."
The Funds may also at any time temporarily invest funds awaiting reinvestment or
held for reserves for dividends and other distributions to stockholders in such
U.S. Dollar-denominated money market instruments.
Illiquid Securities. Each Fund may invest up to 50% of its total assets in
illiquid securities. These securities include, among others, (i) 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 of offers), and (ii)
repurchase agreements not terminable within seven days. Securities eligible for
resale under Rule 144A under the Securities Act of 1933, as amended (the "1933
Act"), that have legal or contractual restrictions on resale but have a readily
available market are not deemed to be illiquid for purposes of this limitation.
The Adviser will monitor such securities and in reaching decisions concerning
their marketability will consider, among other things, the following factors:
(i) the frequency of trades and quotes for the security; (ii) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers; (iii) dealer undertakings to make a market in the
security; (iv) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer); and (v) any applicable SEC
interpretation or position with respect to such type of securities.
INVESTMENT PRACTICES
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 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). Investments in options are considered speculative. A Fund may lose the
premium paid for them if the price of the underlying security or other asset
decreased or remained the same (in the case of a call option) or increased or
remained the same (in the case of a put option). 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.
Options on U.S. and Foreign Government Securities. For hedging and investment
purposes, the Funds may purchase and write (sell) put and call options on U.S.
and foreign government securities that are traded on U.S. and foreign securities
exchanges and over-the-counter markets.
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.
The premium paid by the purchaser of an option reflects, 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.
The risk associated with purchasing an option is that a Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk of
loss or premium and change in market value should the counterparty not perform
under the contract. Put and call options purchased are accounted for in the same
manner as portfolio securities. The cost of securities acquired through the
exercise of call options is increased by premiums paid. The proceeds from
securities sold through the exercise of put options are decreased by the
premiums paid.
When a Fund writes an option, the premium received by the Fund is recorded as a
liability and is subsequently adjusted to the current market value of the option
written. Premiums received from written options which expire unexercised are
recorded by the Fund on the expiration date as realized gains from options
written. The difference between the premium received and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium received is less than the
amount paid for the closing purchase transaction, as a realized loss. If a call
option is exercised, the premium received is added to the proceeds from the sale
of the underlying security or currency in determining whether the Fund has
realized a gain or loss. If a put option is exercised, the premium received
reduces the cost basis of the security or currency purchased by the Fund. In
writing an option, the Fund bears the market risk of an unfavorable change in
the price of the security or currency underlying the written option. Exercise of
an option written by the Fund could result in the Fund's selling or buying a
security or currency at a price different from the current market value.
If a put option written by a Fund were exercised the Fund would be obligated to
purchase the underlying security at the exercise price. If a call option written
by a 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.
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. These risks involved in writing a call option is that
there could be an increase in the market value or the underlying security. 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. A Fund retains
the premium received from writing a put or call option whether or not the option
is exercised.
A Fund may purchase or write options on securities of the types in which it is
permitted to invest in privately negotiated transactions. A 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 a 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.
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.
Warrants. The Funds may invest in warrants, which are securities permitting, but
not obligating, their holder to subscribe for other securities. The Funds may
invest in warrants for debt securities or warrants for equity securities that
are acquired as units with debt instruments.
Lending of Portfolio Securities. In order to increase income, a Fund may from
time to time lend securities from its portfolio to brokers, dealers and
financial institutions and receive collateral in the form of cash of U.S.
Government Securities. Under each Fund's procedures, collateral for such loans
must be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities (including interest accrued on the
loaned securities). The interest accruing on the loaned securities will be paid
to a Fund and the Fund will have the right, on demand, to call back the loaned
securities. The risks in lending portfolio securities, as with other extensions
of credit, consist of possible loss of rights in the collateral should the
borrower fail financially. In determining whether to lend securities to a
particular borrower, a Fund's Adviser (subject to review by the Board) will
consider all relevant facts and circumstances, including the creditworthiness of
the borrower. While securities are on loan, the borrower will pay a 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. A Fund may
pay fees to arrange the loans. A Fund will not lend portfolio securities in
excess of 30% of the value of its total assets nor lend its portfolio securities
to any officer, Director, employee or affiliate of the Fund or the Adviser.
Forward Commitments. A 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 of a proposed financing by appropriate
municipal authorities (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 a Fund enters into a forward commitment, it will record the transaction and
thereafter reflect the value of the security purchased or, if sold, the proceeds
to be received, in determining the net asset value ("NAV") of its shares. Any
unrealized appreciation or depreciation reflected in such valuation of a "when,
as and if issued" security would be cancelled in the event that the required
condition did not occur and the trade was cancelled.
The use of forward commitments enables a Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rate and falling bond prices, a 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, 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. However, if a Fund's Adviser were to forecast
incorrectly the direction of interest rate movements, the Fund might be required
to complete such when-issued of forward transactions at prices inferior to then
current market values. No forward commitments will be made by a Fund if, as a
result, the Fund's aggregate commitments under such transactions would be more
than 30% of the then current value of the Fund's total assets.
A Fund's right to receive or deliver a security under a forward commitment may
be sold prior to the settlement date, but the Fund enters into forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be. To facilitate such transactions, a Fund's
Custodian will maintain, in a segregated account of the Fund, cash or liquid
high-grade debt securities having value equal to, or greater than, any
commitments to purchase securities on a forward commitment basis and, with
respect to forward commitments to sell portfolio securities of the Fund, the
portfolio securities, themselves. If a 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 can incur a gain or loss. In the
event the other party to a forward commitment transaction were to default, a
Fund might lose the opportunity to invest money at favorable rates or to dispose
of securities at favorable prices.
Standby Commitment Agreements. The Funds may from time to time enter into
standby commitment agreements. A Fund enters into such agreements only for the
purpose of investing in the security underlying the commitment at a yield and
price that are considered advantageous to the Fund and that are unavailable on a
firm commitment basis. Each Fund will not enter into a standby commitment with a
remaining term in excess of 45 days and will limit its investment in such
commitments so that the aggregate purchase price of the securities subject to
the commitments, together with the value of portfolio securities that are not
readily marketable, will not exceed 50% of its assets taken at the time of
acquisition of such commitment of security.
Short Sales. A Fund may make short sales of securities or maintain a short
position, provided that at all times when a short position is open the Fund owns
an equal amount of such securities of the same issue as, and equal in amount to,
the securities sold short. In addition, a Fund may not make a short sale if more
than 10% of the Fund's net assets (taken at market value) would be held as
collateral for short sales at any one time. If the price of the security sold
short increases between the time of the short sale and the time a Fund replaces
the borrowed security, the Fund will incur a loss; conversely, if the price
declines, the Fund will realize a capital gain. Although a Fund's gain is
limited to the price at which it sold the security short, its potential loss is
unlimited. It is the Funds' present intention to make such sales only for the
purpose of deferring realization of gain or loss for federal income tax
purposes. Certain special federal income tax considerations may apply to short
sales, which are entered into by a Fund.
Reverse Repurchase Agreements. Each Fund may use reverse repurchase agreements
and dollar rolls as part of its investment strategy. 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.
Reverse repurchase agreements 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 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.
A Fund may enter into dollar rolls in which the Fund sells securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Fund forgoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the lower forward 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.
Swap. Each Fund may enter into swaps to hedge its exposure to interest rates and
credit risk or for investment purposes. A swap is an agreement that obligates
two parties to exchange a series of cash flows at specified intervals based upon
or calculated by reference to changes in specified prices or rates for a
specified amount of an underlying asset. The payment flows are usually netted
against each other, with the difference being paid by one party to the other.
Risks may arise as a result of the failure of the counterparty to the swap
contract to comply with the terms of the swap contract. The loss incurred by the
failure of a counterparty is generally limited to the net interest payment to be
received by a Fund, and/or the termination value at the end of the contract.
Therefore, a Fund considers the creditworthiness of each counterparty to a swap
contract in evaluating potential credit risk. Additionally, risks may arise from
unanticipated movements in interest rates or in the value of the underlying
securities.
A Fund accrues for the interim payments on swap contracts on a daily basis, with
the net amount recorded within unrealized appreciation/depreciation of swap
contracts on the statement of assets and liabilities. Once the interim payments
are settled in cash, the net amount is recorded as realized gain/loss on swaps,
in addition to realized gain/loss recorded upon the termination of swap
contracts on the statement of operations. Fluctuations in the value of swap
contracts are recorded as a component of net change in unrealized
appreciation/depreciation of investments.
Interest Rate Swap Agreements. The Funds may enter into interest rate swaps and
may purchase or sell (i.e., write) interest rate caps and floors. A Fund expects
to enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio. A Fund may also enter into
these transactions to protect against any 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 the Fund with another party of their
respective commitments to pay or receive interest (e.g., an exchange of floating
rate payments for fixed rate payments) 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). 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. The Fund may enter
into interest rate swaps, caps and floors on either an asset-based or
liability-based basis.
The swap market has grown substantially in recent years, with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become well established and relatively liquid. Caps and floors are 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 the Fund from interest rate
transactions is limited to the net amount of interest payments that the Fund is
contractually obligated to make. The Fund will enter into interest rate swap,
cap or floor transactions only with counterparties who have credit ratings of at
least A- (or the equivalent) from any one NRSRO or counterparties with
guarantors with debt securities having such a rating.
Credit Default Swap Agreements. The Funds may enter into credit default swaps.
The Fund may purchase credit protection on the referenced obligation of the
credit default swap ("Buy Contract") or provide credit protection on the
referenced obligation of the credit default swap ("Sale Contract"). A sale/(buy)
in a credit default swap provides upon the occurrence of a credit event, as
defined in the swap agreement, for the Fund to buy/(sell) from/(to) the
counterparty at the notional amount (the "Notional Amount") and
receive/(deliver) the principal amount of the referenced obligation. If a credit
event occurs, the maximum payout amount for a Sale Contract is limited to the
Notional Amount of the swap contract ("Maximum Payout Amount"). During the term
of the swap agreement, the Fund receives/(pays) interim fixed payments from/(to)
the respective counterparty, calculated at the agreed upon interest rate applied
to the Notional Amount. These interim payments are recorded within unrealized
appreciation/depreciation of swap contracts on the statement of assets and
liabilities. Credit default swaps may involve greater risks than if a Fund had
invested in the referenced obligation directly. Credit default swaps are subject
to general market risk, liquidity risk, counterparty risk and credit risk. If
the Fund is a buyer and no credit event occurs, it will lose its investment. In
addition, if the Fund is a seller and a credit event occurs, the value of the
referenced obligation received by the Fund coupled with the periodic payments
previously received, may be less than the Maximum Payout Amount it pays to the
buyer, resulting in a loss to the Fund.
Future Developments. A Fund may, following written notice to its stockholders,
take advantage of other investment practices which are not at present
contemplated for use by the Fund or which currently are not available but which
may be developed, to the extent such investment practices are both consistent
with the Fund's investment objective and legally permissible for the Fund. Such
investment practices, if they arise, may involve risks that exceed those
involved in the activities described above.
INVESTMENT RESTRICTIONS
Each Fund has adopted the following investment restrictions, which may not be
changed without the approval of the holders of a majority of that Fund's
outstanding voting securities as defined above. The percentage limitations set
forth below, as well as those described in the Prospectus/Proxy Statement and
elsewhere in this SAI, apply only at the time an investment is made or other
relevant action is taken by a Fund.
1. Each Fund will not make loans except through (a) the purchase of debt
obligations in accordance with its investment objective and policies;
(b) the lending of portfolio securities; or (c) the use of repurchase
agreements;
2. Each Fund will not invest 25% or more of its total assets in
securities of issuers conducting their principal business activities
in the same industry, except that this restriction does not apply to
U.S. Government Securities;
3. Each Fund will not borrow money, except a Fund may borrow (a) from a
bank or other entity in a privately arranged transaction and issue
commercial paper, bonds, debentures or notes, in series or otherwise,
with such interest rates, conversion rights and other terms and
provisions as are determined by the Fund's Board, if after such
borrowing or issuance there is asset coverage of at least 300% as
defined in the 1940 Act, and (b) for temporary purposes in an amount
not exceeding 5% of the value of the total assets of the Fund;
4. Each Fund will not pledge, hypothecate, mortgage or otherwise encumber
its assets, except to secure permitted borrowings;
5. Each Fund will not invest in companies for the purpose of exercising
control;
6. Each Fund will not make short sales of securities or maintain a short
position, unless at all times when a short position is open it owns an
equal amount of such securities or securities convertible into or
exchangeable for, without payment of any further consideration,
securities of the same issue as, and equal in amount to, the
securities sold short ("short sales against the box"), and unless not
more than 10% of the Fund's net assets (taken at market value) is held
as collateral for such sales at any one time (it is the Fund's present
intention to make such sales only for the purpose of deferring
realization of gain or loss for federal income tax purposes);
7. Each Fund will not (a) purchase or sell real estate, except that it
may purchase and sell securities of companies which deal in real
estate or interests therein and securities that are secured by real
estate, provided such securities are Sovereign Debt Obligations; (b)
purchase or sell commodities or commodity contracts; (c) invest in
interests in oil, gas, or other mineral exploration or development
programs; and (d) purchase securities on margin, except for such
short-term credits as may be necessary for the clearance of
transactions;
8. Each Fund would 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; and
9. Each fund will not act as an underwriter of securities, except that
the Fund may acquire restricted securities under circumstances in
which, if such securities were sold, the Fund might be deemed to be an
underwriter for purposes of the Securities Act of 1933.
RISK FACTORS AND SPECIAL CONSIDERATIONS
General. The NAV of shares of a Fund varies as the aggregate value of the Fund's
portfolio securities increases or decreases. A Fund's NAV changes as the general
levels of interest rates fluctuate. When interest rates decline, the value of a
portfolio invested in fixed-income securities can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in
fixed-income securities can be expected to decline. If the Adviser's expectation
of changes in interest rates or its evaluation of the normal yield relationships
in the fixed-income markets proves to be incorrect, a Fund's income, NAV and
potential capital gain may be decreased or its potential capital loss may be
increased.
Although changes in the value of a Fund's portfolio securities subsequent to
their acquisition are reflected in the Fund's NAV, such changes will not affect
the income received by the Fund from such securities. The dividends paid by a
Fund increase or decrease in relation to the income received by the Fund from
its investments, which is reduced by the Fund's expenses before being
distributed to the Fund's stockholders.
For these reasons, an investment in shares of the Fund should not constitute a
complete investment program and may not be appropriate for investors who cannot
assume the greater risk of capital depreciation inherent in seeking higher
income.
Borrowing. A Fund may, if and when market conditions dictate, borrow, including
on a secured basis, from bank or other entities in privately arranged
transactions to increase the money available to the Fund to invest in securities
when the Fund believes that the income from the securities financed will be
greater than the interest expense paid on the borrowing. Such borrowings involve
additional risk to a Fund, since the interest expense may be greater than the
income from or appreciation of the securities carried by the borrowings and
since the value of the securities carried may decline below the amount borrowed.
A Fund may also borrow to finance repurchases of or tender offers for its shares
when the Fund deems it desirable in order to avoid the untimely disposition of
portfolio securities. A Fund reserves the right to issue preferred stock,
commercial paper, bonds, debentures or notes, in series or otherwise, with such
interest rates, conversion rights and other terms and provisions as are
determined by the Fund's Board of Directors.
A Fund may borrow to the maximum extent permitted under the 1940 Act. The 1940
Act requires a Fund to maintain "asset coverage" of not less than 300% of its
"senior securities representing indebtedness," as those terms are defined and
used in the 1940 Act. In addition, a Fund may not make any cash distributions to
its stockholders if, after the distribution, there would be less than 300% asset
coverage of a senior security representing indebtedness for borrowings
(excluding for this purpose certain evidences of indebtedness made by a bank or
other entity and privately arranged, and not intended to be publicly
distributed). This limitation on a Fund's ability to make distributions could
under certain circumstances impair the Fund's ability to maintain its
qualification for taxation as a registered investment company.
A Fund may also borrow for temporary purposes in an amount not exceeding 5% of
the value of the total assets of the Fund. Such borrowings are not subject to
the asset coverage restrictions set forth in the preceding paragraph.
Any investment gains made with the proceeds obtained from borrowings in excess
or interest paid on the borrowings will cause the net income per share or the
NAV per share of a Fund's common stock to be greater than would otherwise be the
case. On the other hand, if the investment performance of the additional
securities purchased fails to cover their cost (including any interest paid on
the money borrowed) to a Fund, then the net income per share or NAV per share of
the Fund's common stock will be less than would otherwise be the case. This is
the speculative factor known as "leverage."
Effects of Leverage. Utilization of leverage, which is usually considered
speculative, involves certain risks to stockholders. These include a higher
volatility of the NAV of the common stock, caused by favorable or adverse
changes in currency exchange rates. In addition, fluctuations in the interest
rates on a Fund's indebtedness will affect the return to stockholders, with
increases in such rates decreasing such return.
To the extent that the current interest rate on a Fund's indebtedness approaches
the net return on the leveraged portion of the Fund's investment portfolio, the
benefit of leverage to stockholders will be reduced, and if the current interest
rate on the indebtedness were to exceed the net return on such portion of the
Funds' portfolio, the Fund's leverage would result in a lower rate of return to
stockholders and in a lower NAV than if a Fund were not leveraged. In an extreme
case, if a Fund's current investment income were not sufficient to meet interest
requirements on the indebtedness or if a Fund failed to maintain the asset
coverage required by the 1940 Act, it could be necessary for the Fund to
liquidated certain of its investments at a time when it may be disadvantageous
to do so, thereby reducing its NAV.
Investments in Lower-Rated Securities. Securities rated below investment grade,
i.e., Ba and lower by Moody's or BB and lower by S&P ("lower-rated securities"),
or, if not rated, determined by the Adviser to be of equivalent quality, are
subject to greater risk of loss of principal and interest than higher-rated
securities and are considered to be predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal, which may in any case
decline during sustained periods of deteriorating economic conditions or rising
interest rates. They are also generally considered to be subject to greater
market risk than higher-rated securities in times of deteriorating economic
conditions. In addition, lower-rated securities may be more susceptible to real
or perceived adverse economic 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. Securities rated Ba by
Moody's or BB by S&P are judged to have speculative characteristics or to be
predominantly speculative with respect to the issuer's ability to pay interest
and repay principal. Securities rated B by Moody's and S&P are judged to have
highly speculative characteristics or to be predominantly speculative. Such
securities may have small assurance of interest and principal payments.
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 Funds may experience difficulty
in valuing such securities and, in turn, the Funds' assets.
The Adviser will try to reduce risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political conditions.
However, there can be no assurance that losses will not occur. Since the risk of
default is higher for lower-rated securities, the Adviser's research and credit
analysis are a correspondingly 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 seeking to achieve the 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 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 NAV of the Fund.
Ratings of 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. See Appendix A for a description
of Moody's and S&P's bond ratings.
Certain lower-rated securities in which the Funds may invest may contain call or
buy-back features that permit the issuers thereof to call or repurchase such
securities. Such securities may present risks based on prepayment expectations.
If an issuer exercises such a provision, the Funds may have to replace the
called security with a lower yielding security, resulting in a decreased rate of
return to the Funds.
U.S. Corporate Fixed-Income Securities. The U.S. corporate fixed-income
securities in which AWDGF II will invest may include securities issued in
connection with corporate restructurings such as takeovers or leveraged buyouts,
which may pose particular risks. Securities issued to finance corporate
restructurings may have special credit risks due to the highly leveraged
conditions of the issuer. In addition, such issuers may lose experienced
management as a result of the restructuring. Finally, the market price of such
securities may be more volatile to the extent that expected benefits from the
restructuring do not materialize. The Fund may also invest in U.S. corporate
fixed-income securities that are not current in the payment of interest or
principal or are in default, so long as the Adviser believes such investment is
consistent with the Fund's investment objectives. The Fund's rights with respect
to defaults on such securities will be subject to applicable U.S. bankruptcy,
moratorium and other similar laws.
Sovereign Debt Obligations. No established secondary markets may exist for many
of the Sovereign Debt Obligations in which the Funds 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, among other things, in its
inflation rate, the amount of its external debt and its gross domestic product,
will also affect the government's ability to honor its obligations.
Many countries providing investment opportunities for the Funds have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have adverse effects on the economies and securities markets of
certain of these countries. In an attempt to control inflation, wage and price
controls have been imposed in certain countries.
Investing in Sovereign Debt Obligations involves economic and political risks.
The Sovereign Debt Obligations in which the Funds will invest in most cases
pertain to countries that are among the world's largest debtors to commercial
banks, foreign governments, international financial organizations and other
financial institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, obtaining new credit to finance interest payments. Certain governments
may not be able to make payments of interest on or principal of Sovereign Debt
Obligations as those payments have come due. Obligations arising from past
restructuring agreements may affect the economic performance and political and
social stability of those issuers.
Central banks and other governmental authorities which control the servicing of
Sovereign Debt Obligations may not be willing or able to permit the payment of
the principal or interest when due in accordance with the terms of the
obligations. As a result, the issuers of Sovereign Debt Obligations may default
on their obligations. Defaults on certain Sovereign Debt Obligations have
occurred in the past. Holders of certain Sovereign Debt Obligations may be
requested to participate in the restructuring and rescheduling of these
obligations and to extend further loans to the issuers. The interests of holders
of Sovereign Debt Obligations could be adversely affected in the course of
restructuring arrangements or by certain other factors referred to below.
Furthermore, some of the participants in the secondary market for Sovereign Debt
Obligations may also be directly involved in negotiating the terms of these
arrangements and may therefore have access to information not available to other
market participants.
The ability of governments to make timely payments on their obligations is
likely to be influenced strongly by the issuer's balance of payments, including
export performance, and its access to international credits and investments. A
country whose exports are concentrated in a few commodities could be vulnerable
to a decline in the international prices of one or more of those commodities.
Increased protectionism on the part of a country's trading partners could also
adversely affect the country's exports and diminish its trade account surplus,
if any.
To the extent that a country receives payment for its exports in currencies
other than dollars, its ability to make debt payments denominated in dollars
could be adversely affected. To the extent that a country develops a trade
deficit, it will need to depend on continuing loans from foreign governments,
multilateral organizations or private commercial banks, aid payments from
foreign governments and on inflows of foreign investment. The access of a
country to these forms of external funding may not be certain, and a withdrawal
of external funding could adversely affect the capacity of a government to make
payments on its obligations. In addition, the cost of servicing debt obligations
can be affected by a change in international interest rates since the majority
of these obligations carry interest rates that are adjusted periodically based
upon international rates.
Another factor bearing on the ability of a country to repay Sovereign Debt
Obligations is the level of the country's international reserves. Fluctuations
in the level of these reserves can affect the amount of foreign exchange readily
available for external debt payments and, thus, could have a bearing on the
capacity of the country to make payments in its Sovereign Debt Obligations.
The 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
the Adviser 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.
Non-Diversified Status. Each Fund is a "non-diversified" investment company,
which means the Fund is not limited in the proportion of its assets that may be
invested in the securities of a single issuer. However, the Fund intends to
conduct its operations so as to qualify as a "regulated investment company" for
purposes of the Code, which will relieve the Fund of any liability for federal
income tax to the extent its earnings are distributed to stockholders. To so
qualify, among other requirements, the Fund will limit its investments so that,
at the close of each quarter of the taxable year, (i) not more than 25% of the
market value of the Fund's total assets will be invested in the securities of a
single issuer, and (ii) with respect to 50% of the market value of its total
assets, not more than 5% of the market value of its total assets will be
invested in the securities of a single issuer and the Fund will not own more
than 10% of the outstanding voting securities of a single issuer. A Fund's
investments in U.S. Government Securities are not subject to these limitations.
Because the Fund, as a non-diversified investment company may invest in a
smaller number of individual issuers than a diversified investment company, an
investment in the Fund may, under certain circumstances, present greater risk to
an investor than an investment in a diversified company.
Securities issued or guaranteed by foreign governments are not treated like U.S.
Government Securities for purposes of the diversification tests described in the
preceding paragraph, but instead are subject to these tests in the same manner
as the securities of non-governmental issuers. In this regard, Sovereign Debt
Obligations issued by different issuers located in the same country are often
treated as issued by a single issuer for purposes of these diversification
tests. Certain issuers of Structured Securities and Participations may be
treated as separate issuers for purposes of these tests.
Because the Funds are non-diversified investment companies, they may invest in a
smaller number of individual issuers than a diversified investment company, and
an investment in such Fund may, under certain circumstances, present greater
risk to an investor than an investment in a diversified investment company.
Repurchase of Shares. In recognition of the possibility that a Fund's shares
might trade at a discount to NAV, each Fund's Board has determined that it would
be in the interest of stockholders for the Fund to attempt to reduce or
eliminate such a market value discount should it exist. To that end, each Fund's
Board presently contemplates that a Fund may from time to time take action
either to repurchase in the open market or to make a tender offer for its own
shares at NAV. Each Fund's Board presently intends each quarter to consider the
making of a tender offer. The Boards may at any time, however, decide that a
Fund should not make a tender offer.
Subject to a Fund's fundamental policy with respect to borrowings, the Fund may
incur debt to finance repurchases and/or tender offers. Interest on any such
borrowing will reduce the Fund's net income.
There can be no assurance that repurchases and/or tender offers will result in a
Fund's shares trading at a price equal to their NAV. Each Fund anticipates that
the market price of its shares will from time to time vary from NAV. The market
price of a Fund's shares will, among other things, be affected by the relative
demand for and supply of such shares in the market, the Fund's investment
performance, the Fund's dividends and yield and investor perception of the
Fund's overall attractiveness as an investment as compared with other investment
alternatives. Nevertheless, the fact that a Fund's shares may be the subject of
tender offers at NAV from time to time may reduce the spread that might
otherwise exist between market price and NAV. In the opinion of the Adviser,
sellers may be less inclined to accept a significant discount if they have a
reasonable expectation of being able to recover NAV in conjunction with a
possible tender offer.
Although each Fund's Board believes that share repurchases and tender offers
might, in certain circumstances have a favorable effect an the market price of a
Fund's shares, it should be recognized that the acquisition of shares by the
Fund would decrease the total assets of the Fund and therefore have the effect
of increasing the Fund's expense ratio. Even if a tender offer has been made, it
is a Board's policy, which may be changed by the Board, not to accept tenders or
effect repurchases if (1) such transactions if consummated, would (a) result in
the delisting of the Fund's shares from the New York Stock Exchange ("NYSE")
(the NYSE having advised the Fund that it would consider delisting if the
aggregate market value of the Fund's outstanding shares is less than $5,000,000,
the number of publicly held shares falls below 600,000 or the number of
round-lot holders fall below 1,200), or (b) impair the Fund's status as a
regulated investment company under the Code (which would make the Fund a taxable
entity, causing the Fund's income to be taxed at the corporate level in addition
to the taxation of stockholders who receive dividends from the Fund); (2) the
Fund would not be able to liquidate portfolio securities in an orderly manner
and consistent with the Fund's investment policies and objective in order to
repurchase shares; or (3) there is, in the Board's judgment, any material (a)
legal action or proceeding instituted or threatened challenging such
transactions or otherwise materially adversely affecting the Fund, (b)
suspension of or limitation on prices for trading securities generally on the
NYSE of any foreign exchange on which portfolio securities of the Fund are
traded, (c) declaration of a banking moratorium by federal, state or foreign
authorities or any suspension of payment by banks in the United States, New York
State or foreign countries in which the Fund invests, (d) limitation affecting
the Fund or the issuers of its portfolio securities imposed by federal, state or
foreign authorities on the extension of credit by lending institutions or on the
exchange of foreign currency, (e) commencement of war, armed hostilities or
other international or national calamity directly or indirectly involving the
United States or other countries in which the Fund invests or (f) other event or
condition which would have a material adverse effect on the Fund or its
stockholders if shares were repurchased. A Board may modify these conditions in
light of experience.
Any tender offer made by AWDGF II will be at a price equal to the NAV of the
shares on a date subsequent to the Fund's receipt of all tenders. Any tender
offer made by AWDGF will be at a price equal to the NAV per share determined at
the close of business on the day the offer terminates. Each offer will be made
and stockholders notified in accordance with the requirements of the Securities
Exchange Act of 1934, as amended and the 1940 Act, either by publication or
mailing or both. Each offering document will contain such information as is
prescribed by such laws and the rules and regulations promulgated thereunder.
When a tender offer is authorized to be made by a Fund's Board, a stockholder
wishing to accept the offer will be required to tender all (but not less thin
all) of the shares owned by such stockholder (or attributed to the stockholder
for federal income tax purposes under Section 318 of the Code). A Fund will
purchase all shares tendered in accordance with the terms of the offer unless it
determines to accept none of them (based upon one of the conditions set forth
above). Each person tendering shares will be required to submit a check in the
amount of $25.00, payable to the Fund, which will be used to help defray the
costs associated with effecting the tender offer. This $25.00 fee will be
imposed upon each tendering stockholder any of whose tendered shares are
purchased in the offer, and will be imposed regardless of the number of shares
purchased. A Fund expects the cost to the Fund of effecting a tender offer will
exceed the aggregate of all such fees received from those who tender offer their
shares. Costs associated with the tender offer will be charged against capital.
During the period of the tender offer, a Fund's stockholders will be able to
obtain the Fund's current NAV by use of a toll-free telephone number.
If a Fund must liquidate portfolio securities in order to purchase Fund shares
tendered, the Fund may realize gains and losses. If the portfolio securities
sold are "Section 998" items, a Fund's distributable net investment income could
be positively or adversely affected. The portfolio turnover rate of a Fund may
or may not be affected by the Fund's repurchase of shares pursuant to a tender
offer.
MANAGEMENT OF THE FUNDS
Directors and Officers
----------------------
The Directors and principal officers of the Funds and their principal
occupations during the past five years are set forth below. Unless otherwise
specified, the address of each such person is 1345 Avenue of the Americas, New
York, NY 10105. Each Director and officer is affiliated as such with one or more
of the other registered investment companies sponsored by the Adviser.
Directors
Name, Address and Fund Principal Occupation During the
Date of Birth First Year Elected Office Past Five Years and Other Affiliations
------------- ------------------ ------ --------------------------------------
Marc O. Mayer* AWDGF II - 2003 President Executive Vice President of AllianceBernstein L.P.
10/2/57 AWDGF - 2003 (the "Adviser")** since 2001 and Executive Managing
Director of AllianceBernstein Investments, Inc.
("ABI")** since 2003; prior thereto, he was head of
AllianceBernstein Institutional Investments, a unit
of AllianceBernstein, from 2001-2003. Prior
thereto, Chief Executive Officer of Sanford C.
Bernstein & Co., LLC (institutional research and
brokerage arm of Bernstein & Co. LLC) and its
predecessor since prior to 2001. He is a Director of
SCB Partners, Inc. and SCB, Inc.
William H. Foulk, Jr., +** AWDGF II - 1992 Chairman Investment Adviser and an independent consultant.
2 Sound View Drive AWDGF - 1993 Director He was formerly Senior Manager of Barrett
Suite 100 Associates, Inc., a registered investment adviser,
Greenwich, CT 06830 with which he had been associated since prior to
9/7/32 2001. He was formerly Deputy Comptroller and Chief
Investment Officer of the State of New York and,
prior thereto, Chief Investment Officer of the New
York Bank for Savings.
David H. Dievler, + AWDGF II - 1992 Director Independent Consultant. Until December 1994, he was
P.O. Box 167 AWDGF - 1993 Senior Vice President of AllianceBernstein
Spring Lake, NJ 07762 Corporation ("AB Corp.") (formerly Alliance Capital
10/23/29 Management Corporation) responsible for mutual fund
administration. Prior to joining AB Corp. in
1984, he was Chief Financial Officer of Eberstadt
Asset Management since 1968. Prior to that, he was
a Senior Manager at Price Waterhouse & Co. Member
of the American Institute of Certified Public
Accountants since 1953.
John H. Dobkin, + AWDGF II - 1992 Director Consultant. Formerly President of Save Venice, Inc.
P.O. Box 12 AWDGF - 1993 (preservation organization) from 2001 - 2002, a
Annandale, NY 12504 Senior Advisor from June 1999 - June 2000 and
2/19/42 President of Historic Hudson Valley (historic
preservation) from December 1989 - May 1999.
Previously, Director of the National Academy of
Design and during 1988 - 1992, Director and
Chairman of the Audit Committee of AB Corp. (formerly
Alliance Capital Management Corporation).
Michael J. Downey, + AWDGF II - 2005 Director Consultant since January 2004. Formerly managing
c/o AllianceBernstein L.P. AWDGF - 2005 partner of Lexington Capital, LLC (investment
Attention: Philip L. Kirstein advisory firm) from December 1997 until December
1345 Avenue of the Americas 2003. Prior thereto, Chairman and CEO of Prudential
New York, NY 10105 Mutual Fund Management from 1987 to 1993. Director
1/26/44 of Asia Pacific Fund, Inc. and The Merger Fund.
D. James Guzy, + AWDGF II - 2005 Director Chairman of the Board of PLX Technology
P.O. Box 128 AWDGF - 2005 (semi-conductors) and of SRC Computers Inc., with
Glenbrook, NV 89413 which he has been associated since prior to 2001.
3/7/36 He is also President of the Arbor Company (private
family investments). He is a director of Intel
Corporation (semi-conductors), Cirrus Logic
Corporation (semi-conductors), Novellus Corporation
(semi-conductor equipment) and the Davis
Selected Advisors Group of Mutual Funds.
Nancy P. Jacklin, #+ AWDGF II - 2006 Director Formerly U.S. Executive Director of the
4046 Chancery Court, NW AWDGF - 2006 International Monetary Fund (December 2002-May
Washington, DC 20007 2006); partner, Clifford Chance (1992-2002); Senior
5/22/48 Counsel, International Banking and Finance, and
Associate General Counsel, Citicorp (1985-1992);
Assistant General Counsel (International), Federal
Reserve Board of Governors (1982-1985); and
Attorney Advisor, U.S. Department of the Treasury
(1973-1982). Member of the Bar of the District of
Columbia and of New York; member of the Council on
Foreign Relations.
Marshall C. Turner, Jr., + AWDGF II - 2005 Director Principal of Turner Venture Associates since before
220 Montgomery Street AWDGF - 2005 2001. From 2003 until May 31, 2006, he was CEO of
Penthouse 10 Toppan Photomasks, Inc., Austin, Texas.
San Francisco, CA (Semi-conductor manufacturing services). He is
94104-3402 also a director of the George Lucas Educational
10/10/41 Foundation, and National Datacast, Inc.
----------
* "Interested person" as defined in the Investment Company Act of 1940, as
amended, of each Fund because of an affiliation with each Fund's investment
adviser, AllianceBernstein L.P.
+ Member of the Audit Committee, the Governance and Nominating Committee and
the Independent Directors Committee.
** Member of the Fair Value Pricing Committee.
During the Fund's fiscal year ended in 2006, the Board of AWDGF II met 9 times.
During the Fund's fiscal year ended in 2005, the Board of AWDGF met 11 times.
The Funds do not have a policy that requires a Director to attend annual
meetings of stockholders.
Each Fund's Board has four standing committees: an Audit Committee, a Governance
and Nominating Committee, an Independent Directors Committee, and a Fair Value
Pricing Committee. The members of the Committees are identified above in the
table listing the Directors. The function of the Audit Committee of each Fund is
to assist the Board in its oversight of a Fund's financial reporting process.
The members of the Audit Committee are "independent" as required by applicable
listing standards of the New York Stock Exchange. During the Fund's fiscal year
ended in 2006, the Audit Committee of AWDGF II met 3 times. During the Fund's
fiscal year ended in 2005, the Audit Committee of AWDGF met 3 times. During the
Fund's fiscal year ended in 2006, the Governance and Nominating Committee of
AWDGF II met 8 times. During the Fund's fiscal year ended in 2005, the
Governance and Nominating Committee of AWDGF met 8 times.
Each Fund's Board of Directors has adopted a charter for its Governance and
Nominating Committee, a copy of which may be found on the Adviser's website,
http://www.alliancebernstein.com (click on Investor Solutions/Mutual
Funds/Closed-End). Pursuant to the charter of the Governance and Nominating
Committee, the Governance and Nominating Committee assists each Board in
carrying out its responsibilities with respect to governance of a Fund and
identifies, evaluates and selects and nominates candidates for that Board. The
Committee also may set standards or qualifications for Directors. The Committee
may consider candidates as Directors submitted by a Fund's current Board
members, officers, investment adviser, stockholders and other appropriate
sources.
The Governance and Nominating Committee will consider candidates submitted by a
stockholder or group of stockholders who have owned at least 5% of a Fund's
outstanding common stock for at least two years at the time of submission and
who timely provide specified information about the candidates and the nominating
stockholder or group. To be timely for consideration by the Committee, the
submission, including all required information, must be submitted in writing to
the attention of the Secretary at the principal executive offices of a Fund not
less than 120 days before the date of the proxy statement for the previous
year's annual meeting of stockholders. The Committee will consider only one
candidate submitted by such a stockholder or group for nomination for election
at an annual meeting of stockholders. The Committee will not consider
self-nominated candidates.
The Governance and Nominating Committee will consider and evaluate candidates
submitted by stockholders on the basis of the same criteria as those used to
consider and evaluate candidates submitted from other sources. These criteria
include the candidate's relevant knowledge, experience, and expertise, the
candidate's ability to carry out his or her duties in the best interests of a
Fund and the candidate's ability to qualify as a disinterested Director.
The function of each Fund's Fair Value Pricing Committee is to consider, in
advance if possible, any fair valuation decision of the Adviser's Valuation
Committee relating to a security held by a Fund made under unique or highly
unusual circumstances not previously addressed by the Valuation Committee that
would result in a change in the Fund's NAV by more than $0.01 per share. The
Fair Value Pricing Committee did not meet during each Fund's most recently
completed fiscal year.
The function of each Fund's Independent Directors Committee is to consider and
take action on matters that the Board or Committee believes should be addressed
in executive session of the disinterested Directors, such as review and approval
of the Advisory Agreements. During the Fund's fiscal year ended in 2006, the
Independent Directors Committee of AWDGF II met 12 times. During the Fund's
fiscal year ended in 2005, the Independent Directors Committee of AWDGF met 8
times.
Officers
Name, Address* Position(s)(Month and Principal Occupation
and Date of Birth Year First Elected) During the Past 5 Years
----------------- ------------------- -----------------------
Marc O. Mayer President and Chief See biography above.
10/2/57 Executive Officer
(11/03)
Philip L. Kirstein Senior Vice President Senior Vice President and
5/29/45 and Independent Independent Compliance
Compliance Officer Officer of the
(10/04) AllianceBernstein Funds, with
which he has been associated
since October 2004. Prior
thereto, he was Of Counsel to
Kirkpatrick & Lockhart, LLP
from October 2003 to October
2004, and General Counsel of
Merrill Lynch Investment
Managers, L.P. since prior to
2001 until March 2003.
Paul J. DeNoon Vice President Senior Vice President of the
4/18/62 (04/94) Adviser,** with which he has
been associated since prior
to 2001.
Joseph J. Mantineo Treasurer and Senior Vice President of
3/28/59 Chief Financial Officer AllianceBernstein Investor
(08/06) Services, Inc. ("ABIS"),**
with which he has been
associated since prior to
2001.
Vincent S. Noto Controller Vice President of ABIS,**
12/14/64 (04/96) with which he has been
associated since prior to
2001.
Emilie D. Wrapp Secretary Senior Vice President,
11/13/55 (10/05) Assistant General Counsel and
Assistant Secretary of ABI,**
with which she has been
associated since prior to
2001.
----------
* The address for the Funds' officers is 1345 Avenue of the Americas, New
York, New York 10105.
** An affiliate of the Fund.
A Fund does not pay any fees to, or reimburse expenses of, any Director during a
time when such Director is considered an "interested person" of the Fund, as
defined by the 1940 Act. The aggregate compensation paid by each of AWDGF II and
AWDGF to each of its Directors during its fiscal year ended in 2006 and 2005,
respectively, the aggregate compensation paid to each of the Directors during
calendar year 2005 by all of the investment companies in the AllianceBernstein
Fund Complex, and the total number of investment companies (and separate
investment portfolios within those companies) in the AllianceBernstein Fund
Complex with respect to which each of the Directors serves as a director or
trustee, are set forth below. Neither the Funds nor any other investment company
in the AllianceBernstein Fund Complex provides compensation in the form of
pension or retirement benefits to any of its directors or trustees.
Total Total Number of Total Number of
Compensation Investment Investment
Aggregate from the Companies in the Portfolios within the
Compensation from AllianceBernstein AllianceBernstein AllianceBernstein
AWDGF II and AWDGF Fund Complex, Fund Complex, Fund Complex,
During the Fiscal Including Including the Funds, Including the Funds,
Year Ended in 2006 the Funds, as to which the as to which the
and 2005, During Calendar Director is a Director is a
Name of Director respectively Year 2005 Director or a Trustee Director or a Trustee
---------------- ------------ --------- --------------------- ---------------------
Marc O. Mayer $ 0 $ 0 41 111
AWDGF II
$ 0
AWDGF
William H. Foulk, Jr. $ 8,780 $487,625 43 113
AWDGF II
$ 8,301
AWDGF
David H. Dievler $ 4,796 $269,125 42 112
AWDGF II
$ 4,863
AWDGF
John H. Dobkin $ 5,929 $263,125 41 111
AWDGF II
$ 5,126
AWDGF
Michael J. Downey $ 4,850 $240,625 41 111
AWDGF II
$ 3,329
AWDGF
D. James Guzy* $ 977 $ 32,000 41 111
AWDGF II
$ 0
AWDGF
Nancy P. Jacklin* $ 0 $ 0 41 111
AWDGF II
$ 0
AWDGF
Marshall C. Turner, Jr.* $ 977 $ 28,500 41 111
AWDGF II
$ 0
AWDGF
----------
* Messrs. Guzy and Turner did not become Directors for the Funds until
December 15, 2005 and were directors for only one fund in the
AllianceBernstein Fund Complex prior to November 15, 2005. Ms. Jacklin did
not become a Director for the Funds until June 14, 2006.
As of January 27, 2006, each of the Directors of each Fund owned less than 1% of
the shares of such Fund and the Directors and officers of each Fund as a group
owned less than 1% of the shares of each such Fund. During each Fund's most
recently completed fiscal year, none of the Funds' Directors engaged in a
purchase or sale of the securities of the Adviser or any of its parents or
subsidiaries in an amount exceeding 1% of the relevant class of securities.
The dollar range of each Fund's securities owned by each Director and the
aggregate dollar range of securities owned in the AllianceBernstein Fund Complex
are set forth below.
Aggregate Dollar Range
of Equity Securities
in the Funds in the
Dollar Range of AllianceBernstein Fund
Equity Securities in Fund a Complex as of
Name of Director as of January 27, 2006 January 27, 2006
---------------- ------------------------ ------------------
Marc O. Mayer None over $100,000
William H. Foulk, Jr. $1-$10,000 AWDGF II over $100,000
$1-$10,000 AWDGF
David H. Dievler $10,001-$50,000 AWDGF II over $100,000
None AWDGF
John H. Dobkin $1-$10,000 AWDGF II over $100,000
None AWDGF
Michael J. Downey None AWDGF II over $100,000
D. James Guzy* None AWDGF II $50,001-$100,000
Nancy P. Jacklin* None AWDGF II $0
Marshall C. Turner, Jr.* None AWDGF II over $100,000
----------
* Messrs. Guzy and Turner did not become Directors for the Funds until
December 15, 2005 and were directors for only one fund in the
AllianceBernstein Fund Complex prior to November 15, 2005. Ms. Jacklin did
not become a Director for the Funds until June 14, 2006.
Each Fund, the Adviser and each Fund's principal underwriter have adopted a Code
of Ethics under Rule 17j-1 of the 1940 Act. These Codes do permit personnel
subject to the Codes to invest in securities, including securities that may be
purchased or held by the Fund. These Codes may be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. For information on the operation
of the Public Reference Room call the SEC at 1-202-551-8090. In addition, these
Codes are available on the SEC's Internet site at http://www.sec.gov or upon
request (for a duplicating fee) at the following E-mail address:
publicinfo@sec.gov or by writing the SEC's Public Reference Section, Washington,
DC 20549-0102
Adviser
The Funds' investment adviser, AllianceBernstein L.P. (the "Adviser"), 1345
Avenue of the Americas, New York, NY 10105, is a leading international
investment adviser managing client accounts with assets as of June 30, 2006
totaling more than $625 billion (of which more than $88 billion represented the
assets of investment companies). As of June 30, 2006, the Adviser managed
retirement assets for many of the largest public and private employee benefit
plans (including 41 of the nations' FORTUNE 100 companies), for public employee
retirement funds in 37 states, for investment companies, and for foundations,
endowments, banks and insurance companies worldwide. The 45 registered
investment companies managed by the Adviser, comprising 126 separate investment
portfolios, currently have approximately 4.0 million stockholder accounts.
The Adviser is a registered investment adviser under the Investment Advisers Act
of 1940, as amended. As of June 30, 2006, AllianceBernstein Holding, L.P.
("Holding"), a Delaware limited partnership, owned approximately 32.7% of the
issued and outstanding units of limited partnership interest in the Adviser
("AllianceBernstein Units"). Units representing assignments of beneficial
ownership of limited partnership interests in Holding ("Holding Units") trade
publicly on the Exchange under the ticker symbol "AB". AllianceBernstein Units
do not trade publicly and are subject to significant restrictions on transfer.
AllianceBernstein Corporation ("AB Corp.") is the general partner of both the
Adviser and Holding. AB Corp. owns 100,000 general partnership units in Holding
and a 1% general partnership interest in the Adviser. AB Corp. is an indirect
wholly-owned subsidiary of AXA Financial, Inc. ("AXA Financial"), a Delaware
corporation.
As of June 30, 2006, AXA, AXA Financial, AXA Equitable Life Insurance Company
("AXA Equitable") and certain subsidiaries of AXA Equitable beneficially owned
approximately 59.6% of the issued and outstanding AllianceBernstein Units and
approximately 1.7% of the issued and outstanding Holding Units that, including
the general partnership interests in the Adviser and Holding, represent an
economic interest of approximately 60.6% in the Adviser. As of June 30, 2006,
SCB Partners, Inc., a wholly-owned subsidiary of SCB, Inc., beneficially owned
approximately 6.3% of the issued and outstanding AllianceBernstein Units.
AXA, a French company, is the holding company for an international group of
companies and a worldwide leader in financial protection and wealth management.
AXA operates primarily in Western Europe, North America and the Asia/Pacific
region and, to a lesser extent, in other regions including the Middle East,
Africa and South America. AXA has five operating business segments: life and
savings, property and casualty insurance, international insurance (including
reinsurance), asset management and other financial services. AXA Financial is a
wholly-owned subsidiary of AXA. AXA Equitable is an indirect wholly-owned
subsidiary of AXA Financial.
Under the Advisory Agreement, the Adviser furnishes advice and recommendations
with respect to the Fund's portfolio of securities and investments and provides
persons satisfactory to the Board of Directors to act as officers and employees
of the Fund. Such officers and employees may be employees of the Adviser or its
affiliates.
Each Fund has entered into an Advisory Agreement with the Adviser. Each Fund's
Advisory Agreement was approved by the vote, cast in person, of the Fund's
Directors including the Directors who are not parties to the Advisory Agreement
or interested persons as defined in the 1940 Act, of any such party, at a
meeting called and held for that purpose.
The Adviser provides investment advisory services and order placement facilities
for each of the Fund's 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 a Fund, without charge, management supervision and
assistance and office facilities and provide persons satisfactory to a Fund's
Board to serve as the Fund's officers. Each Fund has, under the Advisory
Agreement, assumed obligation to pay for all other expenses. As to the obtaining
of services other than those specifically provided to a Fund by the Adviser, the
Fund may employ its own personnel. For such services, the Fund may also 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 therefor, which
must be specifically approved by the Fund's Board.
Under its Advisory Agreement, each Fund pays the Adviser an advisory fee at an
annual rate of .90% of the Fund's average weekly net assets. Prior to October 1,
2005, AWDGF II paid the Adviser an advisory fee at an annual rate of 1.00% of
the Fund's average weekly net assets. Such fee is accrued daily and paid
monthly.
For purposes of the calculation of the fee payable to the Adviser, average
weekly net assets are determined on the basis of the average net assets of a
Fund for each weekly period (ending on Fridays) ending during the month. The net
assets for each weekly period are determined by averaging the net assets on
Friday of such weekly period with the net assets on Friday of the immediately
preceding weekly period. When a Friday is not a Fund business day, then the
calculation will be based on the net assets of a Fund on the Fund business day
immediately preceding such Friday. This advisory fee may be greater than that
paid by most funds. In addition to payments to the Adviser under the Advisory
Agreement, the Fund pays certain other costs.
For the fiscal years ended March 31, 2006, 2005 and 2004, AWDGF II paid advisory
fees to the Adviser that, in the aggregate, amounted to $9,123,453, $9,008,460
and $9,536,160, respectively. For the fiscal year ended October 31, 2005, 2004
and 2003, AWDGF paid advisory fees to the Adviser that, in the aggregate,
amounted to $1,230,992, $1,715,403 and $1,054,431, respectively.
Each Fund's Advisory Agreement is terminable with respect to that Fund without
penalty on 60 days written notice by a vote of a majority of the outstanding
voting securities of such Fund or by a vote of a majority of the Fund's
Directors, or by the Adviser on 60 days written notice, and will automatically
terminate in the event of its assignment. Each Fund's 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 Agreements for the Funds continue in effect, provided 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, including in
either case approval by a majority of the Directors who are not parties to the
Advisory Agreement or interested persons of such parties as defined by the 1940
Act. Most recently, continuance of the Advisory Agreements of each Fund's
Advisory Agreements was approved by the respective Board, including a majority
of the Directors who are not parties to the Advisory Agreements or interested
persons of any such party, at a Meeting held on September 14 and 16, 2005.
Portfolio Managers
The dollar ranges of AWDGF II's equity securities owned directly or beneficially
by the Fund's portfolio managers as of March 31, 2006 are set forth below.
DOLLAR RANGE OF EQUITY SECURITIES IN AWDGF II
Paul J. DeNoon None
Fernando Grisales None
Michael Mon None
Douglas Peebles None
Matthew Sheridan None
AWDGF II
--------
The following tables provide information regarding registered investment
companies other than the Fund, other pooled investment vehicles and other
accounts over which the Fund's portfolio managers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of the
Fund's fiscal year ended March 31, 2006.
REGISTERED INVESTMENT COMPANIES
(excluding AWDGF II)
Number of Total Assets
Total Total Registered of Registered
Number of Assets of Investment Investment
Registered Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------- ------- ---------- ----------
Paul J. DeNoon 16 2,893,298,272 None None
Fernando Grisales None None None None
Michael Mon 8 1,615,130,891 None None
Douglas Peebles None None None None
Matthew Sheridan 4 635,546,781 None None
POOLED INVESTMENT VEHICLES
Number of Total Assets
Total Total Registered of Registered
Number Assets Investment Investment
of Pooled of Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------- ------- ---------- ----------
Paul J. DeNoon 6 7,841,698,582 None None
Fernando Grisales None None None None
Michael Mon 1 1,875,079 1 1,875,079
Douglas Peebles None None None None
Matthew Sheridan 6 767,897,420 None None
OTHER ACCOUNTS
Number
Total Total of Other Total Assets
Number Assets Accounts of Other
of Other of Other Managed with Accounts with
Account Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------- ------- ---------- ----------
Paul J. DeNoon None None None None
Fernando Grisales None None None None
Michael Mon 10 618,085,446 1 115,112,449
Douglas Peebles None None None None
Matthew Sheridan 2 127,813,696 None None
Investment Professional Conflict of Interest Disclosure
As an investment adviser and fiduciary, the Adviser owes its clients and
stockholders an undivided duty of loyalty. We recognize that conflicts of
interest are inherent in our business and accordingly have developed policies
and procedures (including oversight monitoring) reasonably designed to detect,
manage and mitigate the effects of actual or potential conflicts of interest in
the area of employee personal trading, managing multiple accounts for multiple
clients, including AllianceBernstein Mutual Funds, and allocating investment
opportunities. Investment professionals, including portfolio managers and
research analysts, are subject to the above-mentioned policies and oversight
monitoring to ensure that all clients are treated equitably. We place the
interests of our clients first and expect all of our employees to meet their
fiduciary duties.
Employee Personal Trading. The Adviser has adopted a Code of Business
Conduct and Ethics that is designed to detect and prevent conflicts of interest
when investment professionals and other personnel of the Adviser own, buy or
sell securities which may be owned by, or bought or sold for, clients. Personal
securities transactions by an employee may raise a potential conflict of
interest when an employee owns or trades in a security that is owned or
considered for purchase or sale by a client, or recommended for purchase or sale
by an employee to a client. Subject to the reporting requirements and other
limitations of its Code of Business Conduct and Ethics, the Adviser permits its
employees to engage in personal securities transactions, and also allows them to
acquire investments in the AllianceBernstein Mutual Funds through direct
purchase, 401K/profit sharing plan investment and/or notionally in connection
with deferred incentive compensation awards. The Adviser's Code of Ethics and
Business Conduct requires disclosure of all personal accounts and maintenance of
brokerage accounts with designated broker-dealers approved by the Adviser. The
Code also requires preclearance of all securities transactions and imposes a
one-year holding period for securities purchased by employees to discourage
short-term trading.
Managing Multiple Accounts for Multiple Clients. The Adviser has compliance
policies and oversight monitoring in place to address conflicts of interest
relating to the management of multiple accounts for multiple clients. Conflicts
of interest may arise when an investment professional has responsibilities for
the investments of more than one account because the investment professional may
be unable to devote equal time and attention to each account. The investment
professional or investment professional teams for each client may have
responsibilities for managing all or a portion of the investments of multiple
accounts with a common investment strategy, including other registered
investment companies, unregistered investment vehicles, such as hedge funds,
pension plans, separate accounts, collective trusts and charitable foundations.
Among other things, the Adviser's policies and procedures provide for the prompt
dissemination to investment professionals of initial or changed investment
recommendations by analysts so that investment professionals are better able to
develop investment strategies for all accounts they manage. In addition,
investment decisions by investment professionals are reviewed for the purpose of
maintaining uniformity among similar accounts and ensuring that accounts are
treated equitably. No investment professional that manages client accounts
carrying performance fees is compensated directly or specifically for the
performance of those accounts. Investment professional compensation reflects a
broad contribution in multiple dimensions to long-term investment success for
our clients and is not tied specifically to the performance of any particular
client's account, nor is it directly tied to the level or change in level of
assets under management.
Allocating Investment Opportunities. The Adviser has policies and
procedures intended to address conflicts of interest relating to the allocation
of investment opportunities. These policies and procedures are designed to
ensure that information relevant to investment decisions is disseminated
promptly within its portfolio management teams and investment opportunities are
allocated equitably among different clients. The investment professionals at the
Adviser routinely are required to select and allocate investment opportunities
among accounts. Portfolio holdings, position sizes, and industry and sector
exposures tend to be similar across similar accounts, which minimizes the
potential for conflicts of interest relating to the allocation of investment
opportunities. Nevertheless, investment opportunities may be allocated
differently among accounts due to the particular characteristics of an account,
such as size of the account, cash position, tax status, risk tolerance and
investment restrictions or for other reasons.
The Adviser's procedures are also designed to prevent potential conflicts of
interest that may arise when the Adviser has a particular financial incentive,
such as a performance-based management fee, relating to an account. An
investment professional may perceive that he or she has an incentive to devote
more time to developing and analyzing investment strategies and opportunities or
allocating securities preferentially to accounts for which the Adviser could
share in investment gains.
To address these conflicts of interest, the Adviser's policies and procedures
require, among other things, the prompt dissemination to investment
professionals of any initial or changed investment recommendations by analysts;
the aggregation of orders to facilitate best execution for all accounts; price
averaging for all aggregated orders; objective allocation for limited investment
opportunities (e.g., on a rotational basis) to ensure fair and equitable
allocation among accounts; and limitations on short sales of securities. These
procedures also require documentation and review of justifications for any
decisions to make investments only for select accounts or in a manner
disproportionate to the size of the account.
Portfolio Manager Compensation
The Adviser's compensation program for investment professionals is designed to
be competitive and effective in order to attract and retain the highest caliber
employees. The compensation program for investment professionals is designed to
reflect their ability to generate long-term investment success for our clients,
including stockholders of the AllianceBernstein Mutual Funds. Investment
professionals do not receive any direct compensation based upon the investment
returns of any individual client account, nor is compensation tied directly to
the level or change in level of assets under management. Investment
professionals' annual compensation is comprised of the following:
(i) Fixed base salary: This is generally the smallest portion of
compensation. The base salary is a relatively low, fixed salary within a similar
range for all investment professionals. The base salary is determined at the
outset of employment based on level of experience, does not change significantly
from year-to-year and hence, is not particularly sensitive to performance.
(ii) Discretionary incentive compensation in the form of an annual cash
bonus: The Adviser's overall profitability determines the total amount of
incentive compensation available to investment professionals. This portion of
compensation is determined subjectively based on qualitative and quantitative
factors. In evaluating this component of an investment professional's
compensation, the Adviser considers the contribution to his/her team or
discipline as it relates to that team's overall contribution to the long-term
investment success, business results and strategy of the Adviser. Quantitative
factors considered include, among other things, relative investment performance
(e.g., by comparison to competitor or peer group funds or similar styles of
investments, and appropriate, broad-based or specific market indices), and
consistency of performance. There are no specific formulas used to determine
this part of an investment professional's compensation and the compensation is
not tied to any pre-determined or specified level of performance. The Adviser
also considers qualitative factors such as the complexity and risk of investment
strategies involved in the style or type of assets managed by the investment
professional; success of marketing/business development efforts and client
servicing; seniority/length of service with the firm; management and supervisory
responsibilities; and fulfillment of the Adviser's leadership criteria.
(iii) Discretionary incentive compensation in the form of awards under the
Adviser's Partners Compensation Plan ("deferred awards"): the Adviser's overall
profitability determines the total amount of deferred awards available to
investment professionals. The deferred awards are allocated among investment
professionals based on criteria similar to those used to determine the annual
cash bonus. There is no fixed formula for determining these amounts. Deferred
awards, for which there are various investment options, vest over a four-year
period and are generally forfeited if the employee resigns or the Adviser
terminates his/her employment. Investment options under the deferred awards plan
include many of the same AllianceBernstein Mutual Funds offered to mutual fund
investors, thereby creating a close alignment between the financial interests of
the investment professionals and those of the Adviser's clients and mutual fund
stockholders with respect to the performance of those mutual funds. The Adviser
also permits deferred award recipients to allocate up to 50% of their award to
investments in the Adviser's publicly traded equity securities.(1)
----------
(1) Prior to 2002, investment professional compensation also included
discretionary long-term incentive in the form of restricted grants of the
Adviser's Master Limited Partnership Units.
(iv) Contributions under the Adviser's Profit Sharing/401(k) Plan: The
contributions are based on the Adviser's overall profitability. The amount and
allocation of the contributions are determined at the sole discretion of the
Adviser.
The Adviser may act as an investment adviser to other persons, firms or
corporations, including investment companies, and is investment adviser to
AllianceBernstein Balanced Shares, Inc., AllianceBernstein Blended Style Series,
Inc., AllianceBernstein Bond Fund, Inc., AllianceBernstein Cap Fund, Inc.,
AllianceBernstein Emerging Market Debt Fund, Inc., AllianceBernstein Exchange
Reserves, AllianceBernstein Fixed-Income Shares, Inc., AllianceBernstein Focused
Growth & Income Fund, Inc., AllianceBernstein Global Government Income Trust,
Inc., AllianceBernstein Global Health Care Fund, Inc., AllianceBernstein Global
Research Growth Fund, Inc., AllianceBernstein Global Strategic Income Trust,
Inc., AllianceBernstein Global Technology Fund, Inc., AllianceBernstein Greater
China '97 Fund, Inc., AllianceBernstein Growth and Income Fund, Inc.,
AllianceBernstein High Yield Fund, Inc., AllianceBernstein Institutional Funds,
Inc., AllianceBernstein International Growth Fund, Inc., AllianceBernstein
International Research Growth Fund, Inc., AllianceBernstein Large Cap Growth
Fund, Inc., AllianceBernstein Mid-Cap Growth Fund, Inc., AllianceBernstein
Municipal Income Fund, Inc., AllianceBernstein Municipal Income Fund II,
AllianceBernstein Real Estate Investment Fund, Inc., AllianceBernstein Short
Duration Portfolio, AllianceBernstein Tax-Managed International Portfolio,
AllianceBernstein Trust, AllianceBernstein Utility Income Fund, Inc.,
AllianceBernstein Variable Products Series Fund, Inc., Sanford C. Bernstein Fund
II, Inc., The AllianceBernstein Pooling Portfolios and The AllianceBernstein
Portfolios, all registered open-end investment companies; and to AWDGF Fund,
Inc., AWDGF II Fund, Inc., ACM Managed Dollar Income Fund, Inc., ACM Managed
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. and The Spain Fund, Inc., all registered closed-end investment
companies.
Administrator
The Adviser serves as administrator for each of the Funds. Under the
administrative agreements, the Adviser performs standard administrative services
for the Funds.
Pursuant to the Administration Agreement in effect until October 1, 2005, AWDGF
II paid the Adviser an administrative fee of .15% of the Fund's average weekly
net assets. Effective that date, pursuant to an Amended Administration
Agreement, the Fund reimburses the Adviser for its costs, including legal and
accounting costs, in serving as Administrator of the Fund; provided, however,
that the reimbursement may not exceed the prior fee of .15% of average weekly
net assets.
Pursuant to an Administration Agreement, effective October 1, 2005, AWDGF pays
the Adviser an administrative fee in the amount of $106,000 per year for its
costs incurred for providing administrative services. Prior to October 1, 2005,
the Fund paid the Adviser an administrative fee at an annual rate of .15% of the
Fund's average weekly net assets.
For the fiscal years ended March 31, 2006, 2005 and 2004, AWDGF II paid
administrative fees to the Adviser that, in the aggregate, amounted to $763,168,
$1,351,269 and $1,430,424, respectively. For the fiscal years ended October 31,
2005, 2004 and 2003, AWDGF paid administrative fees to the Adviser that, in the
aggregate, amounted to $179,078, $176,311 and $158,165, respectively.
Shareholder Servicing
AllianceBernstein Investor Services, Inc. ("ABIS"), an affiliate of the Adviser,
provides stockholder services for the Funds. The Funds reimburse ABIS for these
services. For these services and for the fiscal years ended March 31, 2006, 2005
and 2004, AWDGF II paid ABIS $880, $2,100 and $0, respectively. For these
services and for its fiscal years ended October 31, 2005, 2004 and 2003, AWDGF
paid ABIS $490, $530 and $1,250, respectively.
Custodian, Dividend Paying Agent, Transfer Agent and Registrar
Bank of New York, One Wall Street, New York, NY 10286 serves as custodian for
each of the Funds. Computershare Trust Company, N.A. ("Computershare"), P.O. Box
43010, Providence, RI 02940 serves as the dividend paying agent, transfer agent
and registrar for each of the Funds.
For these services and for the fiscal years ended March 31, 2006, 2005 and 2004.
AWDGF II paid Bank of New York $620,055, $659,504 and $443,567, respectively;
and paid Computershare $73,119, $108,617 and $142,951, respectively. For these
services and for the fiscal years ended October 31, 2005, 2004 and 2003, AWDGF
paid Bank of New York $175,062, $212,163 and $214,179, respectively; and paid
and PFPC, Inc., the Fund's previous transfer agent, $57,214, $59,911 and
$47,772, respectively.
Stock Ownership
As of September 29, 2006, to the knowledge of the Funds, no person owned either
of record or beneficially, 5% or more of the oustanding shares of either of the
Funds.
VALUATION OF PORTFOLIO SECURITIES
Each Fund calculates and makes available for weekly publication the NAV of its
shares of common stock. The NAV per share of a Fund's common stock is determined
as of the close of trading on the NYSE each Friday or, when Friday is not a Fund
business day, on the immediately preceding Fund business day, by adding the
market value of all securities in the Fund's portfolio and other assets,
subtracting liabilities incurred or accrued and dividing by the total number of
the Fund's shares of common stock then outstanding.
In accordance with applicable rules under the 1940 Act, portfolio securities are
valued at current market value or at fair value as determined in good faith by
the Board of Directors. The Board of Directors has delegated to the Adviser
certain of the Board's duties with respect to the following procedures. Readily
marketable securities listed on the NYSE or on a foreign securities 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 NYSE or, in the case of a foreign securities exchange, at the last quoted
sale price, in each case on the business day as of which such value is being
determined. If there has been no sale on such day, the securities are valued at
the 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 NYSE 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 faire value by, or in accordance with
procedures established by, the Board of Directors. Readily marketable securities
not listed on the NYSE or on a foreign securities exchange are valued in like
manner. Portfolio securities traded on the NYSE and on one or more other foreign
or other national securities exchanges, and portfolio securities not traded on
the NYSE but traded on one or more foreign or other national securities
exchanges are valued in accordance with these procedures by reference to the
principal exchange on which the securities are traded.
Readily marketable securities traded only in the over-the-counter market,
securities listed on a foreign securities exchange whose operations are similar
to those of the United Stated 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 NYSE 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 a 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
may 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/dealers 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 a 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 competed 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. A Fund's calculation of
the net asset value per share, therefore, does not always take place
contemporaneously with the most recent determination of the prices of portfolio
securities in these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are determined in accordance
with the above procedures and the close of the NYSE will not be reflected in the
Fund's calculation of net asset value unless these prices do not reflect current
market value, in which case the securities will be valued in good faith by fair
value by, or in accordance with procedures established by, the Board of
Directors.
The Board of Directors may suspend the determination of a Fund's net asset
value, subject to the rules of the SEC and other governmental rules and
regulations, at a time when: (1) the NYSE is closed, other than customary
weekend and holiday closings or (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.
For purposes of determining a 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 NYSE, the
rate of exchange will be determined in good faith by, or under the direction of,
the Board of Directors.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Stockholders of each Fund whose shares are registered in their own names may
elect to be participants in each Fund's DRIP, under which dividends and capital
gain distributions to stockholders will be paid or reinvested in additional
shares of a Fund (the "Dividend Shares"). Computershare Trust Company, N.A. (the
"Agent") serves as the agent for participants under the DRIP for the Funds.
Stockholders who do not elect to participate in the DRIP will receive all
distributions in cash paid by check mailed directly to the stockholder of record
(or, if the shares are held in street or other nominee name, then to the
nominee) by the Agent, as dividend disbursing agent.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income taxes that may be payable (or required to be
withheld) on dividends and distributions. The federal income tax treatment of
reinvestment is described under "Taxation."
A stockholder who has elected to participate in the DRIP may withdraw from the
DRIP at any time. There will be no penalty for withdrawal from the DRIP and
stockholders who have previously withdrawn from the DRIP may rejoin it at any
time. Changes in elections must be in writing and should include the
stockholders name and address as they appear on the share certificate. An
election to withdraw from the DRIP will, until such election is changed, be
deemed to be an election by a stockholder to take all subsequent distributions
in cash. An election will be effective only for a distribution declared and
having a record date of at least 10 days after the date on which the election is
received. A stockholder whose shares are held in the name of a broker or nominee
should contact such broker or nominee concerning changes in that stockholder's
election.
Under a DRIP and commencing not more than five business days before the dividend
payment date, purchases of a Fund's shares may be made by the Agent, on behalf
of the participants in the DRIP, from time to time to satisfy dividend
reinvestments under the DRIP. Such purchases by the Agent on or before the
dividend payment date may be made on the NYSE or elsewhere at any time when the
price plus estimated commissions of a Fund's common stock on the NYSE is lower
than the Fund's most recently calculated NAV per share.
If the Agent determines on the dividend payment date that the shares purchased
as of such date are insufficient to satisfy the dividend reinvestment
requirements, the Agent, on behalf of the participants in the DRIP, will obtain
the necessary additional shares as follows. To the extent that outstanding
shares are not available at a cost of less than per share NAV, the Agent, on
behalf of the participants in the DRIP, will accept payment of the dividend, or
the remaining portion thereof, in authorized but unissued shares of a Fund on
the dividend payment date. Such shares will be issued at a per share price equal
to the higher of (1) the NAV per share on the payment date, or (2) 95% of the
closing market price per share on the payment date. If the closing sale or offer
price, plus estimated commissions, of the common stock on the NYSE on the
payment date is less than a Fund's NAV per share on such day, then the Agent
will purchase additional outstanding shares on the NYSE or elsewhere. If before
the Agent has completed such purchases, the market price plus commissions
exceeds the NAV of a Fund share, the average per share purchase price paid by
the Agent may exceed the NAV of the Fund's shares, resulting in the acquisition
of fewer shares than if shares had been issued by the Fund.
Participants in a DRIP have the option of making additional cash payments to the
Agent, semi-annually, in any amount of $100 or more for investment in a Fund's
shares. The Agent uses all funds received from participants to purchase Fund
shares in the open market on or about each January 15 and July 15. Participants'
cash payments are also used to acquire Fund shares under the same procedure as
that used for reinvestment of dividends and distributions. To allow ample time
for receipt and processing by the Agent, participants should send in voluntary
cash payments to be received by the Agent not later than five business days
before each January 15 and July 15. To avoid unnecessary cash accumulations,
cash payments received after that time and cash payments received more than 30
days prior to these dates will be returned by the Agent and interest will not be
paid on any uninvested cash payments. A participant may withdraw a voluntary
cash payment by written notice, if the notice is received by the Agent not less
than 48 hours before such payment is to be invested.
The Agent will maintain all stockholders' accounts in a DRIP and furnish written
confirmation of all transactions in the account, including information needed by
stockholders for tax records. Shares in the account of each DRIP participant
will be held by the Agent in non-certificated form in the name of the
participant, and each stockholder's proxy will include those shares purchased or
received pursuant to the DRIP.
In the case of stockholders such as banks, brokers or nominees, which hold
shares for others who are the beneficial owners, the Agent will administer the
DRIP on the basis of the number of shares certificated from time to time by the
record stockholders as representing the total amount registered in the record
stockholders' name and held for the account of beneficial owners who are to
participate in the DRIP.
There will be no brokerage charges with respect to shares issued directly by the
Fund to satisfy the dividend reinvestment requirements. However, each
participant will pay a pro rata share of brokerage commissions incurred with
respect to the Agent's open market purchases of shares. In each case, the cost
per share of shares purchased for each stockholder's account will be the average
cost, including brokerage commissions, of any shares purchased in the open
market plus the cost of any shares issued by the Fund. A participant also will
pay brokerage commissions incurred in purchases from voluntary cash payments
made by the participant.
Stockholders participating in a DRIP may receive benefits not available to
stockholders not participating in a DRIP. If the market price plus commissions
of a Fund's shares is above the NAV, participants in a DRIP will receive shares
of a Fund at a discount of up to 5% from the current market value. However, if
the market price plus commissions is below the NAV, participants will receive
distributions in shares with a NAV greater than the value of any cash
distribution they would have received on their shares. There may be insufficient
shares available in the market to make distributions in shares at prices below
NAV. Also, since a Fund does not redeem it shares, the price on resale may be
more or less than the NAV.
In the case of foreign participants whose dividends are subject to U.S. income
tax withholding and in the case of any participants subject to 31% federal
backup withholding, the Agent will reinvest dividends after deduction of the
amount required to be withheld.
Experience under a DRIP may indicate that changes are desirable. Accordingly, a
Fund reserves the right to amend or terminate a DRIP as applied to any voluntary
cash payments made and any dividend or distribution paid subsequent to written
notice of the change sent to participants in the DRIP at least 90 days before
the record date for such dividend or distribution. A DRIP may also be amended or
terminated by the Agent on at least 90 days' written notice to participants in
the DRIP. There is no service charge to participants in a DRIP; however, a Fund
reserves the right to amend the DRIP to include a service charge payable to the
Agent by the participants. All correspondence concerning the DRIPs for the Funds
should be directed to Computershare Trust Company, N.A., P.O. Box 43010,
Providence, RI 02940.
DESCRIPTION OF COMMON STOCK
Common Stock of the Funds
Each Fund is authorized to issue up to 100,000,000 shares of common stock, par
value $.01 per share. As of [March 29], 2006, AWDGF II and AWDGF had
[67,648,715] and [8,897,498] shares outstanding, respectively. The Funds' shares
have no preemptive, conversion, exchange or redemption rights. Each share has
equal voting, dividend, distribution and liquidation rights. The shares of each
Fund outstanding are, and the shares of AWDGF II, when issued upon the
Acquisitions will be, fully paid and nonassessable. Stockholders are entitled to
one vote per share. All voting rights for the election of Directors are
noncumulative, which means that the holders of more than 50% of the shares of
common stock of a Fund can elect 100% of the Directors then nominated for
election if they choose to do so and, in such event, the holders of the
remaining shares of common stock will not be able to elect any Directors. Under
the rules of the NYSE applicable to listed companies, each Fund is required to
hold an annual meeting of stockholders each year.
Certain Anti-Takeover Provisions of the Fund's Charters Articles of
Incorporation and Bylaws
The Funds presently have provisions in their Charters, and Bylaws (together, the
"Charter Documents") that are intended to limit (i) the ability of other
entities or persons to acquired control of a Fund, (ii) a Fund's freedom to
engage in certain transactions, or (iii) the ability of a Fund's Directors or
stockholders to amend the Charter Documents or effect changes in the Fund's
management. These provisions of the Charter Documents may be regarded as
"anti-takeover" provisions. The Board of Directors of each Fund is divided into
three classes, each having a term of three years. Each class of Directors serves
for a three year term. Accordingly, only those - Directors may have the effect
of maintaining the continuity of management and, thus, make it more difficult
for the Fund's stockholders to change the majority of Directors. Under Maryland
law and a Fund's Charter, the affirmative vote of the holders of a majority of
the votes entitles to be cast is required for the consolidation of the Fund with
another corporation, a merger of the Fund with or into another corporation
(except for certain mergers in which the Fund is the successor), a statutory
share exchange in which the Fund is not the successor, a sale or transfer of all
or substantially all of the Fund's assets, the dissolution of the Fund and
certain amendments to the Fund's Charter. In addition, the affirmative vote of
75% (which is higher than that required under Maryland law or the 1940 Act) of
the outstanding shares of common stock of a Fund is required generally to
authorize any of the following transactions or to amend the provisions of the
Articles of Incorporation relating to such transactions:
(i) merger, consolidation or statutory share exchange of the Fund with or
into any corporation, person or other entity;
(ii) issuance of any securities of the Fund to any corporation, person or
other entity for cash;
(iii) sale, lease ore exchange of all or any substantial part of the assets
of the Fund to any corporation, person or other entity (except assets
having an aggregate fair market value of less than $1,000,000); or
(iv) sale, lease or exchange to the Fund, in exchange for securities of the
Fund, of any assets of any corporation, person or other entity (except
assets having an aggregate fair market value of less than $1,000,000);
If such corporation, person or entity is directly, or indirectly through
affiliates or associates, the beneficial owner of more than 5% of the
outstanding shares of the Fund (a "principal stockholder"). However, such vote
would not be required where, under certain condition, the Board of Directors
approves the transaction, although in certain cases involving merger,
consolidation or statutory share exchange or sale of all or substantially all of
the Fund's assets the affirmative vote of a majority of the outstanding shares
of a Fund would nevertheless be required.
The provisions of the Charter Documents described above and a Fund's right to
repurchase or make a tender offer for its common stock could have the effect of
depriving the owners of shares of opportunities to sell their shares at a
premium over prevailing market prices, by discouraging a third party from
seeking to obtain control of a Fund in a tender offer or similar transaction.
The overall effect of these provisions is to render more difficult the
accomplishment of a merger or the assumption of control by a principal
stockholder. However, they provide the advantage of potentially requiring
persons seeking control of a Fund to negotiate with its management regarding the
price to be paid and facilitating the continuity of the Fund's management and
investment objective and policies. The Board of Directors of each Fund has
considered the foregoing anti-takeover provisions and concluded that they are in
the best interests of the Fund and its stockholders.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of a Fund's Board, the Adviser is responsible
for the investment decisions and the placing of orders for portfolio
transactions for the Fund. A Fund's portfolio transactions occur primarily with
issuers, underwriters or major dealers acting as principals. Such transactions
are normally on a net basis, which does 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 asked prices. Premiums are
paid with respect to options purchased by a Fund and brokerage commissions are
payable with respect to transactions in exchange-traded futures contracts.
A 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 each 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 a 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 Rules of Fair
Practice of the National Association of Securities Dealers, Inc., and subject to
seeking best price and execution, a Fund may consider sales of shares of the
Fund as a factor in the selection of dealers to enter into portfolio
transactions with the Fund.
Brokerage Allocation and Other Practices
Neither a Fund nor the Adviser has entered into agreements or understandings
with any brokers or dealers regarding the placement of securities transactions
because of research or statistical services they provide. To the extent that
such persons or firms supply investment information to the Adviser for use in
rendering investment advice to a Fund, such information may be supplied at no
cost to the Adviser and, therefore, may have the effect of reducing the expenses
of the Adviser in rendering advice to the Fund. While it is impossible to place
an actual dollar value on such investment information, its receipt by the
Adviser probably does not reduce the overall expenses of the Adviser to any
material extent.
The investment information provided to the Adviser is of the types described in
Section 28(e)(3) of the Securities Exchange Act of 1934 and is designed to
augment the Adviser's own internal research and investment strategy
capabilities. Research and statistical services furnished by brokers through
whom a Fund effects securities transactions are used by the Adviser in carrying
out its investment management responsibilities with respect to all its client
accounts but not all such services may be utilized by the Adviser in connection
with the Fund. A Fund will deal in some instances in equity securities, which
are not listed on a national stock exchange but are traded in the
over-the-counter market. Where transactions are executed in the over-the-counter
market, a Fund will seek to deal with the primary market makers, but when
necessary in order to obtain the best price and execution, it will utilize the
services of others. In all cases, a Fund will attempt to negotiate best
execution. A Fund may from time to time place orders for the purchase or sale of
securities (including listed call options) with SCB & Co., an affiliate of the
Adviser. In such instances, the placement of orders with such broker would be
consistent with the Fund's objective of obtaining best execution and would not
be dependent upon the fact that SCB & Co. is an affiliate of the Adviser. With
respect to orders placed with SCB & Co. for execution on a national securities
exchange, commissions received must conform to Section 17(e)(2)(A) of the 1940
Act and Rule 17e-1 thereunder, which permit an affiliated person of a registered
investment company (such as a Fund), or any affiliated person of such person, to
receive a brokerage commission from such registered investment company provided
that such commission is reasonable and fair compared to the commissions received
by other brokers in connection with comparable transactions involving similar
securities during a comparable period of time.
The following table shows the brokerage commission paid on investment
transactions for the last three fiscal years:
Fund Brokerage Commission Paid ($)
---- -----------------------------
AWDGF II (Fiscal Year End - March 31)
2006 $0
2005 $0
2004 $0
AWDGF (Fiscal Year End - October 31)
2005 $0
2004 $0
2003 $0
DISTRIBUTIONS
Each Fund intends to distribute monthly its net investment income. Net
short-term capital gains, if any, will normally be distributed quarterly and net
long-term capital gains, if any, will normally be distributed annually.
TAXATION
General
Each Fund intends for each taxable year to qualify as a "regulated investment
company" under the Code. To so qualify, a 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, U.S.
Government Securities, securities of other regulated investment companies and
other securities with respect to which the Fund's investment if 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).
The Treasury Department is authorized to issue regulations to provide that
foreign currency gains that are "not directly related" to a Fund's principal
business of investing in stock or securities may be excluded from the income
which qualifies for purposes of the 90% gross income requirement described above
with respect to the Fund's qualification as a "regulated investment company." No
such regulations have yet been issued.
If a Fund qualifies as a regulated investment company for any taxable year and
makes timely distributions to its stockholders 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 stockholders. Investors should consult their own counsel for a
complete understanding of the requirements the Fund must meet to qualify to be
taxed as a "regulated investment company."
The information set forth in the following discussion relates solely to the
significant United States federal income tax consequences of dividends and
distributions by a Fund and of sales or redemptions of Fund shares, and assumes
that a 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 stockholders of a 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
Each Fund intends to make timely distributions of its taxable income (including
any net capital gain) so that the Fund will not be subject to federal income
taxes. Each Fund also intends to declare and distribute dividends in the amounts
and at the times necessary to avoid the application of the 4% federal excise tax
imposed on certain undistributed income of regulated investment companies. A
Fund will be required to pay the 4% excise tax to the extent it does not
distribute to its stockholders during any calendar year an amount equal to the
sum of (i) 98% of its ordinary taxable income for the calendar year, (ii) 98% of
its capital gain net income and foreign currency gains for the twelve months
ended October 31 of such year (or December 31 if elected by the Fund) 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 a Fund that is subject to corporate income tax will be considered to
have been distributed by the Fund by year-end. For federal income and excise tax
purposes, dividends declared and payable to stockholders of record as of a date
in October, November or December but actually paid during the following January
will be taxable to these stockholders for the year declared, and not for the
subsequent calendar year in which the stockholders actually received the
dividend.
Dividends of a Fund's net ordinary income and distributions of any net realized
short-term capital gain are taxable to stockholders as ordinary income. Since
each Fund expects to derive substantially all of its gross income from sources
other than dividends, it is expected that none of the Fund's dividends or
distributions will qualify for the dividends-received deduction for
corporations.
Distributions of net capital gain by a Fund to its stockholders will be taxable
to the stockholders as long-term capital gains, irrespective of the length of
time a stockholder may have held his Fund shares. Any dividend or distribution
received by a stockholder on shares of a Fund will have the effect of reducing
the NAV of such shares by the amount of such dividend or distribution.
Furthermore, a dividend or distribution made shortly after the purchase of such
shares by a stockholder, although in effect a return of capital to that
particular stockholder, would be taxable to him as described above. Dividends
are taxable in the manner discussed regardless of whether they are paid to the
stockholder in cash or are reinvested in additional shares of a Fund.
After the end of the taxable year, a Fund will notify stockholders of the
federal income tax status of any distributions made by the Fund to stockholders
during such year.
Sales
Any gain or loss arising from a sale of Fund shares generally will be capital
gain or loss except in the case of a dealer or a financial institution, and will
be long-term capital gain or loss if such stockholder has held such shares for
more than one year at the time of the sale; otherwise it will be short-term
capital gain or loss. However, if a stockholder has held shares in a Fund for
six months or less and during that period has received a distribution of net
capital gain, any loss recognized by the stockholder on the sale of those shares
during the six-month period will be treated as a long-term capital loss to the
extent of such distribution. In determining the holding period of such shares
for this purpose, any period during which a stockholder's risk of loss is offset
by means of options, short sales or similar transactions is not counted.
Any loss realized by a stockholder on a sale or exchange of shares of a 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 a Fund's DRIP
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.
Backup Withholding
A Fund generally will be required to withhold tax at the rate of 28% of
reportable payments (which may include dividends and distributions of net
capital gain) payable to a noncorporate stockholder unless the stockholder
certified on his subscription application that the social security or taxpayer
identification number provided is correct and that the stockholder has not been
notified by the Internal Revenue Service that he is subject to backup
withholding.
United States Federal Income Taxation of a Fund
The following discussion relates to certain significant United States federal
income tax consequences to a Fund with respect to the determination of its
"investment company taxable income" each year. This discussion assumes that a
Fund will be taxed as a regulated investment company for each of its taxable
years.
Options and Futures Contracts
Certain listed options and regulated futures contracts are considered "section
1256 contracts" for federal income tax purposes. Section 1256 contracts held by
a 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 a 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. A Fund can
elect to exempt its section 1256 contracts which are part of a "mixed straddle"
(as described below) from the application of section 1256.
With respect to over-the-counter put and call options or options traded on
certain foreign exchanges, gain or loss realized by a 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 a Fund will be treated as short-term capital
gain or loss. In general, if a Fund exercises an option, or if 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 a Fund on the lapse or sale of put and call options on
foreign currencies which are traded over-the-counter or on certain foreign
exchanges will be treated as section 988 gain or loss and will therefore be
characterized as ordinary income or loss and will increase or decrease the
amount of the Fund's net investment income available to be distributed to
stockholders as ordinary income, as described above. The amount of such gain or
loss shall be determined by subtracting the amount paid, if any, for or with
respect to the option (including any amount paid by a 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 a 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, other forward
contract, or other position entered into or held by a 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 a 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 capital. No such regulations
have yet been issued. Various elections are available to a 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 a Fund all of the offsetting positions of which consist of
section 1256 contracts.
Zero Coupon Treasury Securities
Under current federal tax law, a Fund will receive net investment income in the
form of interest by virtue of holding Treasury bills, notes and bonds, and will
recognize interest attributable to it under the original issue discount rules of
the Code from holding zero coupon Treasury securities. Current federal tax law
requires that a holder (such as a Fund) of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year
even though the Fund receives no interest payment in cash on the security during
the year. Accordingly, a Fund may be required to pay out as an income
distribution each year an amount which is greater than the total amount of cash
interest the Fund actually received. Such distributions will be made from the
cash assets of a Fund or by liquidation of portfolio securities, if necessary. A
Fund may realize a gain or loss from such sales. In the event a Fund realize net
capital gains from such transactions, its stockholders may receive a larger
capital gain distribution, if any, than they would have received in the absence
of such transactions.
Foreign Taxes
Investment income received by a Fund from foreign government securities 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
entitles a 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 a Fund's assets to be invested within various
countries is not known. To the extent that investment income of a Fund is
subject to foreign income taxes, the Fund will be entitled to claim a deduction
or credit for the amount of such taxes for United States federal income tax
purposes. However, any such taxes will reduce the income available for
distribution to a Fund's stockholders.
Other Taxation
The foregoing is a brief summary of the federal tax laws applicable to investors
in the Funds. Investors may also be subject to state and local taxes, although
distributions of a Fund that are derived from interest on certain obligations to
the U.S. Government and agencies thereof may be exempt from state and local
taxes in certain states.
PROXY VOTING
You may obtain a description of a Fund's proxy voting policies and procedures,
and information regarding how the Fund voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30, without charge.
Simply visit the Adviser's web site at www.alliancebernstein.com, or go to the
Commission's web site at www.sec.gov, or call the Adviser at (800) 227-4618.
Each Fund files its complete schedule of portfolio holdings with the Commission
for the first and third quarters of each fiscal year on Form N-Q. Each Fund's
Forms N-Q is available on the Commission's web site at www.sec.gov. A Fund's
Forms N-Q may also be reviewed and copied at the Commission's Public Reference
Room in Washington, DC; information on the operation of the Public Reference
Room may be obtained by calling 1-202-551-8090.
LEGAL MATTERS
Certain legal matters concerning the Funds and their participation in the
Acquisition, the issuance of AWDGF II shares in connection with the Acquisition
and the tax consequences of the Acquisition will be passed upon by Seward &
Kissel LLP, One Battery Park Plaza, New York, NY 10004, counsel to the Funds.
EXPERTS
The audited financial information in the Prospectus/Proxy Statement and the SAI
has been included in reliance on the report of Ernst & Young LLP, the
independent registered public accounting firm for the Funds, 5 Times Square, New
York, NY 10036, given on its authority as experts in auditing and accounting.
--------------------------------------------------------------------------------
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(a) The Financial Statements required under Item 14(a) of Form N-14 are
incorporated by reference herein from the:
1. AWDGF II: Annual Report for the period ended March 31, 2006 filed with the
SEC on June 9, 2006 (File No. 811-07732).
2. AWDGF II: Semi-Annual Report for the period ended September 30, 2005 filed
with the SEC on December 8, 2005 (File No. 811-07732).
3. AWDGF: Annual Report for the period ended October 31, 2005 filed with the SEC
on January 6, 2006 (File No. 811-07108).
4. AWDGF: Semi-Annual Report for the period ended April 30, 2006 filed with the
SEC on July 10, 2006 (File No. 811-07108).
(b) Pro Forma Financial Information:
The pro forma AWDGF II financial statements give effect to the proposed
Acquisition of the assets and liabilities of AWDGF by AWDGF II pursuant to the
Agreement and Plan of Acquisition and Liquidation. The Acquisition would be
accomplished by a tax-free exchange of the assets and liabilities of AWDGF for
shares of AWDGF II.
AWDGF II was incorporated under the laws of the State of Maryland on May 20,
1993. AWDGF II's unaudited Pro Forma Portfolio of Investments, Statement of
Assets and Liabilities and Statement of Operations are prepared as though the
Acquisition was effective for the period April 1, 2005 - March 31, 2006. You
should read them in conjunction with AWDGF II's historical financial statements,
which are incorporated by reference. AWDGF II's Pro Forma Statement of
Operations reflects the assumption that certain expenses would be lower for the
combined Fund as a result of the Acquisition. AWDGF will bear the expenses of
the Acquisition, including the cost of proxy solicitation and the costs
associated with the disposition of any assets or liabilities not being
transferred to AWDGF II in connection with the Acquisition. The following
represents the pro forma financial information:
PRO FORMA
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II, INC
FINANCIAL STATEMENTS
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II, INC.
ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
March 31, 2006
(unaudited)
PORTFOLIO OF INVESTMENTS
PRO FORMA ALLIANCE WORLD DOLLAR GOVERNMENT FUND II Alliance World Dollar Government Fund II
March 31, 2006 (unaudited) Alliance World Dollar Government Fund
Alliance Pro Forma Pro Forma
World Alliance Alliance Alliance Alliance
Dollar World World Dollar Alliance World Dollar World
Government Dollar Government World Government Dollar
Fund II Government Fund Dollar Fund II Government
Principal Fund II Principal Government Principal Fund II
Amount (U.S. Amount Fund (a) Amount (U.S. $
(000) $ Value) (000) (U.S. $ Value) (000) Adjustments Value)
-----------------------------------------------------------------------------------------------------------------------------------
SOVEREIGN DEBT OBLIGATIONS--82.5%
Argentina 4.6%
Republic of Argentina
Zero Coupon, 12/15/35(b) $ 23,602 $ 2,124,182 $ 3,134 $ 282,071 $ 26,736 $ 2,406,253
4.889%, 8/03/12(c) 40,298 37,390,106 5,657 5,248,533 45,955 42,638,639
8.28%, 12/31/33(d) 5,771 5,670,356 751 738,003 6,522 6,408,359
-------------- ------------- -------------
45,184,644 6,268,607 51,453,251
-------------- ------------- -------------
Brazil--16.1%
Federal Republic of Brazil
7.125%, 1/20/37(d) 29,261 28,675,779 3,768 3,692,640 33,029 32,368,419
8.00%, 1/15/18 9,038 9,770,078 873 943,713 9,911 10,713,791
8.25%, 1/20/34 27,633 30,451,565 3,621 3,990,342 31,254 34,441,907
8.875%, 10/14/19 7,260 8,385,300 1,109 1,280,895 8,369 9,666,195
10.50%, 7/14/14 10,110 12,586,950 1,364 1,698,180 11,474 14,285,130
12.00%, 4/15/10 8,650 10,553,000 1,025 1,250,500 9,675 11,803,500
12.75%, 1/15/20 31,478 46,823,524 4,897 7,284,287 36,375 54,107,811
DCB FRN
Series L
5.25%, 4/15/12 10,806 10,806,228 1,167 1,166,959 11,973 11,973,187
-------------- ------------- -------------
158,052,424 21,307,516 179,359,940
-------------- ------------- -------------
Bulgaria--0.4%
Republic of Bulgaria
8.25%, 1/15/15(e) 3,204 3,745,476 425 496,825 3,629 4,242,301
-------------- ------------- -------------
Colombia--2.6%
Republic of Colombia
10.75%, 1/15/13 8,057 9,982,623 376 465,864 8,433 10,448,487
11.75%, 2/25/20 10,919 15,532,278 1,948 2,771,030 12,867 18,303,308
-------------- ------------- -------------
25,514,901 3,236,894 28,751,795
-------------- ------------- -------------
Costa Rica--0.4%
Republic of Costa Rica
8.05%, 1/31/13(e) 1,669 1,798,348 228 245,670 1,897 2,044,018
8.11%, 2/01/12(e) 1,964 2,111,300 269 289,175 2,233 2,400,475
-------------- ------------- -------------
3,909,648 534,845 4,444,493
-------------- ------------- -------------
Dominican Republic--0.2%
Dominican Republic
9.50%, 9/27/11(e) 2,101 2,258,352 261 280,132 2,362 2,538,484
Ecuador--1.4%
Republic of Ecuador
9.00%, 8/15/30(e)(f) 9,300 9,369,751 1,311 1,320,833 10,611 10,690,584
9.375%, 12/15/15(e) 3,834 4,044,870 393 414,615 4,227 4,459,485
-------------- ------------- -------------
13,414,621 1,735,448 15,150,069
-------------- ------------- -------------
El Salvador--0.9%
Republic of El Salvador
7.625%, 9/21/34(e) 2,290 2,490,375 352 382,800 2,642 2,873,175
7.65%, 6/15/35(e) 1,691 1,771,323 413 432,618 2,104 2,203,941
8.50%, 7/25/11(e) 3,700 4,108,850 425 471,962 4,125 4,580,812
-------------- ------------- -------------
8,370,548 1,287,380 9,657,928
-------------- ------------- -------------
Indonesia--1.7%
Republic of Indonesia
6.75%, 3/10/14(e) 8,585 8,542,075 1,150 1,144,250 9,735 9,686,325
6.875%, 3/09/17(e) 3,954 3,894,690 539 530,915 4,493 4,425,605
7.25%, 4/20/15(e) 2,480 2,539,520 307 314,368 2,787 2,853,888
8.50%, 10/12/35(e) 2,048 2,283,520 270 301,050 2,318 2,584,570
-------------- ------------- -------------
17,259,805 2,290,583 19,550,388
-------------- ------------- -------------
Lebanon--1.2%
Lebanese Republic
7.875%, 5/20/11(e) 2,475 2,574,000 330 343,200 2,805 2,917,200
10.125%, 8/06/08(e) 7,501 8,082,328 979 1,054,873 8,480 9,137,201
11.625%, 5/11/16(e) 1,114 1,420,350 148 188,700 1,262 1,609,050
-------------- ------------- -------------
12,076,678 1,586,773 13,663,451
-------------- ------------- -------------
Malaysia--1.0%
Malaysia
7.50%, 7/15/11 -0- -0- 550 598,002 550 598,002
8.75%, 6/01/09 9,420 10,301,552 -0- -0- 9,420 10,301,552
-------------- ------------- -------------
10,301,552 598,002 10,899,554
-------------- ------------- -------------
Mexico--13.4%
United Mexican States
7.50%, 1/14/12 7,400 7,992,000 1,075 1,161,000 8,475 9,153,000
8.125%, 12/30/19 42,200 49,627,199 4,720 5,550,720 46,920 55,177,919
11.375%, 9/15/16 11,110 15,653,990 1,607 2,264,263 12,717 17,918,253
Series A
6.375%, 1/16/13 2,782 2,851,550 555 568,875 3,337 3,420,425
8.00%, 9/24/22 34,632 40,484,807 5,214 6,095,166 39,846 46,579,973
9.875%, 2/01/10 11,800 13,452,000 2,687 3,063,180 14,487 16,515,180
-------------- ------------- -------------
130,061,546 18,703,204 148,764,750
-------------- ------------- -------------
Morocco--0.0%
Kingdom of Morocco Loan
Participation FRN
Series A
5.69%, 1/01/09 -0- -0- 370 369,304 370 369,304
-------------- ------------- -------------
Nigeria--1.7%
Central Bank of Nigeria
6.25%, 11/15/20(f) 17,250 17,272,425 2,250 2,252,925 19,500 19,525,350
-------------- ------------- -------------
Panama--3.1%
Republic of Panama
6.70%, 1/26/36 4,263 4,252,343 782 780,045 5,045 5,032,388
7.125%, 1/29/26 4,794 4,913,850 488 500,200 5,282 5,414,050
7.25%, 3/15/15 600 636,000 75 79,500 675 715,500
8.875%, 9/30/27 6,113 7,427,295 948 1,151,820 7,061 8,579,115
9.375%, 7/23/12- 4/01/29 6,285 7,517,445 554 672,673 6,839 8,190,118
9.625%, 2/08/11 5,206 5,986,900 375 431,250 5,581 6,418,150
-------------- ------------- -------------
30,733,833 3,615,488 34,349,321
-------------- ------------- -------------
Peru--3.0%
Republic of Peru
7.35%, 7/21/25 2,097 2,059,254 1,176 1,154,832 3,273 3,214,086
8.375%, 5/03/16 3,191 3,462,235 508 551,180 3,699 4,013,415
8.75%, 11/21/33 20,733 23,117,295 2,102 2,343,730 22,835 25,461,025
9.875%, 2/06/15 157 185,260 431 508,580 588 693,840
-------------- ------------- -------------
28,824,044 4,558,322 33,382,366
-------------- ------------- -------------
Philippines--5.0%
Republic of Philippines
7.75%, 1/14/31 5,528 5,562,550 619 622,869 6,147 6,185,419
8.375%, 2/15/11 684 740,430 93 100,673 777 841,103
8.875%, 3/17/15 17,505 19,675,620 2,535 2,849,339 20,040 22,524,959
9.00%, 2/15/13 4,775 5,168,938 725 784,813 5,500 5,953,751
9.50%, 2/02/30 -0- -0- 283 336,063 283 336,063
9.875%, 1/15/19 12,750 15,331,875 1,025 1,232,562 13,775 16,564,437
10.625%, 3/16/25 2,055 2,666,363 756 980,910 2,811 3,647,273
-------------- ------------- -------------
49,145,776 6,907,229 56,053,005
-------------- ------------- -------------
Russia--13.0%
Russian Federation
5.00%, 3/31/30(e)(f) 37,641 41,174,609 7,743 8,470,842 45,384 49,645,451
11.00%, 7/24/18(e) 4,340 6,223,560 3,170 4,545,780 7,510 10,769,340
Russian Ministry of Finance
Series V
3.00%, 5/14/08 70,752 66,952,617 11,505 10,887,181 82,257 77,839,798
Series VII
3.00%, 5/14/11 5,870 5,173,231 1,080 951,804 6,950 6,125,035
-------------- ------------- -------------
119,524,017 24,855,607 144,379,624
-------------- ------------- -------------
Turkey--4.7%
Republic of Turkey
6.875%, 3/17/36 18,028 17,442,090 1,502 1,453,185 19,530 18,895,275
7.375%, 2/05/25 2,142 2,219,648 597 618,641 2,739 2,838,289
11.00%, 1/14/13 5,500 6,897,000 1,040 1,304,160 6,540 8,201,160
11.50%, 1/23/12 5,183 6,478,750 1,112 1,390,000 6,295 7,868,750
11.75%, 6/15/10 5,823 7,002,158 680 817,700 6,503 7,819,858
11.875%, 1/15/30 3,935 6,079,575 328 506,760 4,263 6,586,335
-------------- ------------- -------------
46,119,221 6,090,446 52,209,667
-------------- ------------- -------------
Ukraine--0.6%
Government of Ukraine
6.875%, 3/04/11(e) -0- -0- 482 485,615 482 485,615
7.65%, 6/11/13(e) 1,170 1,225,575 125 130,938 1,295 1,356,513
11.00%, 3/15/07(e) 3,743 3,876,016 518 536,456 4,261 4,412,472
-------------- ------------- -------------
5,101,591 1,153,009 6,254,600
-------------- ------------- -------------
Uruguay--1.5%
Republic of Uruguay
5.875%, 1/15/33(g) 4,246 4,394,725 606 626,965 4,852 5,021,690
7.50%, 3/15/15 3,691 3,847,868 124 129,270 3,815 3,977,138
8.00%, 11/18/22 2,296 2,399,320 378 395,010 2,674 2,794,330
9.25%, 5/17/17 3,488 4,054,800 690 802,125 4,178 4,856,925
-------------- ------------- -------------
14,696,713 1,953,370 16,650,083
-------------- ------------- -------------
Venezuela--6.0%
Republic of Venezuela
5.614%, 4/20/11(c)(e) 3,050 3,066,775 440 442,420 3,490 3,509,195
8.50%, 10/08/14 1,731 1,938,720 268 300,160 1,999 2,238,880
9.25%, 9/15/27(d) 17,171 21,807,170 2,189 2,780,030 19,360 24,587,200
10.75%, 9/19/13 19,646 24,498,562 3,530 4,401,910 23,176 28,900,472
13.625%, 8/15/18 4,499 6,905,965 583 894,905 5,082 7,800,870
-------------- ------------- -------------
58,217,192 8,819,425 67,036,617
-------------- ------------- -------------
Total Sovereign Debt
Obligations
(cost $834,765,990) 799,785,007 118,901,334 918,686,341
-------------- ------------- -------------
CORPORATE DEBT OBLIGATIONS--10.6%
Brazil--0.3%
Banco BMG, SA
9.15%, 1/15/16(e) 3,300 3,378,375 -0- -0- 3,300 3,378,375
-------------- ------------- -------------
Cayman Islands--0.1%
C&M Finance Ltd.
8.10%, 2/01/16(e) 1,405 1,405,493 -0- -0- 1,405 1,405,493
-------------- ------------- -------------
Hong Kong--0.4%
Noble Group Ltd.
6.625%, 3/17/15(e) 4,731 4,181,986 -0- -0- 4,731 4,181,986
-------------- ------------- -------------
Indonesia--0.5%
Freeport-McMoran Copper & Gold
10.125%, 2/01/10 4,800 5,172,000 -0- -0- 4,800 5,172,000
-------------- ------------- -------------
Jamaica--0.3%
Digicel Ltd.
9.25%, 9/01/12(e) 2,884 3,049,830 -0- -0- 2,884 3,049,830
-------------- ------------- -------------
Kazakhstan--0.5%
Kazkommerts International BV
8.50%, 4/16/13(e) 3,000 3,202,500 -0- -0- 3,000 3,202,500
TengizChevroil Finance Co.
6.124%, 11/15/14(e) 2,569 2,556,155 -0- -0- 2,569 2,556,155
-------------- ------------- -------------
5,758,655 -0- 5,758,655
-------------- ------------- -------------
Mexico--1.1%
America Movil SA de CV
6.375%, 3/01/35 923 869,928 -0- -0- 923 869,928
Innova S De. R.L., SA
9.375%, 9/19/13 7,955 8,909,600 -0- -0- 7,955 8,909,600
Monterrey Power SA de CV
9.625%, 11/15/09(e) 2,526 2,795,060 -0- -0- 2,526 2,795,060
-------------- ------------- -------------
12,574,588 -0- 12,574,588
-------------- ------------- -------------
Panama--0.3%
AES El Savador Trust
6.75%, 2/01/16(e) 3,100 3,012,713 -0- -0- 3,100 3,012,713
-------------- ------------- -------------
People's Republic of China--0.3%
Choada Modern Agricultural
Holdings Ltd.
7.75%, 2/08/10(e) 3,808 3,808,000 -0- -0- 3,808 3,808,000
-------------- ------------- -------------
Peru--0.4%
Southern Copper Corp.
6.375%, 7/27/15 4,524 4,406,955 -0- -0- 4,524 4,406,955
-------------- ------------- -------------
Romania--0.3%
MobiFon Holdings BV
12.50%, 7/31/10 3,075 3,513,188 -0- -0- 3,075 3,513,188
-------------- ------------- -------------
Russia--5.8%
Aries Vermogensverwaltng
9.60%, 10/25/14(e) 21,750 27,174,451 -0- -0- 21,750 27,174,451
Citigroup (JSC Severstal)
9.25%, 4/19/14(e) 2,256 2,431,291 -0- -0- 2,256 2,431,291
Evraz Group, SA
8.25%, 11/10/15(e) 3,933 3,972,330 -0- -0- 3,933 3,972,330
Gazprom Oao
9.625%, 3/01/13(e) 16,100 19,059,180 -0- -0- 16,100 19,059,180
Gazstream, SA
5.625%, 7/22/13(e) 1,898 1,867,059 -0- -0- 1,898 1,867,059
Mobile Telesystems Finance
9.75%, 1/30/08(e) 5,390 5,666,370 -0- -0- 5,390 5,666,370
Russian Standard Finance
7.50%, 10/07/10(e) 3,412 3,339,495 -0- -0- 3,412 3,339,495
Tyumen Oil
11.00%, 11/06/07(e) 1,075 1,150,250 -0- -0- 1,075 1,150,250
-------------- ------------- -------------
64,660,426 -0- 64,660,426
-------------- ------------- -------------
Ukraine--0.3%
Kyivstar
7.75%, 4/27/12(e) 900 903,375 -0- -0- 900 903,375
10.375%, 8/17/09(e) 1,800 1,953,000 -0- -0- 1,800 1,953,000
-------------- ------------- -------------
2,856,375 -0- 2,856,375
-------------- ------------- -------------
Total Corporate Debt
Obligations
(cost $115,143,743) 117,778,584 -0- 117,778,584
-------------- ------------- -------------
WARRANTS(h)--0.0%
Central Bank of Nigeria
Warrants, expiring 11/15/20 9,500 209,000 1,250 27,500 10,750 236,500
Republic of Venezuela
Warrants, expiring 4/15/20 25,000 -0- 20,599 -0- 45,599 -0-
-------------- ------------- -------------
Total Warrants
(cost $0) 209,000 27,500 236,500
-------------- ------------- -------------
SHORT-TERM INVESTMENTS 9.8%
Time Deposits 9.8 %
Societe Generale
4.82%, 4/03/06 95,400 95,400,000 12,800 12,800,000 108,200 108,200,000
The Bank of New York
3.75%, 4/03/06 -0- -0- 515 515,000 515 515,000
-------------- ------------- -------------
Total Short-Term Investments
(cost $108,715,000) 95,400,000 13,315,000 108,715,000
-------------- ------------- -------------
Total Investments 102.9%
(cost $1,058,624,733) 1,013,172,591 132,243,834 1,145,416,425
Other assets less
liabilities (2.9%) (29,384,927) (2,879,705) (75,000) (32,339,632)
-------------- ------------- -------------
Net Assets 100% $ 983,787,664 $ 129,364,129 $ (75,000) $1,113,076,793
-------------- ------------- -------------
Alliance World Dollar Government Fund II
CREDIT DEFAULT SWAP CONTRACTS
Notional Unrealized
Swap Counterparty & Amount Interest Termination Appreciation/
Referenced Obligation (000's) Rate Date (Depreciation)
--------------------- ------- ---- ---- --------------
Buy Contracts:
Citigroup Global Markets, Inc.
Republic of Colombia
8.375%, 2/15/27 $4,250 3.02% 1/20/10 $(301,641)
Citigroup Global Markets, Inc.
Republic of Hungary
4.50%, 2/06/13 3,075 0.50 11/26/13 940
Citigroup Global Markets, Inc.
Republic of Philippines
10.625%, 3/16/25 4,070 5.60 3/20/14 (725,430)
JP Morgan Chase & Co.
Republic of Hungary
4.75%, 2/03/15 11,300 0.30 10/20/15 240,043
Sale Contracts:
Citigroup Global Markets, Inc.
Federal Republic of Brazil
12.25%, 3/06/30 19,047 1.98 4/20/07 500,688
Citigroup Global Markets, Inc.
Federal Republic of Brazil
12.25%, 3/06/30 18,840 3.09 8/20/10 1,312,449
Citigroup Global Markets, Inc.
Federal Republic of Brazil
12.25%, 3/06/30 6,750 4.40 5/20/06 147,895
Citigroup Global Markets, Inc.
Republic of Colombia
8.375%, 2/15/27 8,600 1.13 1/20/07 79,074
Citigroup Global Markets, Inc.
Republic of Philippines
10.625%, 3/16/25 4,070 4.95 3/20/09 419,409
Credit Suisse First Boston
Federal Republic of Brazil
12.25%, 3/06/30 5,800 6.90 6/20/07 563,019
Credit Suisse First Boston
Republic of Venezuela
9.25%, 9/15/27 13,570 3.17 10/20/15 1,230,448
Deutche Bank AG London
Federal Republic of Brazil
12.25%, 3/06/30 19,047 1.90 4/20/07 478,076
JPMorgan Chase & Co.
Gazprom Oao
5.875% - 10.50%,
4/25/07 - 6/01/15 12,210 1.04 10/20/10 83,730
Morgan Stanley
Federal Republic of Brazil
10.125%, 5/15/27 7,200 17.75 2/13/08 2,378,369
Morgan Stanley
Federal Republic of Brazil
12.25%, 3/06/30 5,120 3.80 8/20/06 91,749
Alliance World Dollar Government Fund
CREDIT DEFAULT SWAP CONTRACTS
Notional Unrealized
Swap Counterparty & Amount Interest Termination Appreciation/
Referenced Obligation (000's) Rate Date (Depreciation)
--------------------- ------- ---- ---- --------------
Buy Contracts:
Citigroup Global Markets, Inc.
Republic of Colombia
8.375%, 2/15/27 $550 3.02% 1/20/10 $(39,128)
Citigroup Global Markets, Inc.
Republic of Hungary
4.50%, 2/06/13 350 0.50 11/26/13 97
Citigroup Global Markets, Inc.
Republic of Philippines
10.625%, 3/16/25 520 5.60 3/20/14 (92,846)
JP Morgan Chase & Co.
Republic of Hungary
4.75%, 2/03/15 1,490 0.30 10/20/15 31,627
Sale Contracts:
Citigroup Global Markets, Inc.
Federal Republic of Brazil
12.25%, 3/06/30 2,583 1.98 4/20/07 68,183
Citigroup Global Markets, Inc.
Federal Republic of Brazil
12.25%, 3/06/30 2,540 3.09 8/20/10 177,380
Citigroup Global Markets, Inc.
Federal Republic of Brazil
12.25%, 3/06/30 900 4.40 5/20/06 19,939
Citigroup Global Markets, Inc.
Republic of Colombia
8.375%, 2/15/27 1,150 1.13 1/20/07 10,646
Citigroup Global Markets, Inc.
Republic of Philippines
10.625%, 3/16/25 520 4.95 3/20/09 53,728
Credit Suisse First Boston
Federal Republic of Brazil
12.25%, 3/06/30 775 6.90 6/20/07 75,528
Credit Suisse First Boston
Republic of Venezuela
9.25%, 9/15/27 950 3.17 10/20/15 86,308
Deutche Bank AG London
Federal Republic of Brazil
12.25%, 3/06/30 2,583 1.90 4/20/07 65,106
Morgan Stanley
Federal Republic of Brazil
10.125%, 5/15/27 800 17.75 2/13/08 265,052
Morgan Stanley
Federal Republic of Brazil
12.25%, 3/06/30 680 3.80 8/20/06 12,329
Pro Forma Alliance World Dollar Government Fund II
CREDIT DEFAULT SWAP CONTRACTS
Pro Forma Pro Forma
Notional Unrealized
Swap Counterparty & Amount Interest Termination Appreciation/
Referenced Obligation (000's) Rate Date (Depreciation)
--------------------- ------- ---- ---- --------------
Buy Contracts:
Citigroup Global Markets, Inc.
Republic of Colombia
8.375%, 2/15/27 $4,800 3.02% 1/20/10 $(340,769)
Citigroup Global Markets, Inc.
Republic of Hungary
4.50%, 2/06/13 3,425 0.50 11/26/13 1,037
Citigroup Global Markets, Inc.
Republic of Philippines
10.625%, 3/16/25 4,590 5.60 3/20/14 (818,276)
JP Morgan Chase & Co.
Republic of Hungary
4.75%, 2/03/15 12,790 0.30 10/20/15 271,670
Sale Contracts:
Citigroup Global Markets, Inc.
Federal Republic of Brazil
12.25%, 3/06/30 21,630 1.98 4/20/07 568,871
Citigroup Global Markets, Inc.
Federal Republic of Brazil
12.25%, 3/06/30 21,380 3.09 8/20/10 1,489,829
Citigroup Global Markets, Inc.
Federal Republic of Brazil
12.25%, 3/06/30 7,650 4.40 5/20/06 167,834
Citigroup Global Markets, Inc.
Republic of Colombia
8.375%, 2/15/27 9,750 1.13 1/20/07 89,720
Citigroup Global Markets, Inc.
Republic of Philippines
10.625%, 3/16/25 4,590 4.95 3/20/09 473,137
Credit Suisse First Boston
Federal Republic of Brazil
12.25%, 3/06/30 6,575 6.90 6/20/07 638,547
Credit Suisse First Boston
Republic of Venezuela
9.25%, 9/15/27 14,520 3.17 10/20/15 1,316,756
Deutche Bank AG London
Federal Republic of Brazil
12.25%, 3/06/30 21,630 1.90 4/20/07 543,182
JPMorgan Chase & Co.
Gazprom Oao
5.875% - 10.50%, 4/25/07 -
6/01/15 12,210 1.04 10/20/10 83,730
Morgan Stanley
Federal Republic of Brazil
10.125%, 5/15/27 8,000 17.75 2/13/08 2,643,421
Morgan Stanley
Federal Republic of Brazil
12.25%, 3/06/30 5,800 3.80 8/20/06 104,078
Alliance World Dollar Government Fund
INTEREST RATE SWAP CONTRACT
Rate Type
-----------------------
Payments Payments
Notional Termination made by received by Unrealized
Swap Counterparty Amount Date the Fund the Fund Depreciation
----------------- ------ ---- -------- -------- ------------
Morgan Guaranty $3,320,644 1/01/09 LIBOR+ 6.8526% $(1,146,461)
+LIBOR
(London Interbank Offered Rate)
Pro Forma Alliance World Dollar Government Fund II
INTEREST RATE SWAP CONTRACT
Rate Type
-----------------------
Payments Payments
Notional Termination made by received by Unrealized
Swap Counterparty Amount Date the Fund the Fund Depreciation
----------------- ------ ---- -------- -------- ------------
Morgan Guaranty $3,320,644 1/01/09 LIBOR+ 6.8526% $(1,146,461)
+LIBOR
(London Interbank Offered Rate)
Alliance World Dollar Government Fund II
REVERSE REPURCHASE AGREEMENTS
Interest
Broker Rate Maturity Amount
------ ---- -------- ------
UBS AG London 1.60% 12/29/06 $5,527,701
UBS AG London 4.10 12/29/06 20,964,958
UBS AG London 4.40 4/06/06 2,527,941
UBS AG London 4.60 12/29/06 22,575,723
-----------
$51,596,323
Alliance World Dollar Government Fund
REVERSE REPURCHASE AGREEMENT
Interest
Broker Rate Maturity Amount
------ ---- -------- ------
UBS AG London 4.60% 12/29/06 $2,933,777
Pro Forma Alliance World Dollar Government Fund II
REVERSE REPURCHASE AGREEMENTS
Interest Pro Forma
Broker Rate Maturity Amount
------ ---- -------- ------
UBS AG London 1.60% 12/29/06 $5,527,701
UBS AG London 4.10 12/29/06 20,964,958
UBS AG London 4.40 4/06/06 2,527,941
UBS AG London 4.60 12/29/06 25,509,500
------------
$54,530,100
(a) The schedule of portfolio investments includes securities that may be sold
as a result of portfolio repositioning.
(b) Variable rate coupon, rate shown as of March 31, 2006.
(c) Floating rate security, stated interest rate in effect at March 31, 2006.
(d) Position, or portion thereof, with an aggregate market value of
$52,762,985, has been segregated to collateralize reverse repurchase
agreements.
(e) Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. These securities are considered liquid and may be resold in
transactions exempt from registration, normally to qualified institutional
buyers. At March 31, 2006, the aggregate market value of these securities
amounted to $234,332,613 or 21.1% of net assets.
(f) Coupon increases periodically based upon a predetermined schedule. Stated
interest rate in effect at March 31, 2006.
(g) Pay-In-Kind Payments (PIK).
(h) Non-income producing security.
Glossary of Terms:
DOB - Debt Conversion Bonds
FRN - Floating Rate Note
See notes to Pro Forma Alliance World Dollar Government Fund II financial
statements.
STATEMENT OF ASSETS AND LIABILITIES
PRO FORMA ALLIANCE WORLD DOLLAR GOVERNMENT FUND II Alliance World Dollar Government Fund II
March 31, 2006 (unaudited) Alliance World Dollar Government Fund
Alliance
World Alliance
Dollar World Pro Forma Alliance
Government Dollar World Dollar
Fund II Government Adjustments* Government Fund II
------------------------------------------------------------------------------
Assets
Investments in securities, at value
(cost $1,058,624,733).......................... $ 1,013,172,591 $ 132,243,834 $ -0- $ 1,145,416,425
Cash.............................................. -0- 20,485 (20,485) -0-
Unrealized appreciation of credit default swap
contracts...................................... 7,525,889 865,923 -0- 8,391,812
Interest Receivable............................... 14,293,519 1,935,775 -0- 16,229,294
Receivable for investment securities sold......... 5,373,369 13,296,022 -0- 18,669,391
-------------- ------------- ------- ---------------
Total assets...................................... 1,040,365,368 148,362,039 (20,485) 1,188,706,922
-------------- ------------- ------- ---------------
Liabilities
Due to custodian.................................. 987,642 -0- 54,515 1,042,157
Unrealized depreciation of credit default swap
contracts...................................... 1,027,071 131,974 -0- 1,159,045
Unrealized depreciation of interest rate swap
contract....................................... -0- 1,146,461 -0- 1,146,461
Reverse repurchase agreements..................... 51,596,323 2,933,777 -0- 54,530,100
Payable for investment securities purchased 1,728,955 13,597,156 -0- 15,326,111
Advisory fee payable.............................. 860,162 119,591 -0- 979,753
Administrative fee payable........................ 5,521 419 -0- 5,940
Accrued expenses.................................. 372,030 1,068,532 -0- 1,440,562
-------------- ------------- ------- ---------------
Total liabilities................................. 56,577,704 18,997,910 54,515 75,630,129
-------------- ------------- ------- ---------------
Net Assets........................................ $ 983,787,664 $ 129,364,129 (75,000) $ 1,113,076,793
-------------- ------------- ------- ---------------
Net Asset Value Per Share
Net Assets........................................ $ 983,787,664 $ 129,364,129 $(75,000) $ 1,113,076,793
-------------- ------------- ---------------
Shares Outstanding................................ 67,648,715 8,897,497 76,546,212
-------------- ------------- ---------------
Net Asset Value Per Share......................... $ 14.54 $ 14.54 $ 14.54
-------------- ------------- ---------------
See notes to Pro Forma Alliance World Dollar Government Fund II financial statements.
* Cost associated with the realignment of the investment holdings of Alliance
World Dollar Government Fund prior to the Acquisition.
STATEMENT OF OPERATIONS
PRO FORMA ALLIANCE WORLD DOLLAR GOVERNMENT FUND II Alliance World Dollar Government Fund II
Year Ended March 31, 2006 (unaudited) Alliance World Dollar Government Fund
Pro Forma
Alliance World Alliance World
Dollar Government Alliance World Dollar Government
Fund II Dollar Government Adjustments Fund II
-----------------------------------------------------------------------------------------
Investment Income
Interest............................ $ 72,577,286 $ 9,023,877 $ -0- $ 81,601,163
Expenses
Advisory fee........................ 9,123,453 1,208,138 (518,617) 9,812,974 (a)
Administrative...................... 763,168 146,528 (802,696) 107,000 (b)
Custodian........................... 620,055 159,464 (139,188) 640,331 (c)
Audit & Legal....................... 197,105 153,812 (148,917) 202,000 (c)
Printing............................ 124,998 39,301 (24,299) 140,000 (c)
Transfer agency..................... 73,119 56,206 1,844 131,169 (c)
Registration........................ 60,000 23,910 (16,910) 67,000 (c)
Directors' fees..................... 36,200 39,061 (39,061) 36,200 (c)
Miscellaneous....................... 41,032 17,915 (14,947) 44,000 (c)
-------------- ------------- ---------- -----------
Total expenses before interest...... 11,039,130 1,844,335 (1,702,791) 11,180,674
Interest expense.................... 739,942 52,090 80,232 872,264
-------------- ------------- ---------- -----------
Total liabilities................... 11,779,072 1,896,425 (1,622,559) 12,052,938
-------------- ------------- ---------- -----------
Net investment income............... 60,798,214 7,127,452 1,622,559 69,548,225
-------------- ------------- ---------- -----------
Realized and Unrealized Gain (Loss)
on Investment Transactions
Net realized gain (loss) on:
Investment transactions........... 63,515,335 7,405,769 -0- 70,921,104
Swap contracts.................... (856,502) (35,893) -0- (892,395)
Written options................... 1,188,246 154,420 -0- 1,342,666
Net change in unrealized
appreciation/depreciation of:
Investments....................... 916,301 1,257,826 -0- 2,174,127
Swap contracts.................... 2,035,511 124,481 -0- 2,159,992
-------------- ------------- ---------- -----------
Net gain on investment transactions. 66,798,691 8,906,603 -0- 75,705,494
-------------- ------------- ---------- -----------
Net Increase in Net Assets from
Operations........................ $ 127,597,105 $ 16,034,055 $ 1,622,559 $145,253,719
-------------- ------------- ---------- -----------
--------------
(a) Advisory fee based on annual rate of .90% of the total combined average
weekly net assets.
(b) Administrative fee based on annual fixed fee for one Fund.
(c) Expenses are based on one Fund.
See notes to Pro Forma Alliance World Dollar Government Fund II financial statements.
NOTES TO FINANCIAL STATEMENTS PRO FORMA ALLIANCE
WORLD DOLLAR GOVERNMENT FUND II March 31, 2006 (unaudited)
NOTE A: Significant Accounting Policies
The Fund's Pro Forma Financial Statements have been prepared in conformity with
U.S. generally accepted accounting principles, which require management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities in the financial statements and amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the
basis of market quotations or, if market quotations are not readily available or
are deemed unreliable, at "fair value" as determined in accordance with
procedures established by and under the general supervision of the Fund's Board
of Directors.
In general, the market value of securities which are readily available and
deemed reliable are determined as follows. Securities listed on a national
securities exchange or on a foreign securities exchange are valued at the last
sale price at the close of the exchange or foreign securities exchange. If there
has been no sale on such day, the securities are valued at the mean of the
closing bid and asked prices on such day. Securities listed on more than one
exchange are valued by reference to the principal exchange on which the
securities are traded; securities not listed on an exchange but traded on The
NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ
Official Closing Price; listed put or call options 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
are 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 valuation, the last available closing settlement price is used;
securities traded in the over-the-counter market, ("OTC") (but excluding
securities traded on NASDAQ) are valued at the mean of the current bid and asked
prices as reported by the National Quotation Bureau or other comparable sources;
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; fixed-income
securities, including mortgage backed and asset backed securities, may be valued
on the basis of prices provided by a pricing service or at a price obtained from
one or more of the major broker/dealers. 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
price on a security; and OTC and other derivatives are valued on the basis of a
quoted bid price or spread from a major broker/dealer in such security.
Securities for which market quotations are not readily available (including
restricted securities) or are deemed unreliable are valued at fair value.
Factors considered in making this determination may include, but are not limited
to, information obtained by contacting the issuer, analysts, analysis of the
issuer's financial statements or other available documents. In addition, AWDGF
II may use fair value pricing for securities primarily traded in non-U.S.
markets because most foreign markets close well before the Fund values its
securities at 4:00 p.m., Eastern Time. The earlier close of these foreign
markets gives rise to the possibility that significant events, including broad
market moves, may have occurred in the interim and may materially affect the
value of those securities.
2. Taxes
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
stockholders. Therefore, no provisions for federal income or excise taxes are
required. The Fund may be subject to taxes imposed by countries in which it
invests. Such taxes are generally based on income and/or capital gains earned or
repatriated. Taxes are accrued and applied to net investment income, net
realized gains and net unrealized appreciation/depreciation as such income
and/or gains are earned.
3. Investment Income and Investment Transactions
Interest income is accrued daily. Investment transactions are accounted for on
the date securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Fund amortizes premiums and
accretes discounts as adjustments to interest income.
4. Dividends and Distributions
Dividends and distributions to stockholders are recorded on the ex-dividend
date. Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
U.S. generally accepted accounting principles. To the extent these differences
are permanent, such amounts are reclassified within the capital accounts based
on their federal tax basis treatment; temporary differences do not require such
reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the Investment Advisory Agreement, AWDGF II pays the Adviser
an advisory fee at an annual rate of .90% of the Fund's average weekly net
assets. Prior to October 1, 2005, AWDGF II paid the Adviser an advisory fee at
an annual rate of 1.00% of the Fund's average weekly net assets. Such fee is
accrued daily and paid monthly.
Pursuant to an Administration Agreement, effective October 1, 2005, AWDGF II
pays the Adviser an administrative fee in the amount of $107,000 per year for
its costs incurred for providing administrative services. Prior to October 1,
2005, AWDGF II paid the Adviser an administrative fee at an annual rate of .15%
of the Fund's average weekly net assets. Such fee is accrued daily and paid
monthly.
Under the terms of a Shareholder Inquiry Agency Agreement with AllianceBernstein
Investor Services, Inc. (prior to February 24, 2006 known as Alliance Global
Investor Services, Inc.) ("ABIS"), a wholly-owned subsidiary of the Adviser,
AWDGF II reimburses ABIS for costs relating to servicing phone inquiries on
behalf of the Fund. During the year ended March 31, 2006, there was no
reimbursement paid to ABIS.
NOTE C: Capital Stock
The pro-forma combining net asset value per share assumes the issuance of AWDGF
II shares to AWDGF stockholders in connection with the proposed Acquisition. The
number of shares assumed to be issued is equal to the net asset value per share
of the Acquired Fund divided by the net asset value per share of the Acquiring
Fund as of March 31, 2006. The pro-forma number of shares outstanding for the
combined entity consists of the following at March 31, 2006.
Shares of Additional Shares Total Shares
AWDGF II Assumed Issued Outstanding
Pre-Acquisition with Acquisition Post-Acquisition
--------------- ---------------- ----------------
67,648,715 8,897,497 76,546,212
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 When no rating has been assigned or where a rating has been
of Rating 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:
---------------------------------------------------------------------
An application for rating was not received or accepted.
The issue or issuer belongs to a group of securities or companies that are
unrated as a matter of policy.
There is a lack of essential data pertaining to the issue or issuer.
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.
Standards & 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, Debt rated BB, B, CCC, CC or C is regarded as having significant
CC, C speculative characteristics. BB indicates the lowest degree of
speculation and C the highest. While such debt will likely have
some quality and 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 The ratings from AA to CCC may be modified by the addition of a
Minus (-) 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 (+) Plus and minus signs are used with a rating symbol to indicate
Minus (-) 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.
Dominion Bond Rating Service Limited
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Each rating category is denoted by the subcategories "high" and "low". The
absence of either a "high" or "low" designation indicates the rating is in the
"middle" of the category. The AAA and D categories do not utilize "high",
"middle", and "low" as differential grades.
AAA--Long-term debt rated AAA is of the highest credit quality, with
exceptionally strong protection for the timely repayment of principal and
interest. Earnings are considered stable, the structure of the industry in which
the entity operates is strong, and the outlook for future profitability is
favorable. There are few qualifying factors present that would detract from the
performance of the entity. The strength of liquidity and coverage ratios is
unquestioned and the entity has established a credible track record of superior
performance. Given the extremely high standard that Dominion has set for this
category, few entities are able to achieve a AAA rating.
AA--Long-term debt rated AA is of superior credit quality, and protection of
interest and principal is considered high. In many cases they differ from
long-term debt rated AAA only to a small degree. Given the extremely restrictive
definition Dominion has for the AAA category, entities rated AA are also
considered to be strong credits, typically exemplifying above-average strength
in key areas of consideration and unlikely to be significantly affected by
reasonably foreseeable events.
A--Long-term debt rated "A" is of satisfactory credit quality. Protection of
interest and principal is still substantial, but the degree of strength is less
than that of AA rated entities. While "A" is a respectable rating, entities in
this category are considered to be more susceptible to adverse economic
conditions and have greater cyclical tendencies than higher-rated securities.
BBB--Long-term debt rated BBB is of adequate credit quality. Protection of
interest and principal is considered acceptable, but the entity is fairly
susceptible to adverse changes in financial and economic conditions, or there
may be other adverse conditions present which reduce the strength of the entity
and its rated securities.
BB--Long-term debt rated BB is defined to be speculative and non-investment
grade, where the degree of protection afforded interest and principal is
uncertain, particularly during periods of economic recession. Entities in the BB
range typically have limited access to capital markets and additional liquidity
support. In many cases, deficiencies in critical mass, diversification, and
competitive strength are additional negative considerations.
B--Long-term debt rated B is considered highly speculative and there is a
reasonably high level of uncertainty as to the ability of the entity to pay
interest and principal on a continuing basis in the future, especially in
periods of economic recession or industry adversity.
CCC, CC and C--Long-term debt rated in any of these categories is very highly
speculative and is in danger of default of interest and principal. The degree of
adverse elements present is more severe than long-term debt rated B. Long-term
debt rated below B often have features which, if not remedied, may lead to
default. In practice, there is little difference between these three categories,
with CC and C normally used for lower ranking debt of companies for which the
senior debt is rated in the CCC to B range.
D--A security rated D implies the issuer has either not met a scheduled payment
of interest or principal or that the issuer has made it clear that it will miss
such a payment in the near future. In some cases, Dominion may not assign a D
rating under a bankruptcy announcement scenario, as allowances for grace periods
may exist in the underlying legal documentation. Once assigned, the D rating
will continue as long as the missed payment continues to be in arrears, and
until such time as the rating is suspended, discontinued, or reinstated by
Dominion.
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