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This is filed pursuant to Rule 497(c).
File Nos. 333-08153 and 811-07707.
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ALLIANCE
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REAL ESTATE
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INVESTMENT FUND
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c/o Alliance Fund Services, Inc.
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
Prospectus and Application
August 27, 1996
Table of Contents Page
The Fund at a Glance...................................................... 2
Expense Information....................................................... 3
Glossary.................................................................. 4
Description of the Fund................................................... 5
Investment Objective.................................................. 5
Investment Policies................................................... 5
Additional Investment Policies and Practices.......................... 7
Risk Considerations................................................... 9
Certain Fundamental Investment Policies............................... 10
Purchase and Sale of Shares............................................... 10
Management of the Fund.................................................... 13
Dividends, Distributions and Taxes........................................ 15
General Information....................................................... 16
Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105
Consultant to Adviser
Koll Investment Management
4343 Von Karman Avenue
Newport Beach, CA 92660
Alliance Real Estate Investment Fund, Inc. (the "Fund") seeks a total return on
its assets from long-term growth of capital and from income principally through
investing in a portfolio of equity securities of issuers that are primarily
engaged in or related to the real estate industry.
The Fund is an open-end, diversified, management investment company. This
Prospectus sets forth concisely the information that a prospective investor
should know about the Fund before investing. A "Statement of Additional
Information" for the Fund dated August 27, 1996, which provides further
information regarding certain matters discussed in this Prospectus and other
matters which may be of interest to some investors, has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. For
a free copy, call or write Alliance Fund Services, Inc. at the indicated address
or call the "For Literature" telephone number shown above.
The Fund offers three classes of shares through this Prospectus. These shares
may be purchased, at the investor's choice, at a price equal to their net asset
value (i) plus an initial sales charge imposed at the time of purchase ("Class A
shares"), (ii) with a contingent deferred sales charge imposed on most
redemptions made within four years of purchase ("Class B shares"), or (iii)
without any initial or contingent deferred sales charge, as long as the shares
are held for one year or more ("Class C shares"). See "Purchase and Sale of
Shares."
AN INVESTMENT IN THESE SECURITIES IS NOT A DEPOSIT OR OBLIGATION OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK AND IS NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS CAREFULLY AND TO RETAIN IT FOR
FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[LOGO OF ALLIANCE APPEARS HERE]
(R)/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
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The Fund At A Glance
The following summary is qualified in its entirety by the more detailed
information contained inside this Prospectus.
The Fund's Investment Adviser Is . . .
Alliance Capital Management L.P. ("Alliance"), a global investment adviser
providing diversified services to institutions and individuals through a broad
line of investments including more than 100 mutual funds. Since 1971, Alliance
has earned a reputation as a leader in the investment world with over $168
billion in assets under management as of June 30, 1996. Alliance provides
investment management services to 33 of the FORTUNE 100 companies.
The Consultant to the Adviser Is . . .
Koll Investment Management, a division of Koll Real Estate Services ("Koll"), a
national real estate property and investment manager which oversees a 1,000
property portfolio consisting of client assets approximating 149 million square
feet. Koll will make available to Alliance the Koll National Real Estate Index,
which gathers, analyzes and publishes targeted research data for the 65 largest
U.S. markets, based on a variety of public-sector and private-sector sources as
well as Koll's proprietary database of approximately 45,000 property
transactions representing over $250 billion of investment property.
The Fund
Seeks . . . Total return on its assets from long-term growth of capital and from
income.
Invests principally in . . . a diversified portfolio of equity securities of
issuers that are primarily engaged in or related to the real estate industry.
Distributions
The Fund makes distributions quarterly, in March, June, September and December.
These distributions may include ordinary income and capital gain (each of which
is taxable) and a return of capital (which is generally non-taxable). See
"Dividends, Distributions and Taxes."
A Word About Risk . . .
The price of shares of the Fund will fluctuate as the daily prices of the
individual stocks and other equity securities in which it invests fluctuate, so
that your shares, when redeemed, may be worth more or less than their original
cost. Investments in common stocks and other equity securities of real estate
investment trusts and other real estate industry companies and the use by the
Fund of various investment techniques involve risks different from, and, in
certain cases, greater than the risks presented by equity securities generally.
An investment in the Fund is subject to certain risks associated with the direct
ownership of real estate and with the real estate industry in general, including
possible declines in the value of real estate, general and local economic
conditions, environmental problems and changes in interest rates. These risks
and certain others are discussed in this Prospectus. An investment in the Fund
is suitable for moderately aggressive, long-term investors who may wish to
consider investing a portion of their overall equity portfolio in a real estate
mutual fund.
Getting Started . . .
Shares of the Fund are available through your financial representative and most
banks, insurance companies and brokerage firms nationwide. Shares can be
purchased for a minimum initial investment of $250, and subsequent investments
can be made for as little as $50. For detailed information about purchasing and
selling shares, see "Purchase and Sale of Shares." In addition, the Fund offers
several time and money saving services to investors. Be sure to ask your
financial representative about:
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AUTOMATIC DIVIDEND REINVESTMENT
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AUTOMATIC INVESTMENT PROGRAM
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RETIREMENT PLANS
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SHAREHOLDER COMMUNICATIONS
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DIVIDEND DIRECTION PLANS
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AUTO EXCHANGE
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SYSTEMATIC WITHDRAWALS
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A CHOICE OF PURCHASE PLANS
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TELEPHONE TRANSACTIONS
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24 - HOUR INFORMATION
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[LOGO OF ALLIANCE APPEARS HERE]
(R)/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
2
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EXPENSE INFORMATION
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Shareholder Transaction Expenses are one of several factors to consider when you
invest in the Fund. The following table summarizes your maximum transaction
costs and estimated annual expenses for each class of shares. The Example
following the table shows the cumulative expenses attributable to a hypothetical
$1,000 investment in each class for the periods specified.
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
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<S> <C> <C> <C>
Shares
Maximum sales charge imposed on purchases
(as a percentage of offering price)................................ 4.25%(a) None None
Sales charge imposed on dividend reinvestments....................... None None None
Deferred sales charge (as a percentage of original purchase price
or redemption proceeds, whichever is lower)........................ None 4.0% during the 1% during the
first year, decreasing first year,
1.0% annually to 0% thereafter
0% after the
fourth year(b)
Exchange fee......................................................... None None None
</TABLE>
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(a) Reduced for larger purchases. Purchases of $1,000,000 or more are not
subject to an initial sales charge but may be subject to a 1% deferred
sales charge on redemption within one year of purchase. See "Purchase and
Sale of Shares--How to Buy Shares"--page 10.
(b) Class B shares automatically convert to Class A shares after eight years.
See "Purchase and Sale of Shares--How to Buy Shares"--page 10.
<TABLE>
<CAPTION>
Operating Expenses Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Management fees............................................ .90% .90% .90%
12b-1 fees................................................. .30% 1.00% 1.00%
Other expenses(a).......................................... .77% .77% .77%
---- ---- ----
Total fund operating expenses.............................. 1.97% 2.67% 2.67%
<CAPTION>
Example.................................................... Class A Class B+ Class B++ Class C+ Class C++
------- -------- --------- -------- ---------
<S>........................................................ <C> <C> <C> <C> <C>
After 1 year............................................... $ 62 $ 67 $ 27 $37 $27
After 3 years.............................................. $ 102 $ 103 $ 83 $83 $83
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</TABLE>
+ Assumes redemption at end of period.
++ Assumes no redemption at end of period.
(a) These expenses include a transfer agency fee payable to Alliance Fund
Services, Inc., an affiliate of Alliance, based on a fixed dollar amount
charged to the Fund for each shareholder account.
The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. Long-term shareholders of the Fund may pay aggregate sales
charges totaling more than the economic equivalent of the maximum initial sales
charges permitted by the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. See "Management of the Fund---Distribution Services
Agreement." The Rule 12b-1 fee for each class comprises a service fee not
exceeding .25% of the aggregate average daily net assets of the Fund
attributable to the class and an asset-based sales charge equal to the remaining
portion of the Rule 12b-1 fee. "Other Expenses" are based on estimated amounts
for the Fund's current fiscal year. The Example set forth above assumes
reinvestment of all dividends and distributions and utilizes a 5% annual rate of
return as mandated by Securities and Exchange Commission regulations. THE
EXAMPLE SHOULD NOT BE CONSIDERED REPRESENTATIVE OF PAST OR FUTURE EXPENSES;
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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GLOSSARY
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The following terms are used in this Prospectus. Many of these terms are
explained in greater detail under "Description of the Fund---Additional
Investment Policies and Practices".
U.S. Government securities are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
Moody's is Moody's Investors Service, Inc.
S&P is Standard & Poor's Ratings Services.
Duff & Phelps is Duff & Phelps Credit Rating Co.
Fitch is Fitch Investors Service, Inc.
Rule 144A securities are securities that may be resold pursuant to Rule 144A
under the Securities Act.
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
Commission is the Securities and Exchange Commission.
Securities Act is the Securities Act of 1933, as amended.
Exchange is the New York Stock Exchange.
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DESCRIPTION OF THE FUND
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The Fund is a diversified investment company. The Fund's investment objective is
"fundamental" and cannot be changed without a shareholder vote. Except as noted,
the Fund's investment policies are not fundamental and thus can be changed
without a shareholder vote. The Fund will not change these policies without
notifying its shareholders. There is no guarantee that the Fund will achieve its
investment objective.
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek a total return on its assets from
long-term growth of capital and from income principally through investing in a
portfolio of equity securities of issuers that are primarily engaged in or
related to the real estate industry.
INVESTMENT POLICIES
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in equity securities of real estate investment trusts ("REITS") and
other real estate industry companies. A "real estate industry company" is a
company that derives at least 50% of its gross revenues or net profits from the
ownership, development, construction, financing, management or sale of
commercial, industrial or residential real estate or interests therein. The
equity securities in which the Fund will invest for this purpose consist of
common stock, shares of beneficial interest of REITs and securities with common
stock characteristics, such as preferred stock or convertible securities ("Real
Estate Equity Securities").
The Fund may invest up to 35% of its total assets in (a) securities that
directly or indirectly represent participations in, or are collateralized by and
payable from, mortgage loans secured by real property ("Mortgage-Backed
Securities"), such as mortgage pass-through certificates, real estate mortgage
investment conduit ("REMIC") certificates and collateralized mortgage
obligations ("CMOs") and (b) short-term investments. These instruments are
described below. The risks associated with the Fund's transactions in REMICs,
CMOs and other types of mortgage-backed securities, which are considered to be
derivative securities, may include some or all of the following: market risk,
leverage and volatility risk, correlation risk, credit risk and liquidity and
valuation risk. See "Risk Considerations" for a description of these and other
risks.
As to any investment in Real Estate Equity Securities, Alliance's analysis will
focus on determining the degree to which the company involved can achieve
sustainable growth in cash flow and dividend paying capability. Alliance
believes that the primary determinant of this capability is the economic
viability of property markets in which the company operates and that the
secondary determinant of this capability is the ability of management to add
value through strategic focus and operating expertise. The Fund will purchase
Real Estate Equity Securities when, in the judgment of Alliance, their market
price does not adequately reflect this potential. In making this determination,
Alliance will take into account fundamental trends in underlying property
markets as determined by proprietary models, site visits conducted by
individuals knowledgeable in local real estate markets, price-earnings ratios
(as defined for real estate companies), cash flow growth and stability, the
relationship between asset value and market price of the securities, dividend
payment history, and such other factors which Alliance may determine from time
to time to be relevant. Alliance will attempt to purchase for the Fund Real
Estate Equity Securities of companies whose underlying portfolios are
diversified geographically and by property type.
The Fund may invest without limitation in shares of REITs. REITs are pooled
investment vehicles which invest primarily in income producing real estate or
real estate related loans or interests. REITs are generally classified as equity
REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity
REITs invest the majority of their assets directly in real property and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. Similar to investment companies
such as the Fund, REITs are not taxed on income distributed to shareholders
provided they comply with several requirements of the Code. The Fund will
indirectly bear its proportionate share of expenses incurred by REITs in which
the Fund invests in addition to the expenses incurred directly by the Fund.
Investment Process for Real Estate Equity Securities
The Fund's investment strategy with respect to Real Estate Equity Securities is
based on the premise that property market fundamentals are the primary
determinant of growth underlying the success of Real Estate Equity Securities.
Value added management will further distinguish the most attractive Real Estate
Equity Securities. The Fund's research and investment process is designed to
identify those companies with strong property fundamentals and strong management
teams. This process is comprised of real estate market research, specific
property inspection and securities analysis.
The universe of property-owning real estate industry firms consists of
approximately 115 companies of sufficient size and quality to merit
consideration for investment by the Fund. In implementing the Fund's research
and investment process, Alliance will avail itself of the consulting services of
Koll Investment Management, a division of Knoll Real Estate Services, a national
real estate investment and property manager that oversees a 1,000 property
portfolio. As consultant to Alliance, Koll provides access to a proprietary
model (Koll's National Real Estate Index) that analyzes the approximately 9,000
properties owned by these companies. Using proprietary databases and algorithms,
Koll analyzes local market rent, expense and occupancy trends, market specific
transaction pricing, demographic and economic trends, and leading indicators of
real estate supply such as building permits. Over 300 asset-
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type specific geographic markets are analyzed and ranked on a relative scale by
Koll in compiling its REIT.SCORE database. The relative attractiveness of these
real estate industry companies is similarly ranked based on the composite
rankings of the properties they own. See "Management of the Fund--Consultant to
Adviser" for more information about Koll.
Once the universe of real estate industry companies has been distilled through
the market research process, Koll's local market presence provides the
capability to perform site specific inspections of key properties. This analysis
examines specific property location, condition, and sub-market trends. Koll's
use of locally based real estate professionals provides Alliance with a window
on the operations of the portfolio companies as information gathered can
immediately be put in the context of local market events. Only those companies
whose specific property portfolios reflect the promise of their general markets
will be considered for initial and continued investment by the Fund.
Alliance further screens the universe of real estate industry companies by using
rigorous financial models and by engaging in regular contact with management of
targeted companies. Each management's strategic plan and ability to execute the
plan are determined and analyzed. Alliance will make extensive use of Koll's
network of industry analysts in order to assess trends in tenant industries.
This information is then used to further interpret management's strategic plans.
Financial ratio analysis is used to isolate those companies with the ability to
make value-added acquisitions. This information is combined with property market
trends and used to project future earnings potential.
Alliance believes that this process will result in a portfolio that will consist
of Real Estate Equity Securities of companies that own assets in the most
desirable markets across the country, diversified geographically and by property
type.
Mortgage-Backed Securities and Associated Risks
Mortgage-Backed Securities include mortgage pass-through certificates and
multiple-class pass-through securities, such as REMIC pass-through certificates,
CMOs and stripped mortgage-backed securities ("SMBS"), and other types of
Mortgage-Backed Securities that may be available in the future.
Guaranteed Mortgage Pass-Through Securities. The Fund may invest in guaranteed
mortgage pass-through securities which represent participation interests in
pools of residential mortgage loans and are issued by U.S. governmental or
private lenders and guaranteed by the U.S. Government or one of its agencies or
instrumentalities, including but not limited to the Government National Mortgage
Association ("Ginnie Mae"), the Federal National Mortgage Association ("Fannie
Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"). Ginnie Mae
certificates are guaranteed by the full faith and credit of the United States
Government for timely payment of principal and interest on the certificates.
Fannie Mae certificates are guaranteed by Fannie Mae, a federally chartered and
privately-owned corporation for full and timely payment of principal and
interest on the certificates. Freddie Mac certificates are guaranteed by Freddie
Mac, a corporate instrumentality of the United States Government, for timely
payment of interest and the ultimate collection of all principal of the related
mortgage loans.
Multiple-Class Pass-Through Securities and Collateralized Mortgage Obligations.
Mortgage-Backed Securities also include CMOs and REMIC pass-through or
participation certificates, which may be issued by, among others, U.S.
Government agencies and instrumentalities as well as private lenders. CMOs and
REMIC certificates are issued in multiple classes and the principal of and
interest on the mortgage assets may be allocated among the several classes of
CMOs or REMIC certificates in various ways. Each class of CMOs or REMIC
certificates, often referred to as a "tranche," is issued at a specific
adjustable or fixed interest rate and must be fully retired no later than its
final distribution date. Generally, interest is paid or accrues on all classes
of CMOs or REMIC certificates on a monthly basis. The Fund will not invest in
the lowest tranche of CMOs and REMIC certificates.
Typically, CMOs are collateralized by Ginnie Mae or Freddie Mac certificates but
also may be collateralized by other mortgage assets such as whole loans or
private mortgage pass-through securities. Debt service on CMOs is provided from
payments of principal and interest on collateral of mortgaged assets and any
reinvestment income thereon.
A REMIC is a CMO that qualifies for special tax treatment under the Code and
invests in certain mortgages primarily secured by interests in real property and
other permitted investments. Investors may purchase "regular" and "residual"
interest shares of beneficial interest in REMIC trusts although the Fund does
not intend to invest in residual interests.
Risks. Investing in Mortgage-Backed Securities involves certain unique risks in
addition to those generally associated with investing in the real estate
industry in general. These unique risks include the failure of a counterparty to
meet its commitments, adverse interest rate changes and the effects of
prepayments on mortgage cash flows. See "Risk Considerations--Mortgage-Backed
Securities" for a more complete description of the characteristics of Mortgage-
Backed Securities and associated risks.
Short-Term Investments. The short-term investments in which the Fund may invest
are: corporate commercial paper and other short-term commercial obligations, in
each case rated or issued by companies with similar securities outstanding that
are rated Prime-1, Aa or better by Moody's or A-1, AA or better by S&P;
obligations (including certificates of deposit, time deposits, demand deposits
and bankers' acceptances) of banks with securities outstanding that are rated
Prime-1, Aa or better by Moody's or A-1, AA or better by S&P; and obligations
issued or guaranteed by the U.S. Government or its agencies or instrumentalities
with remaining maturities not exceeding 18 months.
The Fund may invest in debt securities rated BBB or higher by S&P or Baa or
higher by Moody's or, if not so rated, of equivalent credit quality as
determined by Alliance. Securities
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rated BBB by S&P or Baa by Moody's are considered to have speculative
characteristics. Sustained periods of deteriorating economic conditions or
rising interest rates are more likely to lead to a weakening in the issuer's
capacity to pay interest and repay principal than in the case of higher-rated
securities. The Fund expects that it will not retain a debt security which is
downgraded below BBB or Baa or, if unrated, determined by Alliance to have
undergone similar credit quality deterioration, subsequent to purchase by the
Fund.
The Fund may also engage in the following investment practices to the extent
indicated: (i) invest up to 10% of its net assets in rights or warrants; (ii)
invest up to 15% of its net assets in the convertible securities of companies
whose common stocks are eligible for purchase by the Fund; (iii) lend portfolio
securities equal in value to not more than 25% of total assets; (iv) enter into
repurchase agreements of up to seven days' duration; (v) enter into forward
commitment transactions as long as the Fund's aggregate commitments under such
transactions are not more than 30% of the Fund's total assets; (vi) enter into
standby commitment agreements; (vii) make short sales of securities or maintain
a short position but only if at all times when a short position is open not more
than 25% of the Fund's net assets (taken at market value) is held as collateral
for such sales; and (viii) invest in illiquid securities unless, as a result,
more than 15% of its net assets would be so invested.
ADDITIONAL INVESTMENT POLICIES AND PRACTICES
Convertible Securities. Prior to conversion, convertible securities have the
same general characteristics as non-convertible debt securities, which provide a
stable stream of income with generally higher yields than those of equity
securities of the same or similar issuers. The price of a convertible security
will normally vary with changes in the price of the underlying stock, although
the higher yield tends to make the convertible security less volatile than the
underlying common stock. As with debt securities, the market value of
convertible securities tends to decline as interest rates increase and increase
as interest rates decline. While convertible securities generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality, they enable investors to benefit from increases in the market price of
the underlying common stock.
Rights and Warrants. The Fund will invest in rights or warrants only if the
underlying equity securities are themselves deemed appropriate by Alliance for
inclusion in the Fund's portfolio. Rights and warrants entitle the holder to buy
equity securities at a specific price for a specific period of time. Rights are
similar to warrants except that they have a substantially shorter duration.
Rights and warrants may be considered more speculative than certain other types
of investments in that they do not entitle a holder to dividends or voting
rights with respect to the underlying securities nor do they represent any
rights in the assets of the issuing company. The value of a right or warrant
does not necessarily change with the value of the underlying security, although
the value of a right or warrant may decline because of a decrease in the value
of the underlying security, the passage of time or a change in perception as to
the potential of the underlying security, or any combination thereof. If the
market price of the underlying security is below the exercise price set forth in
the warrant on the expiration date, the warrant will expire worthless. Moreover,
a right or warrant ceases to have value if it is not exercised prior to the
expiration date.
Illiquid Securities. Subject to any more restrictive applicable investment
policy, the Fund will not maintain more than 15% of its net assets in illiquid
securities. Illiquid securities will generally include direct placements or
other securities that are subject to legal or contractual restrictions on resale
or for which there is no readily available market (e.g., when trading in the
security is suspended or, in the case of unlisted securities, when market makers
do not exist or will not entertain bids or offers) and repurchase agreements not
terminable within seven days.
Because of the absence of a trading market for illiquid securities, the Fund may
not be able to realize their full value upon sale. Alliance will monitor the
illiquidity of such securities with respect to the Fund under the supervision of
the Directors of the Fund. To the extent permitted by applicable law, Rule 144A
securities will not be treated as "illiquid" for purposes of the foregoing
restriction so long as such securities meet liquidity guidelines established by
the Fund's Directors. The Fund may not be able to readily sell securities for
which there is no ready market.
Forward Commitments. Forward commitments for the purchase or sale of securities
may include purchases on a "when-issued" basis or purchases or sales on a
"delayed delivery" basis. In some cases, a forward commitment may be conditioned
upon the occurrence of a subsequent event, such as approval and consummation of
a merger, corporate reorganization or debt restructuring (i.e., a "when, as and
if issued" trade).
When forward commitment transactions are negotiated, the price is fixed at the
time the commitment is made, but delivery and payment for the securities take
place at a later date. Normally, the settlement date occurs within two months
after the transaction, but settlements beyond two months may be negotiated.
Securities purchased or sold under a forward commitment are subject to market
fluctuation, and no interest or dividends accrue to the purchaser prior to the
settlement date. At the time the Fund intends to enter into a forward
commitment, it records the transaction and thereafter reflects the value of the
security purchased or, if a sale, the proceeds to be received, in determining
its net asset value. Any unrealized appreciation or depreciation reflected in
such valuation of a "when, as and if issued" security would be canceled in the
event that the required conditions did not occur and the trade was canceled.
The use of forward commitments enables the Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond
7
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prices, the Fund might sell securities in its portfolio on a forward commitment
basis to limit its exposure to falling prices. In periods of falling interest
rates and rising bond prices, the Fund might sell a security in its portfolio
and purchase the same or a similar security on a when-issued or forward
commitment basis, thereby obtaining the benefit of currently higher cash yields.
However, if Alliance were to forecast incorrectly the direction of interest rate
movements, the Fund might be required to complete such when-issued or forward
transactions at prices inferior to the then current market values. When-issued
securities and forward commitments may be sold prior to the settlement date, but
the Fund enters into when-issued and forward commitments only with the intention
of actually receiving securities or delivering them, as the case may be. If the
Fund chooses to dispose of the right to acquire a when-issued security prior to
its acquisition or dispose of its right to deliver or receive against a forward
commitment, it may incur a gain or loss. Any significant commitment of Fund
assets to the purchase of securities on a "when, as and if issued" basis may
increase the volatility of the Fund's net asset value. In the event the other
party to a forward commitment transaction were to default, the Fund might lose
the opportunity to invest money at favorable rates or to dispose of securities
at favorable prices.
Standby Commitment Agreements. Standby commitment agreements commit the Fund,
for a stated period of time, to purchase a stated amount of a security that may
be issued and sold to the Fund at the option of the issuer. The price and coupon
of the security are fixed at the time of the commitment. At the time of entering
into the agreement the Fund is paid a commitment fee, regardless of whether the
security ultimately is issued, typically equal to approximately 0.5% of the
aggregate purchase price of the security the Fund has committed to purchase. The
Fund will enter into such agreements only for the purpose of investing in the
security underlying the commitment at a yield and price considered advantageous
to the Fund and unavailable on a firm commitment basis. Investments in standby
commitments will be limited so that the aggregate purchase price of the
securities subject to the commitments will not exceed 25% of the Fund's total
assets taken at the time of making the commitment.
There is no guarantee that the securities subject to a standby commitment will
be issued, and the value of the security, if issued, on the delivery date may be
more or less than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the Fund will bear the
risk of capital loss in the event the value of the security declines and may not
benefit from an appreciation in the value of the security during the commitment
period if the issuer decides not to issue and sell the security to the Fund.
Repurchase Agreements. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an agreed-upon
future date, normally a day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed upon interest rate for the period
the buyer's money is invested in the security. Such agreements permit the Fund
to keep all of its assets at work while retaining "overnight" flexibility in
pursuit of investments of a longer-term nature. If a vendor defaults on its
repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from the sale of the collateral were less than the repurchase price. If
a vendor goes bankrupt, the Fund might be delayed in, or prevented from, selling
the collateral for its benefit. Alliance monitors the creditworthiness of the
vendors with which the Fund enters into repurchase agreements.
Short Sales. A short sale is a transaction in which the Fund sells a security it
does not own but has borrowed in anticipation that the market price of that
security will decline. When the Fund makes a short sale of a security that it
does not own, it must borrow from a broker-dealer the security sold short and
deliver the security to the broker-dealer upon conclusion of the short sale. The
Fund may be required to pay a fee to borrow particular securities and is often
obligated to pay over any payments received on such borrowed securities. The
Fund's obligation to replace the borrowed security will be secured by collateral
deposited with a broker-dealer qualified as a custodian and will consist of cash
or securities. Depending on the arrangements the Fund makes with the broker-
dealer from which it borrowed the security regarding remittance of any payments
received by the Fund on such security, the Fund may not receive any payments
(including interest) on its collateral deposited with the broker-dealer.
If the price of the security sold short increases between the time of the short
sale and the time the Fund replaces the borrowed security, the Fund will incur a
loss; conversely, if the price declines, the Fund will realize a short-term
capital gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above. Although the Fund's gain is limited to the
price at which it sold the security short, its potential loss is theoretically
unlimited. In order to defer realization of gain or loss for U.S. federal income
tax purposes, the Fund may also make short sales "against the box." In this type
of short sale, at the time of the sale, the Fund owns or has the immediate and
unconditional right to acquire at no additional cost the identical security.
The Fund may not make a short sale unless at all times when a short position is
open not more than 25% of the Fund's net assets (taken at market value) is held
as collateral for such sales at any one time. Certain special federal income tax
considerations may apply to short sales entered into by the Fund. See
"Dividends, Distributions and Taxes" in the Fund's Statement of Additional
Information.
Loans of Portfolio Securities. The risks in lending portfolio securities, as
with other extensions of credit, consist of possible loss of rights in the
collateral should the borrower fail financially. In determining whether the Fund
is to lend securities to a particular borrower, Alliance will consider all
relevant facts and circumstances, including the creditworthiness of the
borrower. While securities are on loan, the borrower will pay the Fund any
income earned thereon, and the Fund may invest any cash collateral in portfolio
securities, thereby earning additional income, or receive an agreed upon
8
<PAGE>
amount of income from a borrower who has delivered equivalent collateral. The
Fund will have the right to regain record ownership of loaned securities or
equivalent securities in order to exercise ownership rights such as voting
rights, subscription rights and rights to dividends, interest or distributions.
The Fund may pay reasonable finders', administrative and custodial fees in
connection with a loan. The Fund will not lend portfolio securities in excess of
25% of the value of its total assets, nor will the Fund lend its portfolio
securities to any officer, director, employee or affiliate of the Fund or
Alliance. The Board of Directors will monitor the Fund's lending of portfolio
securities.
General. The successful use of the foregoing investment practices draws upon
Alliance's special skills and experience with respect to such instruments and
usually depends on Alliance's ability to forecast price movements correctly.
Should prices move unexpectedly, the Fund may not achieve the anticipated
benefits of the transactions or may realize losses and thus be in a worse
position than if such strategies had not been used. In addition, the correlation
between movements in the prices of such instruments and movements in the prices
of the securities hedged will not be perfect and could produce unanticipated
losses.
Future Developments. The Fund may, following written notice to its shareholders,
take advantage of other investment practices that are not currently contemplated
for use by the Fund or are not available but may yet be developed, to the extent
such investment practices are consistent with the Fund's investment objective
and legally permissible for the Fund. Such investment practices, if they arise,
may involve risks that exceed those involved in the activities described above.
Defensive Position. For temporary defensive purposes, the Fund may increase
without limit its position in short-term, liquid, high-grade debt securities,
which may include U.S. Government securities, bank deposits, money market
instruments, short-term debt securities, including notes and bonds. For a
description of the types of securities in which the Fund may invest while in a
temporary defensive position, please see the Statement of Additional
Information.
Portfolio Turnover. Alliance anticipates that the Fund's annual rate of turnover
will not exceed 100%. A 100% annual turnover rate would occur if all of the
securities in the Fund's portfolio are replaced once in a period of one year. A
higher rate of portfolio turnover involves correspondingly greater brokerage and
other expenses than a lower rate, which must be borne by the Fund and its
shareholders. High portfolio turnover also may result in the realization of
substantial net short-term capital gains. See "Dividends, Distributions and
Taxes" in the Fund's Statement of Additional Information.
RISK CONSIDERATIONS
Risk Factors Associated With the Real Estate Industry. Although the Fund does
not invest directly in real estate, it does invest primarily in Real Estate
Equity Securities and does have a policy of concentration of its investments in
the real estate industry. Therefore, an investment in the Fund is subject to
certain risks associated with the direct ownership of real estate and with the
real estate industry in general. These risks include, among others: possible
declines in the value of real estate; risks related to general and local
economic conditions; possible lack of availability of mortgage funds;
overbuilding; extended vacancies of properties; increases in competition,
property taxes and operating expenses; changes in zoning laws; costs resulting
from the clean-up of, and liability to third parties for damages resulting from,
environmental problems; casualty or condemnation losses; uninsured damages from
floods, earthquakes or other natural disasters; limitations on and variations in
rents; and changes in interest rates. To the extent that assets underlying the
Fund's investments are concentrated geographically, by property type or in
certain other respects, the Fund may be subject to certain of the foregoing
risks to greater extent.
In addition, if the Fund receives rental income or income from the disposition
of real property acquired as a result of a default on securities the Fund owns,
the receipt of such income may adversely affect the Fund's ability to retain its
tax status as a regulated investment company. See "Dividends, Distributions and
Taxes" in the Statement of Additional Information. Investments by the Fund in
securities of companies providing mortgage servicing will be subject to the
risks associated with refinancings and their impact on servicing rights.
REITs. Investing in REITs involves certain unique risks in addition to those
risks associated with investing in the real estate industry in general. Equity
REITs may be affected by changes in the value of the underlying property owned
by the REITs, while mortgage REITs may be affected by the quality of any credit
extended. REITs are dependent upon management skills, are not diversified, are
subject to heavy cash flow dependency, default by borrowers and self-
liquidation. REITs are also subject to the possibilities of failing to qualify
for tax free pass-through of income under the Code and failing to maintain their
exemptions from registration under the 1940 Act.
REITs (especially mortgage REITs) are also subject to interest rate risks. When
interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT's investments in such loans will gradually
align themselves to reflect changes in market interest rates, causing the value
of such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
Investing in REITs involves risks similar to those associated with investing in
small capitalization companies. REITs may have limited financial resources, may
trade less frequently and in a limited volume and may be subject to more abrupt
or erratic price movements than larger company securities. Historically, small
capitalization stocks, such as REITs, have been more volatile in price than the
larger capitalization stocks included in the S&P Index of 500 Common Stocks.
9
<PAGE>
Mortgage-Backed Securities. As discussed above, investing in Mortgage-Backed
Securities involves certain unique risks in addition to those risks associated
with investment in the real estate industry in general. These risks include the
failure of a counterparty to meet its commitments, adverse interest rate changes
and the effects of prepayments on mortgage cash flows. When interest rates
decline, the value of an investment in fixed rate obligations can be expected to
rise. Conversely, when interest rates rise, the value of an investment in fixed
rate obligations can be expected to decline. In contrast, as interest rates on
adjustable rate mortgage loans are reset periodically, yields on investments in
such loans will gradually align themselves to reflect changes in market interest
rates, causing the value of such investments to fluctuate less dramatically in
response to interest rate fluctuations than would investments in fixed rate
obligations.
Further, the yield characteristics of Mortgage-Backed Securities, such as those
in which the Fund may invest, differ from those of traditional fixed-income
securities. The major differences typically include more frequent interest and
principal payments (usually monthly), the adjustability of interest rates, and
the possibility that prepayments of principal may be made substantially earlier
than their final distribution dates.
Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors, and cannot be
predicted with certainty. Both adjustable rate mortgage loans and fixed rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal
prepayments in an increasing interest rate environment. Early payment associated
with Mortgage-Backed Securities causes these securities to experience
significantly greater price and yield volatility than that experienced by
traditional fixed-income securities. Under certain interest rate and prepayment
rate scenarios, the Fund may fail to recoup fully its investment in Mortgage-
Backed Securities notwithstanding any direct or indirect governmental or agency
guarantee. When the Fund reinvests amounts representing payments and unscheduled
prepayments of principal, it may receive a rate of interest that is lower than
the rate on existing adjustable rate mortgage pass-through securities. Thus,
Mortgage-Backed Securities, and adjustable rate mortgage pass-through securities
in particular, may be less effective than other types of U.S. Government
securities as a means of "locking in" interest rates.
Securities Ratings. The ratings of securities by S&P, Moody's, Duff & Phelps and
Fitch are a generally accepted barometer of credit risk. They are, however,
subject to certain limitations from an investor's standpoint. The rating of an
issuer is heavily weighted by past developments and does not necessarily reflect
probable future conditions. There is frequently a lag between the time a rating
is assigned and the time it is updated. In addition, there may be varying
degrees of difference in credit risk of securities within each rating category.
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
In addition to its fundamental investment objective, the Fund has adopted the
following fundamental investment policies, which may not be changed without the
approval of its shareholders. Additional fundamental and non-fundamental
investment policies are set forth in the Statement of Additional Information.
The Fund may not: (i) with respect to 75% of its total assets, have such assets
represented by other than: (a) cash and cash items, (b) U.S. Government
securities, or (c) securities of any one issuer (other than the U.S. Government
and its agencies or instrumentalities) not greater in value than 5% of the
Fund's total assets, and not more than 10% of the outstanding voting securities
of such issuer; (ii) purchase the securities of any one issuer, other than the
U.S. Government and its agencies or instrumentalities, if as a result (a) the
value of the holdings of the Fund in the securities of such issuer exceeds 25%
of its total assets, (b) the Fund owns more than 25% of the outstanding
securities of any one class of securities of such issuer; (iii) invest 25% or
more of its total assets in the securities of issuers conducting their principal
business activities in any one industry, other than the real estate industry in
which the Fund will invest at least 25% or more of its total assets, except that
this restriction does not apply to U.S. Government securities; (iv) purchase
or sell real estate, except that it may purchase and sell securities of
companies which deal in real estate or interests therein, including Real Estate
Equity Securities; or (v) borrow money except for temporary or emergency
purposes or to meet redemption requests, in an amount not exceeding 5% of the
value of its total assets at the time the borrowing is made.
- --------------------------------------------------------------------------------
PURCHASE AND SALE
- --------------------------------------------------------------------------------
OF SHARES
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
You can purchase shares of the Fund through broker-dealers, banks or other
financial intermediaries, or directly through Alliance Fund Distributors, Inc.
("AFD"), the Fund's principal underwriter. The minimum initial investment is
$250. The minimum for subsequent investments is $50. Investments of $25 or more
are allowed under the automatic investment program. Share certificates are
issued only upon request. See the Subscription Application and Statement of
Additional Information for more information.
Existing shareholders may make subsequent purchases by electronic funds transfer
if they have completed the Telephone Transactions section of the Subscription
Application or the Shareholder Options form obtained from Alliance Fund
Services, Inc., the Fund's registrar, transfer agent and dividend disbursing
agent ("AFS"). Telephone purchase orders can be made by calling (800) 221-5672,
may not exceed $500,000,
10
<PAGE>
must be received by the Fund by 3:00 p.m. Eastern time on a Fund business day
and will be made at the next day's net asset value (less any applicable sales
charge).
The Fund offers three classes of shares through this Prospectus, Class A, Class
B and Class C.
Class A Shares--Initial Sales Charge Alternative
You can purchase Class A shares at net asset value plus an initial sales charge,
as follows:
<TABLE>
<CAPTION>
Initial Sales Charge
as % of Commission to
Net Amount as % of Dealer/Agent as %
Amount Purchased Invested Offering Price of Offering Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.44% 4.25% 4.00%
- --------------------------------------------------------------------------------
$100,000 to less
than $250,000 3.36 3.25 3.00
- --------------------------------------------------------------------------------
$250,000 to less
than $500,000 2.30 2.25 2.00
- --------------------------------------------------------------------------------
$500,000 to less
than $1,000,000 1.78 1.75 1.50
- --------------------------------------------------------------------------------
</TABLE>
On purchases of $1,000,000 or more, you pay no initial sales charge but may pay
a contingent deferred sales charge (a "CDSC") equal to 1% of the lesser of net
asset value at the time of redemption or original cost if you redeem within one
year; Alliance may pay the dealer or agent a fee of up to 1% of the dollar
amount purchased. Certain purchases of Class A shares may qualify for reduced or
eliminated sales charges in accordance with the Fund's Combined Purchase
Privilege, Cumulative Quantity Discount, Statement of Intention, Privilege for
Certain Retirement Plans, Reinstatement Privilege and Sales at Net Asset Value
programs. Consult the Subscription Application and Statement of Additional
Information.
Class B Shares--Deferred Sales Charge Alternative
You can purchase Class B shares at net asset value without an initial sales
charge. However, you may pay a CDSC if you redeem shares within four years after
purchase. The amount of the CDSC (expressed as a percentage of the lesser of the
current net asset value or original cost) will vary according to the number of
years from the purchase of Class B shares until the redemption of those shares.
The amount of the CDSC on Class B shares is set forth below.
<TABLE>
<CAPTION>
Year Since Purchase CDSC
- --------------------------------------------------------------------------------
<S> <C>
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth None
</TABLE>
Class B shares are subject to higher distribution fees than Class A for a period
of eight years (after which they convert to Class A shares). The higher fees
mean a higher expense ratio, so Class B shares pay correspondingly lower
dividends and may have a lower net asset value than Class A shares.
Class C Shares--Asset-Based Sales Charge Alternative
You can purchase Class C shares without any initial sales charge. The Fund will
thus receive the full amount of your purchase, and, if you hold your shares for
one year or more, you will receive the entire net asset value of your shares
upon redemption. Class C shares incur higher distribution fees than Class A
shares and do not convert to any other class of shares of the Fund. The higher
fees mean a higher expense ratio, so Class C shares pay correspondingly lower
dividends and may have a lower net asset value than Class A shares.
Class C shares redeemed within one year of purchase will be subject to a CDSC
equal to 1% of the lesser of the original cost of the shares being redeemed or
net asset value at the time of redemption.
Application of the CDSC
Shares obtained from dividend or distribution reinvestment are not subject to a
CDSC. The CDSC is deducted from the amount of the redemption and is paid to AFD.
The CDSC will be waived on redemptions of shares following the death or
disability of a shareholder, to meet the requirements of certain qualified
retirement plans or pursuant to a monthly, bi-monthly or quarterly systematic
withdrawal plan. See the Statement of Additional Information.
How the Fund Values its Shares
The net asset value of each class of shares in the Fund is calculated by
dividing the value of the Fund's net assets allocable to that class by the
outstanding shares of that class. Shares are valued each day the Exchange is
open as of the close of regular trading (currently 4:00 p.m. Eastern time). The
securities in the Fund are valued at their current market value determined on
the basis of market quotations or, if such quotations are not readily available,
such other methods as the Fund's Directors believe would accurately reflect fair
market value.
General
The decision as to which class of shares is more beneficial to you depends on
the amount and intended length of your investment. If you are making a large
investment, thus qualifying for a reduced sales charge, you might consider Class
A shares. If you are making a smaller investment, you might consider Class B
shares because 100% of your purchase is invested immediately. If you are unsure
of the length of your investment, you might consider Class C shares because
there is no initial sales charge and no CDSC as long as the shares are held for
one year or more. Consult your financial agent. Dealers and agents may receive
different compensation for selling Class A, Class B or Class C shares. There is
no size limit on purchases of Class A shares. The maximum purchase of Class B
shares is $250,000. The maximum purchase of Class C shares is $5,000,000. The
Fund may refuse any order to purchase shares.
The Fund offers a fourth class of shares, Advisor Class shares, by means of a
separate Prospectus. Advisor Class shares may be purchased and held principally
through (i) accounts established under a fee-based program, sponsored and
maintained by a registered broker-dealer or other financial intermediary and
approved by AFD, pursuant to which each investor pays an asset-based fee at an
annual rate of at least .50% of the assets in the investor's account, to the
broker-dealer or other financial intermediary, or its affiliate or agent or
11
<PAGE>
(ii) a self-directed defined contribution employee benefit plan (e.g., a 401(k)
plan) that has at least 1,000 participants or $25 million in assets. Advisor
Class shares are offered without any initial sales charge or CDSC and without
ongoing distribution expenses and are expected, therefore, to have different
performance than Class A, Class B or Class C shares. You may obtain more
information about Advisor Class shares by contacting AFS at 800-221-5672 or by
contacting your financial representative.
In addition to the discount or commission paid to dealers or agents, AFD from
time to time pays additional cash or other incentives to dealers or agents,
including Equico Securities, Inc., an affiliate of AFD, in connection with the
sale of shares of the Fund. Such additional amounts may be utilized, in whole or
in part, in some cases together with other revenues of such dealers or agents,
to provide additional compensation to registered representatives who sell shares
of the Fund. On some occasions, such cash or other incentives will be
conditioned upon the sale of a specified minimum dollar amount of the shares of
the Fund and/or other Alliance Mutual Funds during a specific period of time.
Such incentives may take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel by persons associated with a
dealer and their immediate family members to urban or resort locations within or
outside the United States. Such dealer or agent may elect to receive cash
incentives of equivalent amount in lieu of such payments.
Initial Offering
It is expected that shares of the Fund will be offered during an initial
offering period which is currently scheduled to end on September 25, 1996.
During the Fund's initial offering period, Class A shares will be offered to the
public at their net asset value of $10.00 per share plus a sales charge which
will vary with the size of the purchase as shown in the foregoing table and as
described in the Statement of Additional Information. The maximum offering price
of the Class A shares during the initial offering period is $10.44 per share.
Class B and Class C shares will be offered to the public during the initial
offering period at their net asset value of $10.00.
During the initial offering AFD will "reallow" to dealers the entire amount of
the initial sales charge on Class A shares. In addition, dealers that sell
shares of the Fund during the initial offering period having an aggregate value
equal to or greater than an agreed minimum may receive an additional payment
from AFD of up to .25% of the total dollar amount of such sales.
During the initial offering period, the Fund will not accept subscriptions for
Fund shares other than through authorized dealers and agents, and any
subscription monies sent directly to the Fund will be promptly returned. In
addition, under Commission regulations (e.g., Rule 15c-4 under the Securities
Exchange Act of 1934), authorized dealers and agents will not be permitted to
accept subscription monies from their customers in advance of the purchase date
unless appropriate arrangements are made for the temporary investment or deposit
of such monies. Shares subscribed for during the Fund's initial offering period
will be sold to subscribers on the purchase date, which is expected to occur
three business days following the end of the initial offering period.
HOW TO SELL SHARES
You may "redeem", i.e., sell your shares in the Fund to the Fund on any day the
Exchange is open, either directly or through your financial representative. The
price you will receive is the net asset value (less any applicable CDSC) next
calculated after the Fund receives your request in proper form. Proceeds
generally will be sent to you within seven days. However, for shares recently
purchased by check or electronic funds transfer, the Fund will not send proceeds
until it is reasonably satisfied that the check or electronic funds transfer has
been collected (which may take up to 15 days).
Selling Shares Through Your Broker
Your broker must receive your request before 4:00 p.m. Eastern time, and your
broker must transmit your request to the Fund by 5:00 p.m. Eastern time, for you
to receive that day's net asset value (less any applicable CDSC). Your broker is
responsible for furnishing all necessary documentation to the Fund and may
charge you for this service.
Selling Shares Directly To the Fund
Send a signed letter of instruction or stock power form to AFS, along with
certificates, if any, that represent the shares you want to sell. For your
protection, signatures must be guaranteed by a bank, a member firm of a national
stock exchange or other eligible guarantor institution. Stock power forms are
available from your financial intermediary, AFS, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
intermediaries, fiduciaries and surviving joint owners. For details contact:
Alliance Fund Services
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672.
Telephone redemption requests must be made by 4:00 p.m. Eastern time on a Fund
business day in order to receive that day's net asset value, and may be made
only once in any 30-day period. A shareholder who has completed the Telephone
Transactions section of the Subscription Application, or the Shareholder Options
form obtained from AFS, can elect to have the proceeds of his or her redemption
sent to his or her bank via an electronic funds transfer. Proceeds of telephone
redemptions also may be sent by check to a shareholder's address of record.
Redemption requests by electronic funds transfer may not exceed $100,000 and
redemption requests by check may not exceed $50,000. Telephone redemption is not
available for shares held in nominee or street name accounts or retirement plan
accounts or shares held by a shareholder who has changed his or her address of
record within the previous 30 calendar days.
12
<PAGE>
General
The sale of shares is a taxable transaction for federal tax purposes. Under
unusual circumstances, the Fund may suspend redemptions or postpone payment for
up to seven days or longer, as permitted by federal securities law. The Fund
reserves the right to close an account that through redemption has remained
below $200 for 90 days. Shareholders will receive 60 days written notice to
increase the account value before the account is closed. During drastic economic
or market developments, you might have difficulty in reaching AFS by telephone,
in which event you should issue written instructions to AFS. AFS is not
responsible for the authenticity of telephonic requests to purchase, sell or
exchange shares. AFS will employ reasonable procedures to verify that telephone
requests are genuine, and could be liable for losses resulting from unauthorized
transactions if it failed to do so. Dealers and agents may charge a commission
for handling telephonic requests. The telephone service may be suspended or
terminated at any time without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS' toll-free number, 800-221-5672. Some
services are described in the attached Subscription Application. A shareholder
manual explaining all available services will be provided upon request. To
request a shareholder manual, call 800-227-4618.
HOW TO EXCHANGE SHARES
You may exchange your shares of the Fund for shares of the same class of other
Alliance Mutual Funds (which include AFD Exchange Reserves, a money market fund
managed by Alliance). Exchanges of shares are made at the net asset value next
determined and without sales or service charges. Exchanges may be made by
telephone or written request. Telephone exchange requests must be received by
AFS by 4:00 p.m. Eastern time on a Fund business day in order to receive that
day's net asset value.
Shares will continue to age without regard to exchanges for purpose of
determining the CDSC, if any, upon redemption and, in the case of Class B
shares, for the purpose of conversion to Class A shares. After an exchange, your
Class B shares will automatically convert to Class A shares in accordance with
the conversion schedule applicable to the Class B shares of the Alliance Mutual
Fund you originally purchased for cash ("original shares"). When redemption
occurs, the CDSC applicable to the original shares is applied.
Please read carefully the prospectus of the mutual fund into which you are
exchanging before submitting the request. Call AFS at 800-221-5672 to exchange
uncertificated shares. An exchange is a taxable capital transaction for federal
tax purposes. The exchange service may be changed, suspended, or terminated on
60 days written notice.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
ADVISER
Alliance has been retained under an advisory agreement (the "Advisory
Agreement") to provide investment advice and, in general, to conduct the
management and investment program of the Fund, subject to the general
supervision and control of the Directors of the Fund.
Alliance is a leading international investment manager supervising client
accounts with assets as of June 30, 1996 of more than $168 billion (of which
more than $55 billion represented the assets of investment companies).
Alliance's clients are primarily major corporate employee benefit funds, public
employee retirement systems, investment companies, foundations and endowment
funds. The 51 registered investment companies managed by Alliance comprising
more than 100 separate investment portfolios currently have over two million
shareholders. As of June 30, 1996 Alliance was retained as an investment manager
of employee benefit fund assets for 33 of the Fortune 100 companies.
ACMC, the sole general partner of, and the owner of a 1% general partnership
interest in, Alliance, is an indirect wholly-owned subsidiary of The Equitable
Life Assurance Society of the United States ("Equitable"), one of the largest
life insurance companies in the United States, which is a wholly-owned
subsidiary of The Equitable Companies Incorporated, a holding company controlled
by AXA, a French insurance holding company. Certain information concerning the
ownership and control of Equitable by AXA is set forth in the Fund's Statement
of Additional Information under "Management of the Fund."
Under the Advisory Agreement, the Fund pays Alliance a fee at the annual rate of
.90% of the Fund's average daily net assets. The fee is higher than the
management fees paid by most U.S. registered investment companies, although
Alliance believes the fee is generally comparable to the management fees paid by
other open-end registered investment companies that invest in securities similar
to the Fund. The fee is accrued daily and paid monthly.
The person primarily responsible for the day-to-day management of the Fund's
portfolio since inception is Daniel G. Pine. Mr. Pine has been associated with
Alliance since May of 1996. Prior thereto, he was Senior Vice President of Desai
Capital Management since prior to 1991.
CONSULTANT TO ADVISER
In providing advisory services to the Fund and other clients investing in real
estate securities, Alliance has access to the research services of Koll
Investment Management the Investment Management division of Koll, which acts as
a consultant to Alliance with respect to the real estate market. As a
consultant, Koll provides to Alliance, at Alliance's expense, such in-depth
information regarding the real estate market, the factors influencing regional
valuations and analysis of recent transactions in office, retail, industrial and
multi-family
13
<PAGE>
properties as Alliance shall from time to time request. Koll will not furnish
investment advice or make recommendations regarding the purchase or sale of
securities by the Fund nor will it be responsible for making investment
decisions involving Fund assets.
Koll is one of the largest fee-based property management firms in the United
States as well as one of the largest publishers of real estate research, with
approximately 2,600 employees nationwide. Koll will provide Alliance with
exclusive access to its REIT.SCORE model which ranks approximately 115 REITs
based on the relative attractiveness of the property markets in which they own
real estate. This model scores the approximately 9,000 individual properties
owned by these companies. REIT.SCORE is in turn based on Koll's National Real
Estate Index which gathers, analyzes and publishes targeted research data for
the 65 largest U.S. real estate markets based on a variety of public- and
private-sector sources as well as Koll's proprietary database of 45,000
commercial property transactions representing over $250 billion of investment
property and over 2,000 tracked properties which report rent and expense data
quarterly. Koll has previously provided access to its REIT.SCORE model results
primarily to the institutional market through subscriptions. The model is no
longer provided to any research publications and the Fund is currently the only
mutual fund available to retail investors that has access to Koll's REIT.SCORE
model.
EXPENSES OF THE FUND
In addition to the payments to Alliance under the Advisory Agreement described
above, the Fund pays certain other costs, including (i) custody, transfer and
dividend disbursing expenses, (ii) fees of the Directors who are not affiliated
with Alliance, (iii) legal and auditing expenses, (iv) clerical, accounting and
other office costs, (v) costs of printing the Fund's prospectuses and
shareholder reports, (vi) costs of maintaining the Fund's existence,
(vii) interest charges, taxes, brokerage fees and commissions, (viii) costs of
stationery and supplies, (ix) expenses and fees related to registration and
filing with the Commission and with state regulatory authorities, (x) upon the
approval of the Board of Directors, costs of personnel of Alliance or its
affiliates rendering clerical, accounting and other office services and
(xi) such promotional, shareholder servicing and other expenses as may be
contemplated by the Distribution Services Agreement, described below.
DISTRIBUTION SERVICES AGREEMENT
Rule 12b-1 adopted by the Commission under the 1940 Act permits an investment
company to pay expenses associated with the distribution of its shares in
accordance with a duly adopted plan. The Fund has adopted a "Rule 12b-1 plan"
(the "Plan") and has entered into a Distribution Services Agreement (the
"Agreement") with AFD. Pursuant to the Plan, the Fund pays to AFD a Rule 12b-1
distribution services fee, which may not exceed an annual rate of .30% of the
Fund's aggregate average daily net assets attributable to the Class A shares,
1.00% of the Fund's aggregate average daily net assets attributable to the
Class B shares and 1.00% of the Fund's aggregate average daily net assets
attributable to the Class C shares, for distribution expenses. The Plan provides
that a portion of the distribution services fee in an amount not to exceed .25%
of the aggregate average daily net assets of the Fund attributable to each of
Class A, Class B and Class C shares constitutes a service fee used for personal
service and/or the maintenance of shareholder accounts.
The Plan provides that AFD will use the distribution services fee received from
the Fund in its entirety for payments (i) to compensate broker-dealers or other
persons for providing distribution assistance, (ii) to otherwise promote the
sale of shares of the Fund, and (iii) to compensate broker-dealers, depository
institutions and other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's shareholders. In this
regard, some payments under the Plan are used to compensate financial
intermediaries with trail or maintenance commissions in an amount equal to .25%,
annualized, with respect to Class A shares and Class B shares, and 1.00%,
annualized, with respect to Class C shares, of the assets maintained in the Fund
by their customers. Distribution services fees received from the Fund with
respect to Class A shares will not be used to pay any interest expenses,
carrying charges or other financing costs or allocation of overhead of AFD.
Distribution services fees received from the Fund with respect to Class B and
Class C shares may be used for these purposes. The Plan also provides that
Alliance may use its own resources to finance the distribution of the Fund's
shares.
The Fund is not obligated under the Plan to pay any distribution services fee in
excess of the amounts set forth above. With respect to Class A shares of the
Fund, distribution expenses accrued by AFD in one fiscal year may not be paid
from distribution services fees received from the Fund in subsequent fiscal
years. AFD's compensation with respect to Class B and Class C shares under the
Plan is directly tied to the expenses incurred by AFD. Actual distribution
expenses for such Class B and Class C shares for any given year, however, will
probably exceed the distribution services fees payable under the Plan and
payments received from CDSCs. The excess will be carried forward by AFD and
reimbursed from distribution services fees payable under the Plan and payments
subsequently received through CDSCs, so long as the Plan and the Agreement are
in effect.
The Plan is in compliance with rules of the National Association of Securities
Dealers, Inc. which effectively limit the annual asset-based sales charges and
service fees that a mutual fund may pay on a class of shares to .75% and .25%,
respectively, of the average annual net assets attributable to that class. The
rules also limit the aggregate of all front end, deferred and asset-based sales
charges imposed with respect to a class of shares by a mutual fund that also
charges a service fee to 6.25% of cumulative gross sales of shares of that
class, plus interest at the prime rate plus 1% per annum.
14
<PAGE>
The Glass-Steagall Act and other applicable laws may limit the ability of a bank
or other depository institution to become an underwriter or distributor of
securities. However, in the opinion of the Fund's management, based on the
advice of counsel, these laws do not prohibit such depository institutions from
providing services for investment companies such as the administrative,
accounting and other services referred to in the Agreement. In the event that a
change in these laws prevented a bank from providing such services, it is
expected that other service arrangements would be made and that shareholders
would not be adversely affected. The State of Texas requires that shares of the
Fund may be sold in that state only by dealers or other financial institutions
that are registered there as broker-dealers.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS
- --------------------------------------------------------------------------------
AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
If you receive an income dividend or capital gains distribution in cash you may,
within 120 days following the date of its payment, reinvest the dividend or
distribution in additional shares of the Fund without charge by returning to
Alliance, with appropriate instructions, the check representing such dividend or
distribution. Thereafter, unless you otherwise specify, you will be deemed to
have elected to reinvest all subsequent dividends and distributions in shares of
the Fund.
Each income dividend and capital gains distribution, if any, declared by the
Fund on its outstanding shares will, at the election of each shareholder, be
paid in cash or in additional shares of the Fund having an aggregate net asset
value as of the payment date of such dividend or distribution equal to the cash
amount of such income dividend or distribution. Election to receive income
dividends and distributions in cash or shares is made at the time shares are
initially purchased and may be changed at any time prior to the record date for
a particular dividend or distribution. Cash dividends can be paid by check or,
if the shareholder so elects, electronically via the ACH network. There is no
sales or other charge in connection with the reinvestment of dividends and
capital gains distributions. Dividends paid by the Fund, if any, with respect to
Class A, Class B and Class C shares will be calculated in the same manner at the
same time on the same day and will be in the same amount, except that the higher
distribution services fees applicable to Class B and C shares and any
incremental transfer agency costs relating to Class B shares, will be borne
exclusively by the class to which they relate.
It is the intention of the Fund to distribute to its shareholders substantially
all of each fiscal year's net income quarterly and to distribute net realized
capital gains, if any, annually. The amount and time of any such dividend or
distribution must necessarily depend upon the realization by the Fund of income
and capital gains from investments. There is no fixed dividend rate, and there
can be no assurance that the Fund will pay any dividends or realize any capital
gains. The Fund will distribute the return of capital it receives from the
REITs in which the Fund invests. The REITs pay distributions based on cash flow,
without regard to depreciation and amortization. As a result, a portion of the
distributions paid to the Fund and subsequently distributed to shareholders is a
return of capital. The final determination of the amount of the Fund's return of
capital distributions for the period will be made after the end of each calendar
year.
If you buy shares just before the Fund deducts a distribution from its net asset
value, you will pay the full price for the shares and then receive a portion of
the price back as a taxable distribution.
U.S. Federal Income Taxes
The Fund intends to qualify to be taxed as a "regulated investment company"
under the Code. To the extent that the Fund distributes its taxable income and
net capital gain to its shareholders, qualification as a regulated investment
company relieves the Fund of federal income and excise taxes on that part of its
taxable income including net capital gains which it pays out to its
shareholders. Dividends out of net ordinary income and distributions of net
short-term capital gains are taxable to the recipient shareholders as ordinary
income. In the case of corporate shareholders, such dividends may be eligible
for the dividends received deduction, except that the amount eligible for the
deduction is limited to the amount of qualifying dividends received by the Fund.
Dividends received from REITs generally do not constitute qualifying dividends.
A corporation's dividends-received deduction will be disallowed unless the
corporation holds shares in the Fund at least 46 days. Furthermore, the
dividends-received deduction will be disallowed to the extent a corporation's
investment in shares of the Fund is financed with indebtedness.
The excess of net long-term capital gains over the net short-term capital losses
realized and distributed by the Fund to its shareholders as capital gains
distributions is taxable to the shareholders as long-term capital gains,
irrespective of the length of time a shareholder may have held his or her stock.
Long-term capital gains distributions are not eligible for the dividends-
received deduction referred to above.
Distributions received by a shareholder may include nontaxable returns of
capital, which will reduce a shareholder's basis in shares of the Fund. If that
basis is reduced to zero (which could happen if the shareholder does not
reinvest distributions and returns of capital are significant), any further
returns of capital will be taxable as capital gains.
Under the current federal tax law, the amount of an income dividend or capital
gains distribution declared by the Fund during October, November or December of
a year to shareholders of record as of a specified date in such a month that is
paid during January of the following year is includable in the prior year's
taxable income of shareholders that are calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of the Fund
will have the effect of reducing the net asset value of such shares by the
amount of such dividend or
15
<PAGE>
distribution. Furthermore, a dividend or distribution made shortly after the
purchase of such shares by a shareholder, although in effect a return of capital
to that particular shareholder, would be taxable to him or her as described
above. If a shareholder held shares six months or less and during that period
received a distribution taxable to such shareholder as long-term capital gain,
any loss realized on the sale of such shares during such six-month period would
be a long-term capital loss to the extent of such distribution.
A dividend or capital gains distribution with respect to shares of the Fund held
by a tax-deferred or qualified plan, such as an individual retirement account,
403(b)(7) retirement plan or corporate pension or profit-sharing plan, will not
be taxable to the plan. Distributions from such plans will be taxable to
individual participants under applicable tax rules without regard to the
character of the income earned by the qualified plan.
The Fund will be required to withhold 31% of any payments made to a shareholder
if the shareholder has not provided a certified taxpayer identification number
to the Fund, or the Secretary of the Treasury notifies the Fund that a
shareholder has not reported all interest and dividend income required to be
shown on the shareholder's federal income tax return.
Shareholders will be advised annually as to the federal tax status of income
dividends and capital gain and return of capital distributions made by the Fund
for the preceding year. Distributions by the Fund may be subject to state and
local taxes. Shareholders are urged to consult their tax advisers regarding
their own tax situation.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, the Fund may
consider sales of its shares as a factor in the selection of dealers to enter
into portfolio transactions with the Fund.
ORGANIZATION
Alliance Real Estate Investment Fund, Inc. is a Maryland corporation organized
on July 15, 1996. It is anticipated that annual shareholder meetings will not be
held; shareholder meetings will be held only when required by federal or state
law. Shareholders have available certain procedures for the removal of
Directors.
A shareholder in the Fund will be entitled to his or her share pro rata with
other holders of the same class of shares of all dividends and distributions
arising from the Fund's assets and, upon redeeming shares, will receive the then
current net asset value of the Fund represented by the redeemed shares less any
applicable CDSC. The Fund is empowered to establish, without shareholder
approval, additional portfolios, which may have different investment objectives,
and additional classes of shares. If an additional portfolio or class were
established in the Fund, each share of the portfolio or class would normally be
entitled to one vote for all purposes. Generally, shares of each portfolio and
class would vote as a single series or class on matters, such as the election of
Directors, that affect each portfolio or class in substantially the same manner.
Class A, Class B, Class C and Advisor Class shares have identical voting,
dividend, liquidation and other rights, except that each class bears its own
transfer agency expenses, each of Class A, Class B and Class C shares bears its
own distribution expenses and Class B shares convert to Class A shares after
eight years. Each of Class A, Class B and Class C votes separately with respect
to the Fund's Rule 12b-1 distribution plan and each class of shares votes
separately with respect to other matters for which separate class voting is
appropriate under applicable law. Shares are freely transferable, are entitled
to dividends as determined by the Directors and, in liquidation of the Fund, are
entitled to receive the net assets of the Fund. Certain additional matters
relating to the Fund's organization are discussed in its Statement of Additional
Information.
REGISTRAR, TRANSFER AGENT AND
DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as the Fund's registrar, transfer agent
and dividend-disbursing agent for a fee based upon the number of shareholder
accounts maintained for the Fund. The transfer agency fee with respect to the
Class B shares will be higher than the transfer agency fee with respect to the
Class A shares or Class C shares.
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue of
the Americas, New York, New York 10105, is the principal underwriter of shares
of the Fund.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return, which is computed
separately for Class A, Class B and Class C shares. Such advertisements disclose
the Fund's average annual compounded total return for the periods prescribed by
the Commission. The Fund's total return for each such period is computed by
finding, through the use of a formula prescribed by the Commission, the average
annual compounded rate of return over the period that would equate an assumed
initial amount invested to the value of the investment at the end of the period.
For purposes of computing total return, income, dividends and capital gains
distributions paid on shares of the Fund are assumed to have been reinvested
when paid and the maximum sales charges applicable to purchases and redemptions
of the Fund's shares are assumed to have been paid. The Fund's advertisements
may quote performance rankings or ratings of the Fund by financial publications
or independent organizations such as Lipper Analytical Services, Inc. and
Morningstar, Inc. or compare the Fund's performance to various indices.
16
<PAGE>
ADDITIONAL INFORMATION
This Prospectus and the Statement of Additional Information, which has been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statement filed by the Fund with the Commission under the
Securities Act. Copies of the Registration Statement may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at the
offices of the Commission in Washington, D.C.
Alliance
Real Estate Investment
Fund
Goal: Total return through
investment principally in
equity securities
of issuers that are primarily
engaged in or related to
the real estate industry
Prospectus and Application
August 27, 1996
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
17
<PAGE>
ALLIANCE SUBSCRIPTION APPLICATION
- ------------------------------------------------------------------------------
ALLIANCE REAL ESTATE INVESTMENT FUND
- ------------------------------------------------------------------------------
INFORMATION AND INSTRUCTIONS
- ------------------------------------------------------------------------------
To Open Your New Alliance Account...
Please complete the application For certified or overnight
and mail it to: deliveries, send to:
Alliance Fund Services, Inc. Alliance Fund Services, Inc.
P.O. Box 1520 500 Plaza Drive
Secaucus, New Jersey 07096-1520 Secaucus, New Jersey 07094
- ---------
Section 1 Your Account Registration (Required)
- ---------
Complete one of the available choices. To ensure proper tax reporting to the
IRS:
Individuals, Joint Tenants and Gift/Transfer to a Minor:
. Indicate your name(s) exactly as it appears on your social
security card.
Trust/Other:
. Indicate the name of the entity exactly as it appeared on the notice
you received from the IRS when your Employer Identification number
was assigned.
- ---------
Section 2 Your Address (Required)
- ---------
Complete in full.
- ---------
Section 3 Your Initial Investment (Required)
- ---------
1) Write the dollar amount of your initial purchase in the column corresponding
to the class of shares you have chosen (If you are eligible for a reduced sales
charge, you must also complete Section 4F) 2) Circle a distribution option for
your dividends 3) Circle a distribution option for your capital gains. All
distributions (dividends and capital gains) will be reinvested into your fund
account unless you direct otherwise. If you want distributions sent directly
to your bank account, then you must complete Section 4D and attach a voided
check for that account. If you want your distributions sent to a third party
you must complete Section 4E.
- ---------
Section 4 Your Shareholder Options (Complete only those options you want)
- ---------
A. Automatic Investment Plans (AIP) - You can make periodic investments into any
of your Alliance Funds in one of three ways. First, by a periodic withdrawal
($25 minimum) directly from your bank account and invested into an Alliance
Fund. Second, you can direct your distributions (dividends and capital gains)
from one Alliance Fund into another Fund. Or third, you can automatically
exchange monthly ($25 minimum) shares of one Alliance Fund for shares of
another Fund. To elect one of these options, complete the appropriate portion
of Section 4A.
B. Systematic Withdrawal Plans (SWP) - Complete this option if you wish to
periodically redeem dollars from one of your fund accounts. Payments can be
made via Electronic Funds Transfer (EFT) to your bank account (currently
Classes A and C only) or by check.
C. Telephone Transactions via EFT - Complete this option if you would like to
be able to transact via telephone between your fund account and your bank
account.
D. Bank Information - If you have elected any options that involve transactions
between your bank account and your fund account or have elected cash
distribution options and would like the payments sent to your bank account,
please tape a voided check of the account you wish to use to this section of
the application.
E. Third Party Payment Details - If you have chosen cash distributions and/or a
Systematic Withdrawal Plan and would like the payments sent to a person
and/or address other than those provided in section 1 or 2, complete this
option.
F. Reduced Charges (Class A only) - Complete if you would like to link fund
accounts that have combined balances that might exceed $100,000 so that
future purchases will receive discounts. Complete if you intend to purchase
over $100,000 within 13 months.
- ---------
Section 5 Shareholder Authorization (Required)
- ---------
All owners must sign. If it is a custodial, corporate, or trust account, the
custodian, an authorized officer, or the trustee respectively must sign.
If We Can Assist You In Any Way, Please Do Not Hesitate To Call Us At: (800)
221-5672.
<PAGE>
SUBSCRIPTION APPLICATION
- --------------------------------------------------------------------------------
ALLIANCE REAL ESTATE INVESTMENT FUND
(see instructions at the front of the application)
1. YOUR ACCOUNT REGISTRATION (Please Print)
[_] INDIVIDUAL OR JOINT ACCOUNT
---------------------------------------------------------------------------
Owner's Name (First Name) (MI) (Last Name)
- -
-----------------------------
Social Security Number (Required to open account)
---------------------------------------------------------------------------
Joint Owner's Name* (First Name) (MI) (Last Name)
*Joint Tenants with right of survivorship unless Alliance Fund Services is
informed otherwise.
[_] GIFT/TRANSFER TO A MINOR
---------------------------------------------------------------------------
Custodian - One Name Only (First Name) (MI) (Last Name)
---------------------------------------------------------------------------
Minor (First Name) (MI) (Last Name)
- -
------------------------
Minor's Social Security Under the State of ______ (Minor's Residence)
Number (Required to open Uniform Gifts/
account) Transfer to Minor's
Act
[_] TRUST ACCOUNT
-------------------------------------------------------------------------
Name of Trustee
-------------------------------------------------------------------------
Name of Trust
-------------------------------------------------------------------------
Name of Trust (cont'd)
---------------------------------- ------------------------------------
Trust Dated Tax ID or Social Security Number
(Required to open account)
[_] OTHER
-------------------------------------------------------------------------
Name of Corporation, Partnership, Investment Only Retirement Plan or other
Entity
------------------------------------
Trustee Name (Retirement Plans Only)
-----------------------
Tax ID Number
2. YOUR ADDRESS
-------------------------------------------------------------------------
Street
-------------------------------------------------------------------------
City State Zip Code
-------------------------------------------------------------------------
If Non-U.S., Specify Country
- - - -
---------------------- ----------------------
Daytime Phone Evening Phone
I am a: [_] U.S. Citizen [_] Non-Resident Alien [_] Resident Alien [_] Other
[ For Alliance Use Only ]
<PAGE>
3. YOUR INITIAL INVESTMENT
The minimum investment is $250 per fund. The maximum investment in Class B is
$250,000; Class C is $5,000,000.
I hereby subscribe for shares of Alliance Real Estate Investment Fund and elect
distribution options as indicated.
Dividend and Capital Gain
Distribution Options:
- ---------------------------
BROKER/DEALER USE ONLY
WIRE CONFIRM #
- ---------------------------
- ---------------------------
R Reinvest distributions into my fund account.
- -- ----------------------
C Send my distributions in cash to the address I have provided in
- -- -----------------------------
Section 2. (Complete Section 4D for direct deposit to your bank
account. Complete Section 4E for payment to a third party)
D Direct my distributions to another Alliance fund. Complete the
- -- -------------------------------------------------
appropriate portion of Section 4A to direct your distributions
(dividends and capital gains) to another Alliance Fund (the $250
minimum investment requirement applies to Funds into which
distributions are directed).
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------- ---------------------------------------------------- -----------------------
CLASS OF SHARES
----------------------------------------------------
----------------- --------------- ------------------ DISTRIBUTION OPTIONS
Make all checks payable to: CONTINGENT CIRCLE
Alliance Fund Services INITIAL SALES DEFERRED ASSET-BASED ------------ ---------
- ------------------------------- CHARGE SALES CHARGE SALES CHARGE CAPITAL
ALLIANCE FUND NAME A B C DIVIDENDS GAINS
- ------------------------------- ----------------- --------------- ------------------ ------------ ---------
Alliance Real Estate
Investment Fund $ $ $ R C D R C D
- ------------------------------- ----------------- --------------- ------------------ ------------ ---------
R C D R C D
- ------------------------------- ----------------- --------------- ------------------ ------------ ---------
R C D R C D
- ------------------------------- ----------------- --------------- ------------------ ------------ ---------
R C D R C D
- ------------------------------- ----------------- --------------- ------------------ ------------ ---------
R C D R C D
- ------------------------------- ----------------- --------------- ------------------ ------------ ---------
TOTAL INVESTMENT $ $ $
- ------------------------------- ----------------- --------------- ------------------
</TABLE>
<PAGE>
MY SOCIAL SECURITY (TAX IDENTIFICATION ) NUMBER IS: [_][_][_][_][_][_][_][_][_]
- --------------------------------------------------------------------------------
4. Your Shareholder Options
- --------------------------------------------------------------------------------
- -------------------------------------
A. AUTOMATIC INVESTMENT PLANS (AIP)
- -------------------------------------
[_] WITHDRAW FROM MY BANK ACCOUNT
I authorize Alliance to draw on my bank account for investment in my fund
account(s) as indicated below (Complete Section 4D also for the bank account you
wish to use).
<TABLE>
<CAPTION>
Monthly Dollar
Amount Day of Withdrawal*
Fund Name ($25 minimum) (1st thru 31st) Circle "all" or applicable months
<S> <C> <C> <C>
All J F M A M J J A S O N D
- ---------------------------- -------------------------- ------------------------------- -----------------------------------------
All J F M A M J J A S O N D
- ---------------------------- -------------------------- ------------------------------- -----------------------------------------
All J F M A M J J A S O N D
- ---------------------------- -------------------------- ------------------------------- -----------------------------------------
All J F M A M J J A S O N D
- ---------------------------- -------------------------- ------------------------------- -----------------------------------------
</TABLE>
*Your bank must be a member of the National Automated Clearing House
Association (NACHA)
[_] DIRECT MY DISTRIBUTIONS
As indicated in Section 3, I would like my dividends and/or capital gains
directed to another Alliance fund within the same class of shares.
<TABLE>
<CAPTION>
"From" Fund Name "From" Fund Account # "To" Fund Name "To" Fund Account # (if existing)
(if existing)
<S> <C> <C> <C>
[_] New
[_] Existing
- ---------------------------- -------------------------- ------------------------------- -----------------------------------------
[_] New
[_] Existing
- ---------------------------- -------------------------- ------------------------------- -----------------------------------------
[_] New
[_] Existing
- ---------------------------- -------------------------- ------------------------------- -----------------------------------------
[_] New
[_] Existing
- ---------------------------- -------------------------- ------------------------------- -----------------------------------------
</TABLE>
[_] EXCHANGE SHARES MONTHLY
I authorize Alliance to transact monthly exchanges between my fund accounts as
listed below within the same class of shares.
<TABLE>
<CAPTION>
"From" Fund Account# Dollar Amount Day of Exchange** "To" Fund Account #
"From" Fund Name (if existing) ($25 minimum) (1st thru 31st) "To" Fund Name (if existing)
<S> <C> <C> <C> <C> <C>
[_] New
[_] Existing
---------------- ---------------------- ---------------- ------------------ ---------------- -----------------------------
[_] New
[_] Existing
---------------- ---------------------- ---------------- ------------------ ---------------- -----------------------------
[_] New
[_] Existing
---------------- ---------------------- ---------------- ------------------ ---------------- -----------------------------
[_] New
[_] Existing
---------------- ---------------------- ---------------- ------------------ ---------------- -----------------------------
</TABLE>
**Shares exchanged will be redeemed at the net asset value on the "Day of
Exchange" (If the "Day of Exchange" is not a fund business day, the exchange
transaction will be processed on the next fund business day). The exchange
privilege is not available if stock certificates have been issued.
- ---------------------------------------
B. SYSTEMATIC WITHDRAWAL PLANS (SWP)
- ---------------------------------------
In order to establish a SWP, you must reinvest all dividends and capital gains
and own or purchase shares of the Fund having a current net asset value of at
least:
.$10,000 for monthly payments, .$5,000 for bi-monthly payments,
.$4,000 for quarterly or less frequent payments
SWPs on Class B shares of up to approximately 12% (annualized) of the current
market value of an account will be processed free of a contingent deferred sales
charge (CDSC). Under this plan, you may withdraw a maximum of 1% monthly, 2% bi-
monthly or 3% quarterly, of the value of your class B shares acquired after July
1, 1995, without the imposition of a CDSC. Withdrawals in excess of these
amounts will continue to be charged the applicable CDSC. Your bank must be a
member of the National Automated Clearing House Association (NACHA) in order for
you to receive SWP proceeds directly into your checking account.
[_] I authorize Alliance to transact periodic redemptions from my fund account
and send the proceeds to me as indicated below.
<TABLE>
<CAPTION>
Fund Name and Class of Shares Dollar Amount ($50 minimum) Circle "all" or applicable months
<S> <C> <C>
All J F M A M J J A S O N D
- ------------------------------------------- ----------------------------- --------------------------------------
All J F M A M J J A S O N D
- ------------------------------------------- ----------------------------- --------------------------------------
All J F M A M J J A S O N D
- ------------------------------------------- ----------------------------- --------------------------------------
All J F M A M J J A S O N D
- ------------------------------------------- ----------------------------- --------------------------------------
</TABLE>
PLEASE SEND MY PROCEEDS TO:
[_] MY CHECKING ACCOUNT (via EFT) - Currently Class A and C only
I would like to have these payments occur on or about the [____]
(1st-31st) of the months circled above. (Complete Section 4D for the
bank account you wish to use.)
[_] MY ADDRESS OF RECORD (via CHECK)
[_] THE PAYEE AND ADDRESS SPECIFIED IN SECTION 4E (via CHECK)
<PAGE>
- -------------------------------------
C. PURCHASES AND REDEMPTIONS VIA EFT
- -------------------------------------
You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund
Services, Inc. in a recorded conversation to purchase, redeem or exchange
shares for your account. Purchase and redemption requests will be processed
via electronic funds transfer (EFT) to and from your bank account.
Instructions: . Review the information in the Prospectus about
telephone transaction services.
. If you select the telephone purchase or redemption privilege,
you must write "VOID" across the face of a check from the
bank account you wish to use and attach it to Section 4D of
this application.
Purchases and Redemptions via EFT
[_] I hereby authorize Alliance Fund Services, Inc. to effect the purchase
and/or redemption of Fund shares for my account according to my
telephone instructions or telephone instructions from my Broker/Agent,
and to withdraw money or credit money for such shares via EFT from the
bank account I have selected.
- -----------------------
D. BANK INFORMATION
- -----------------------
This bank account information will be used for:
[_] Distributions (Section 3) [_]Automatic Investments
(Section 4A)
[_] Systematic Withdrawals [_]Telephone Transactions
(Section 4B) (Section 4C)
Please attach a voided check:
- ----------------------------------------------------------------------------
Tape Pre-Printed Voided Check Here.
We Cannot Establish These Services Without it.
- ----------------------------------------------------------------------------
Your bank must be a member of the National Automated Clearing House
Association (NACHA) in order to have EFT transactions processed to your fund
account. For EFT transactions, the fund requires signatures of bank account
owners exactly as they appear on bank records.
- --------------------------------
E. THIRD PARTY PAYMENT DETAILS
- --------------------------------
This third party payee information will be used for:
[_] Distributions (Section 3) [_] Systematic Withdrawals (Section 4B)
- ----------------------------------------------------------------------------
Name
- ----------------------------------------------------------------------------
Address - Line 1
- ---------------------------------------------------------------------------
Address - Line 2
- ---------------------------------------------------------------------------
Address - Line 3
- ----------------------------------
F. REDUCED CHARGES (CLASS A ONLY)
- ----------------------------------
If you, your spouse or minor children own shares in other Alliance funds, you
may be eligible for a reduced sales charge. Please complete the Right of
Accumulation section or the Statement of Intent section.
A. Right of Accumulation
[_] Please link the tax identification numbers or account numbers listed
below for Right of Accumulation privileges, so that this and future
purchases will receive any discount for which they are eligible.
B. Statement of Intent
[_] I want to reduce my sales charge by agreeing to invest the following
amount over a 13-month period:
[_] $100,000 [_] $250,000 [_] $500,000 [_] $1,000,000
If the full amount indicated is not purchased within 13 months, I
understand that an additional sales charge must be paid from my account.
-------------------------- ----------------------- ----------------------
Tax ID or Account # Tax ID or Account # Tax ID or Account #
<PAGE>
- -------------------------------------------------------------------------------
5. Shareholder Authorization This section MUST be completed
- -------------------------------------------------------------------------------
Telephone Exchanges and Redemptions by Check
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an authorized
employee of an investment dealer or agent requesting a redemption or exchange on
my behalf. (NOTE: Telephone exchanges may only be processed between accounts
that have identical registrations.) Telephone redemption checks will only be
mailed to the name and address of record; and the address must have no change
within the last 30 days. The maximum telephone redemption amount is $50,000.
This service can be enacted once every 30 days.
[_] I do not elect the telephone [_] I do not elect the telephone
--- ---
exchange service. redemption by check service.
I certify under penalty of perjury that the number shown in Section 1 of this
form is my correct tax identification number or social security number and that
I have not been notified that this account is subject to backup withholding.
By selecting any of the above telephone privileges, I agree that neither the
Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund Services,
Inc. or other Fund Agent will be liable for any loss, injury, damage or expense
as a result of acting upon telephone instructions purporting to be on my behalf,
that the Fund reasonably believes to be genuine, and that neither the Fund nor
any such party will be responsible for the authenticity of such telephone
instructions. I understand that any or all of these privileges may be
discontinued by me or the Fund at any time. I understand and agree that the Fund
reserves the right to refuse any telephone instructions and that my investment
dealer or agent reserves the right to refuse to issue any telephone instructions
I may request.
For non-residents only: Under penalties of perjury, I certify that to the best
of my knowledge and belief, I qualify as a foreign person as indicated in
Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
- ------------------------------------ ------------
Signature Date
- ------------------------------------ ------------ ----------------------
Signature Date Acceptance Date
- ------------------------------------------------------------------------------
Dealer/Agent Authorization For selected Dealers or Agents ONLY.
- ------------------------------------------------------------------------------
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee the
signature(s) set forth in Section 5, as well as the legal capacity of the
shareholder.
- ----------------------------------------- -------------------------------------
Dealer/Agent Firm Authorized Signature
- ----------------------------------------- -------- ----------------------------
Representative First Name MI Last Name
- -------------------------------------------------------------------------------
Representative Number
- -------------------------------------------------------------------------------
Branch Office Address
- -------------------------------------------------------------------------------
City State Zip Code
( )
- -------------------------------------------------------------------------------
Branch Number Branch Phone
<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 333-08153 and 811-07707.
<PAGE>
ALLIANCE REAL ESTATE
[LOGO](R) INVESTMENT FUND, INC.
_________________________________________________________________
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
_________________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
August 27, 1996
_________________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the current
Prospectus for the Fund that offers the Class A, Class B and
Class C shares of the Fund dated August 27, 1996 and the current
Prospectus for the Fund that offers the Advisor Class shares of
the Fund dated August 27, 1996 (each such Prospectus will be
referred to collectively as the "Prospectus"). Copies of such
Prospectus may be obtained by contacting Alliance Fund Services,
Inc. at the address or the "Literature" telephone number shown
above.
TABLE OF CONTENTS
Page
____
Description of the Fund.............................. 2
Management of the Fund............................... 10
Expenses of the Fund................................. 18
Purchase of Shares................................... 20
Redemption and Repurchase of Shares.................. 38
Shareholder Services................................. 42
Net Asset Value...................................... 48
Dividends, Distributions and Taxes................... 50
Brokerage and Portfolio Transactions................. 53
General Information.................................. 55
<PAGE>
Report of Independent Auditors and
Financial Statements............................... 59
(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
________________________________________________________________
DESCRIPTION OF THE FUND
________________________________________________________________
Alliance Real Estate Investment Fund, Inc. (the "Fund")
is a diversified investment company. The Fund's investment
objective is "fundamental" and cannot be changed without a
shareholder vote. Except as noted, the Fund's investment
policies are not fundamental and thus can be changed without a
shareholder vote. The Fund will not change these policies
without notifying its shareholders. There is no guarantee that
the Fund will achieve its investment objective.
Investment Objective
The Fund's investment objective is to seek a total
return on its assets from long-term growth of capital and from
income principally through investing in a portfolio of equity
securities of issuers that are primarily engaged in or related to
the real estate industry.
Investment Policies
Under normal circumstances, at least 65% of the Fund's
total assets will be invested in equity securities of real estate
investment trusts ("REITs") and other real estate industry
companies. A "real estate industry company" is a company that
derives at least 50% of its gross revenues or net profits from
the ownership, development, construction, financing, management
or sale of commercial, industrial or residential real estate or
interests therein. The equity securities in which the Fund will
invest for this purpose consist of common stock, shares of
beneficial interest of REITs and securities with common stock
characteristics, such as preferred stock or convertible
securities ("Real Estate Equity Securities").
The Fund may invest up to 35% of its total assets in
(a) securities that directly or indirectly represent
participations in, or are collateralized by and payable from,
mortgage loans secured by real property ("Mortgage-Backed
Securities"), such as mortgage pass-through certificates, real
estate mortgage investment conduit ("REMIC") certificates and
collateralized mortgage obligations ("CMOs") and (b) short-term
investments. These instruments are described below. The risks
associated with the Fund's transactions in REMICs, CMOs and other
types of mortgage-backed securities, which are considered to be
derivative securities, may include some or all of the following:
2
<PAGE>
market risk, leverage and volatility risk, correlation risk,
credit risk and liquidity and valuation risk. See "Risk
Considerations--Risk Factors Associated with the Real Estate
Industry" in the Prospectus for a description of these and other
risks.
As to any investment in Real Estate Equity Securities,
the analysis of Alliance Capital Management, L.P., the Fund's
investment adviser (the "Adviser") will focus on determining the
degree to which the company involved can achieve sustainable
growth in cash flow and dividend paying capability. The Adviser
believes that the primary determinant of this capability is the
economic viability of property markets in which the company
operates and that the secondary determinant of this capability is
the ability of management to add value through strategic focus
and operating expertise. The Fund will purchase Real Estate
Equity Securities when, in the judgment of the Adviser, their
market price does not adequately reflect this potential. In
making this determination, the Adviser will take into account
fundamental trends in underlying property markets as determined
by proprietary models, site visits conducted by individuals
knowledgeable in local real estate markets, price-earnings ratios
(as defined for real estate companies), cash flow growth and
stability, the relationship between asset value and market price
of the securities, dividend payment history, and such other
factors which the Adviser may determine from time to time to be
relevant. The Adviser will attempt to purchase for the Fund Real
Estate Equity Securities of companies whose underlying portfolios
are diversified geographically and by property type.
The Fund may invest without limitation in shares of
REITs. REITs are pooled investment vehicles which invest
primarily in income producing real estate or real estate related
loans or interests. REITs are generally classified as equity
REITs, mortgage REITs or a combination of equity and mortgage
REITs. Equity REITs invest the majority of their assets directly
in real property and derive income primarily from the collection
of rents. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage REITs invest
the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. Similar to
investment companies such as the Fund, REITs are not taxed on
income distributed to shareholders provided they comply with
several requirements of the Internal Revenue Code of 1986, as
amended (the "Code"). The Fund will indirectly bear its
proportionate share of expenses incurred by REITs in which the
Fund invests in addition to the expenses incurred directly by the
3
<PAGE>
Fund. The Fund may invest up to 5% of its total assets in Real
Estate Equity Securities of non-U.S. issuers.
Additional Investment Policies and Practices
To the extent not described in the Prospectus, set forth
below is additional information regarding the Fund's investment
policies and practices. Except as otherwise noted, the Fund's
investment policies are not designated "fundamental policies"
within the meaning of the Investment Company Act of 1940, as
amended (the "1940 Act") and, therefore, may be changed by the
Directors of the Fund without a shareholder vote. However, the
Fund will not change its investment policies without
contemporaneous written notice to shareholders.
Convertible Securities. The Fund may invest up to 25%
of its total assets in convertible securities of issuers whose
common stocks are eligible for purchase by the Fund under the
investment policies described above. Convertible securities
include bonds, debentures, corporate notes and preferred stocks.
Convertible securities are instruments that are convertible at a
stated exchange rate into common stock. Prior to their
conversion, convertible securities have the same general
characteristics as non-convertible securities which provide a
stable stream of income with generally higher yields than those
of equity securities of the same or similar issuers. The market
value of convertible securities tends to decline as interest
rates increase and, conversely, to increase as interest rates
decline. While convertible securities generally offer lower
interest yields than non-convertible debt securities of similar
quality, they do enable the investor to benefit from increases in
the market price of the underlying common stock.
When the market price of the common stock underlying a
convertible security increases, the price of the convertible
security increasingly reflects the value of the underlying common
stock and may rise accordingly. As the market price of the
underlying common stock declines, the convertible security tends
to trade increasingly on a yield basis, and thus may not
depreciate to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an
issuer's capital structure. They are consequently of higher
quality and entail less risk than the issuer's common stock,
although the extent to which such risk is reduced depends in
large measure upon the degree to which the convertible security
sells above its value as a fixed income security.
4
<PAGE>
Forward Commitments. No forward commitments will be
made by the Fund if, as a result, the Fund's aggregate
commitments under such transactions would be more than 30% of the
then current value of the Fund's total assets. The Fund's right
to receive or deliver a security under a forward commitment may
be sold prior to the settlement date, but the Fund will enter
into forward commitments only with the intention of actually
receiving or delivering the securities, as the case may be. To
facilitate such transactions, the Fund's custodian will maintain,
in a segregated account of the Fund, cash and/or securities
having value equal to, or greater than, any commitments to
purchase securities on a forward commitment basis and, with
respect to forward commitments to sell portfolio securities of
the Fund, the portfolio securities themselves. If the Fund,
however, chooses to dispose of the right to receive or deliver a
security subject to a forward commitment prior to the settlement
date of the transaction, it may incur a gain or loss. In the
event the other party to a forward commitment transaction were to
default, the Fund might lose the opportunity to invest money at
favorable rates or to dispose of securities at favorable prices.
Standby Commitment Agreements. The purchase of a
security subject to a standby commitment agreement and the
related commitment fee will be recorded on the date on which the
security can reasonably be expected to be issued and the value of
the security will thereafter be reflected in the calculation of
the Fund's net asset value. The cost basis of the security will
be adjusted by the amount of the commitment fee. In the event
the security is not issued, the commitment fee will be recorded
as income on the expiration date of the standby commitment. The
Fund will at all times maintain a segregated account with its
custodian of cash and/or securities in an aggregate amount equal
to the purchase price of the securities underlying the
commitment.
There can be no assurance that the securities subject to
a standby commitment will be issued and the value of the
security, if issued, on the delivery date may be more or less
than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the
Fund will bear the risk of capital loss in the event the value of
the security declines and may not benefit from an appreciation in
the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Fund.
Repurchase Agreements. The Fund may enter into
repurchase agreements pertaining to U.S. Government Securities
with member banks of the Federal Reserve System or "primary
5
<PAGE>
dealers" (as designated by the Federal Reserve Bank of New York)
in such securities. There is no percentage restriction on the
Fund's ability to enter into repurchase agreements. Currently,
the Fund intends to enter into repurchase agreements only with
its custodian and such primary dealers. A repurchase agreement
arises when a buyer purchases a security and simultaneously
agrees to resell it to the vendor at an agreed-upon future date,
normally one day or a few days later. The resale price is
greater than the purchase price, reflecting an agreed-upon
interest rate which is effective for the period of time the
buyer's money is invested in the security and which is related to
the current market rate rather than the coupon rate on the
purchased security. This results in a fixed rate of return
insulated from market fluctuations during such period. Such
agreements permit the Fund to keep all of its assets at work
while retaining "overnight" flexibility in pursuit of investments
of a longer-term nature. The Fund requires continual maintenance
by its Custodian for its account in the Federal Reserve/Treasury
Book Entry System of collateral in an amount equal to, or in
excess of, the resale price. In the event a vendor defaulted on
its repurchase obligation, the Fund might suffer a loss to the
extent that the proceeds from the sale of the collateral were
less than the repurchase price. In the event of a vendor's
bankruptcy, the Fund might be delayed in, or prevented from,
selling the collateral for its benefit. The Fund's Board of
Directors has established procedures, which are periodically
reviewed by the Board, pursuant to which the Adviser monitors the
creditworthiness of the dealers with which the Fund enters into
repurchase agreement transactions.
Short Sales. When engaging in a short sale, in addition
to depositing collateral with a broker-dealer, the Fund is
currently required under the 1940 Act to establish a segregated
account with its custodian and to maintain therein cash or
securities in an amount that, when added to cash or securities
deposited with the broker-dealer, will at all times equal at
least 100% of the current market value of the security sold
short.
Illiquid Securities. Historically, illiquid securities
have included securities subject to contractual or legal
restrictions on resale because they have not been registered
under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and
repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the
Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer
6
<PAGE>
or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a
mutual fund might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions within seven
days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market
has developed for certain securities that are not registered
under the Securities Act, including repurchase agreements,
commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand
for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.
The Fund may invest in restricted securities issued
under Section 4(2) of the Securities Act, which exempts from
registration "transactions by an issuer not involving any public
offering." Section 4(2) instruments are restricted in the sense
that they can only be resold through the issuing dealer to
institutional investors and in private transactions; they cannot
be resold to the general public without registration.
Rule 144A under the Securities Act allows a broader
institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of
the Securities Act for resales of certain securities to qualified
institutional buyers. An insufficient number of qualified
institutional buyers interested in purchasing certain restricted
securities held by the Fund, however, could affect adversely the
marketability of such portfolio securities and the Fund might be
unable to dispose of such securities promptly or at reasonable
prices. Rule 144A has already produced enhanced liquidity for
many restricted securities, and market liquidity for such
securities may continue to expand as a result of this regulation
and the consequent inception of the PORTAL System, an automated
system for the trading, clearance and settlement of unregistered
7
<PAGE>
securities of domestic and foreign issuers sponsored by the
National Association of Securities Dealers, Inc.
The Adviser, under the supervision of the Board of
Directors, will monitor the liquidity of restricted securities in
the Fund's portfolio. In reaching liquidity decisions, the
Adviser will consider, among other factors, the following:
(1) the frequency of trades and quotes for the security; (2) the
number of dealers making quotations to purchase or sell the
security; (3) the number of other potential purchasers of the
security; (4) the number of dealers undertaking to make a market
in the security; (5) the nature of the security (including its
unregistered nature) and the nature of the marketplace for the
security (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer);
and (6) any applicable Securities and Exchange Commission (the
"Commission") interpretation or position with respect to such
type of security.
Defensive Position. For temporary defensive purposes,
the Fund may vary from its investment objectives during periods
in which conditions in securities markets or other economic or
political conditions warrant. During such periods, the Fund may
increase without limit its position in short-term, liquid, high-
grade debt securities, which may include securities issued by the
U.S. government, its agencies and, instrumentalities ("U.S.
Government Securities"), bank deposit, money market instruments,
short-term (for this purpose, securities with a remaining
maturity of one year or less) debt securities, including notes
and bonds, and short-term foreign currency denominated debt
securities rated A or higher by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Services ("S&P") Duff &
Phelps Credit Rating Co. ("Duff & Phelps") or Fitch Investors
Service, Inc. ("Fitch") or, if not so rated, of equivalent
investment quality as determined by the Adviser.
Subject to its policy of investing at least 65% of its
total assets in equity securities of real estate investment
trusts and other real estate industry companies, the Fund may
also at any time temporarily invest funds awaiting reinvestment
or held as reserves for dividends and other distributions to
shareholders in money market instruments referred to above.
Portfolio Turnover. Generally, the Fund's policy with
respect to portfolio turnover is to purchase securities with a
view to holding them for periods of time sufficient to assure
that the Fund will realize less than 30% of its gross income from
the sale or other disposition of securities held for less than
8
<PAGE>
three months (see "Dividends, Distributions and Taxes") and to
hold its securities for six months or longer. However, it is also
the Fund's policy to sell any security whenever, in the judgment
of the Adviser, its appreciation possibilities have been
substantially realized or the business or market prospects for
such security have deteriorated, irrespective of the length of
time that such security has been held. The Adviser anticipates
that the Fund's annual rate of portfolio turnover will not exceed
100%. A 100% annual turnover rate would occur if all the
securities in the Fund's portfolio were replaced once within a
period of one year. The turnover rate has a direct effect on the
transaction costs to be borne by the Fund, and as portfolio
turnover increases it is more likely that the Fund will realize
short-term capital gains. In order to continue to qualify as a
regulated investment company for Federal tax purposes, less than
30% of the annual gross income of the Fund must be derived from
the sale of securities held by the Fund for less than three
months. See "Dividends, Distributions and Taxes."
Certain Fundamental Investment Policies
The following restrictions, which supplement those set
forth in the Fund's Prospectus, may not be changed without
approval by the vote of a majority of the Fund's outstanding
voting securities, which means the affirmative vote of the
holders of (i) 67% or more or the shares represented at a meeting
at which more than 50% of the outstanding shares are represented,
or (ii) more than 50% of the outstanding shares, whichever is
less.
To reduce investment risk, as a matter of fundamental
policy the Fund may not:
(i) pledge, hypothecate, mortgage or otherwise
encumber its assets, except to secure permitted
borrowings;
(ii) make loans except through (a) the purchase of
debt obligations in accordance with its investment
objectives and policies; (b) the lending of portfolio
securities; or (c) the use of repurchase agreements;
(iii) participate on a joint or joint and several
basis in any securities trading account;
(iv) invest in companies for the purpose of
exercising control;
9
<PAGE>
(v) issue any senior security within the meaning
of the 1940 Act;
(vi) make short sales of securities or maintain a
short position, unless at all times when a short
position is open not more than 25% of the Fund's net
assets (taken at market value) is held as collateral for
such sales at any one time;
(vii) (a) purchase or sell commodities or commodity
contracts including futures contracts; (b) invest in
interests in oil, gas, or other mineral exploration or
development programs; (c) purchase securities on margin,
except for such short-term credits as may be necessary
for the clearance of transactions; and (d) 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.
In connection with the qualification or registration of
the Fund's shares for sale under the securities laws of certain
states, the Fund has agreed, in addition to the foregoing
investment restrictions, and as a matter of non-fundamental
investment policy, that it will not (i) invest more than 5% of
its total assets in warrants, except for warrants acquired by the
Fund as a part of a unit or attached to securities, provided that
not more than 2% of the Fund's net assets may be invested in
warrants that are not listed on the New York Stock Exchange or
American Stock Exchange; (ii) purchase or sell real property
(excluding REITs and readily marketable securities of companies
which invest in real estate); or (iii) invest more than 10% of
its total assets in restricted securities (excluding securities
that may be resold pursuant to Rule 144A under the Securities
Act).
________________________________________________________________
MANAGEMENT OF THE FUND
________________________________________________________________
The Directors and officers of the Fund, their ages and
their principal occupations during the past five years are set
forth below. Unless otherwise specified, the address of each of
the following persons is 1345 Avenue of the Americas, New York,
New York 10105.
10
<PAGE>
Directors
JOHN D. CARIFA,* 51, Chairman of the Board and President
is the President, Chief Operating Officer and a Director of
ACMC** with which he has been associated since prior to 1991.
RUTH BLOCK, 65, was formerly Executive Vice President
and the Chief Insurance Officer of The Equitable Life Assurance
Society of the United States ("Equitable"). She is a Director of
Ecolab Incorporated (specialty chemicals) and Amoco Corporation
(oil and gas). Her address is P.O. Box 4653, Stamford,
Connecticut 06903.
DAVID H. DIEVLER, 66, was formerly a Senior Vice
President of ACMC with which he had been associated since prior
to 1991 through 1994. He is currently an independent consultant.
His address is P.O. Box 167, Spring Lake, New Jersey 07762.
JOHN H. DOBKIN, 54, has been the President of Historic
Hudson Valley (historic preservation) since 1991. Previously, he
was Director of the National Academy of Design. From 1988 to
1992 he was a Director of ACMC. His address is 105 West 55th
Street, New York, New York 10019.
WILLIAM H. FOULK, JR., 63, was formerly Senior Manager
of Barrett Associates, Inc., a registered investment adviser, and
President of Competrol (BJI) Limited and Crescent Diversified
Limited (private investments) since prior to 1991. His address
is 2 Hekma Road, Greenwich, Connecticut 06831.
HOWARD E. HASSLER, 67, is currently a consultant
specializing in retailing, finance and real estate. He was
formerly Chairman and Chief Executive Officer of Brooks Fashion
Stores, Inc. (specialty clothing stores). His address is 200
East 57th Street, Penthouse D, New York, New York 10022.
DR. JAMES M. HESTER, 72, is President of the Harry Frank
Guggenheim Foundation and a Director of Union Carbide
Corporation. He was formerly President of New York University,
the New York Botanical Garden and Rector of the United Nations
_________________________
*.An interested person of the Fund as defined in the 1940 Act.
**.For purposes of this Statement of Additional Information, ACMC
refers to Alliance Capital Management Corporation, the sole
general partner of the Adviser, and to the predecessor general
partner of the Adviser of the same name.
11
<PAGE>
University. His address is 45 East 89th Street, New York, New
York 10128.
CLIFFORD L. MICHEL, 57, is a partner in the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1991. He is also Chief Executive Officer of Wenonah
Development Company (investments) and a Director of Placer Dome,
Inc. (mining) and Faber-Castell Corporation (writing products).
His address is St. Bernard's Road, Gladstone, New Jersey 07934.
DONALD J. ROBINSON, 62, was a partner and member of the
Executive Committee of the law firm of Orrick, Herrington &
Sutcliffe from July 1987 to December 1994. He has been of
counsel since January 1995. His address is 599 Lexington Avenue,
New York, New York 10002.
Officers
JOHN D. CARIFA, President, see Biography above.
DANIEL G. PINE, Senior Vice President, 44, has been
associated with the Adviser since 1996. Previously, he was a
Senior Vice President of Desai Capital Management since prior to
1991.
THOMAS BARDONG, 50, Vice President, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1991.
DANIEL V. PANKER, 57, Vice President, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1991.
EDMUND P. BERGAN, JR., 46, Secretary, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD") and Alliance Fund Services, Inc. ("AFS") and a Vice
President and Assistant General Counsel of ACMC, with which he
has been associated since prior to 1991.
DOMENICK PUGLIESE, 35, Assistant Secretary, is a Vice
President and Associate General Counsel of AFD, with which he has
been associated since May 1995. Previously, he was Vice
President and Counsel of Concord Holding Corporation since 1994,
Vice President and Associate General Counsel of Prudential
Securities since 1991 and an Associate with Battle Fowler, since
prior to 1991.
12
<PAGE>
ANDREW L. GANGOLF, 41, Assistant Secretary, is a Vice
President and Assistant General Counsel of AFD since January
1995. Prior thereto, since October 1992, he was Vice President
and Assistant Secretary of Delaware Management Co., Inc. Prior
thereto, he was Vice President and Counsel of Equitable.
EMILIE D. WRAPP, 40, Assistant Secretary, is Special
Counsel of ACMC, with which she has been associated since prior
to 1991.
MARK D. GERSTEN, 45, Treasurer and Chief Financial
Officer, is a Senior Vice President of AFS, with which he has
been associated since prior to 1991.
VINCENT S. NOTO, 31, Controller, is an Assistant Vice
President of AFS, with which he has been associated since 1991.
PHYLLIS CLARKE, 35, Assistant Controller, has been a
Municipal Income Manager, Mutual Funds, of AFS since 1994.
Previously, she was a supervisor for Fixed Income Mutual Funds
Accounting for AFS since prior to 1991.
JOSEPH MANTINEO, 37, Assistant Controller, has been a
Vice President of AFS since prior to 1991.
The aggregate compensation to be paid by the Fund to
each of the Directors during its current fiscal year ending
August 31, 1997 (estimating future payments based upon existing
arrangements), and the aggregate compensation paid to each of the
Directors during calendar year 1995 by all of the registered
investment companies to which the Adviser provides investment
advisory services (collectively, the "Alliance Fund Complex"),
are set forth below. Neither the Fund nor any other fund in the
Alliance Fund Complex provides compensation in the form of
pensions or retirement benefits to any of its directors or
trustees. Each of the Directors is a director or trustee of one
or more other registered investment companies in the Alliance
Fund Complex.
13
<PAGE>
Total Number of Funds
in the Alliance Fund
Total Complex, Including
Aggregate Compensation the Fund, as to
Name of Director Compensation from the Alliance which the Director is
of the Fund from the Fund* Fund Complex** a Director or Trustee
________________ ______________ _________________ _____________________
John D. Carifa $ -0- $ -0- 49
Ruth Block 3,000 159,00 36
David H. Dievler 3,000 179,200 42
John H. Dobkin 3,000 117,200 29
William H. Foulk, Jr. 3,000 143,500 30
Howard E. Hassler 3,000 55,750 1
Dr. James M. Hester 3,000 156,000 37
Clifford L. Michel 3,000 131,500 36
Donald J. Robinson 3,000 60,500 10
____________________
* The information in this column represents an estimate of
amounts to be paid during the Fund's current fiscal year.
** The information in this column represents amounts actually
paid during calendar year 1995.
Adviser
Alliance Capital Management L.P., a New York Stock
Exchange listed company with principal offices at 1345 Avenue of
the Americas, New York, New York 10105, has been retained under
an investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision and control of the Fund's Board of Directors.
The Adviser is a leading international investment
manager supervising client accounts with assets as of June 30,
1996 of more than $168 billion (of which more than $55 billion
represented the assets of investment companies). The Adviser's
clients are primarily major corporate employee benefit funds,
public employee retirement systems, investment companies,
foundations and endowment funds and included as of June 30, 1996,
33 of the FORTUNE 100 companies. As of that date, the Adviser
and its subsidiaries employed approximately 1,350 employees who
operated out of domestic offices and the offices of subsidiaries
14
<PAGE>
in Bombay, Istanbul, London, Paris, Sao Paulo, Sydney, Tokyo,
Toronto, Bahrain, Luxembourg and Singapore. The 50 registered
investment companies comprising more than 100 separate investment
portfolios managed by the Adviser currently have more than two
million shareholders.
Alliance Capital Management Corporation, the sole
general partner of, and the owner of a 1% general partnership
interest in, the Adviser, is an indirect wholly-owned subsidiary
of The Equitable Life Assurance Society of the United States
("Equitable"), one of the largest life insurance companies in the
United States and a wholly-owned subsidiary of The Equitable
Companies Incorporated ("ECI"), a holding company controlled by
AXA, a French insurance holding company. As of June 30, 1996,
ACMC, Inc. and Equitable Capital Management Corporation, each a
wholly-owned direct or indirect subsidiary of Equitable, together
with Equitable, owned in the aggregate approximately 58% of the
issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser ("Units"). As of June 30, 1996, approximately 32% and
10% of the Units were owned by the public and employees of the
Adviser and its subsidiaries, respectively, including employees
of the Adviser who serve as Directors of the Fund.
AXA and its subsidiaries own approximately 63.9% of the
issued and outstanding shares of capital stock of ECI. AXA is
the holding company for an international group of insurance and
related financial services companies. AXA's insurance operations
include activities in life insurance, property and casualty
insurance and reinsurance. The insurance operations are diverse
geographically, with activities in France, the United States,
Australia, the United Kingdom, Canada and other countries,
principally in Europe and the Asia Pacific area. AXA is also
engaged in asset management, investment banking, securities
trading, brokerage, real estate and other financial services
activities in the United States, Europe and the Asia Pacific
area. Based on information provided by AXA, as of March 31,
1996, 42.1% of the issued ordinary shares (representing 53.4% of
the voting power) of AXA were owned by Midi Participations, a
French holding company ("Midi"). The shares of Midi were, in
turn, owned 61.4% (representing 62.5% of the voting power) by
Finaxa, a French holding company, and 38.6% (representing 37.5%
of the voting power) by subsidiaries of Assicurazioni Generali
S.p.A., an Italian corporation (one of which, Belgica Insurance
Holding S.A., a Belgian corporation, owned 30.8%, representing
33.1% of the voting power). As of March 31, 1996, 61.1% of the
voting shares (representing 73.4% of the voting power) of Finaxa
were owned by five French mutual insurance companies (the
15
<PAGE>
"Mutuelles AXA") (one of which, AXA Assurances I.A.R.D. Mutuelle,
owned 34.7% of the voting shares representing 40.4% of the voting
power), and 25.5% of the voting shares (representing 16% of the
voting power) of Finaxa were owned by Banque Paribas, a French
bank. Including the ordinary shares owned by Midi, as of
March 31, 1996, the Mutuelles AXA directly or indirectly owned
51% of the issued ordinary shares (representing 64.7% of the
voting power) of AXA. Acting as a group, the Mutuelles AXA
control AXA, Midi and Finaxa.
Under the Advisory Agreement, the Adviser provides
investment advisory services and order placement facilities for
the Fund and pays all compensation of Directors and officers of
the Fund who are affiliated persons of the Adviser. The Adviser
or its affiliates also furnishes the Fund, without charge,
management supervision and assistance and office facilities and
provides persons satisfactory to the Fund's Board of Directors to
serve as the Fund's officers.
The Advisory Agreement is terminable without penalty by
a vote of a majority of the Fund's outstanding voting securities
or by a vote of a majority of the Fund's Directors on 60 days'
written notice, or by the Adviser on 60 days' written notice, and
will automatically terminate in the event of its assignment. The
Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the
Adviser, or of reckless disregard of its obligations thereunder,
the Adviser shall not be liable for any action or failure to act
in accordance with its duties thereunder.
The Advisory Agreement provides that the Adviser will
reimburse the Fund for its expenses (exclusive of interest,
taxes, brokerage, expenditures pursuant to the Distribution
Services Agreement described below, and extraordinary expenses as
to the extent permitted by applicable state securities laws and
regulations) which in any year exceed the limits prescribed by
any state in which the Fund's shares are qualified for sale. The
Fund may not qualify its shares for the sale in every state. The
Fund believes that presently the most restrictive expense ratio
limitation imposed by any state in which the Fund has qualified
its shares for sale is 2.5% of the first $30 million of the
Fund's average net assets, 2.0% of the next $70 million of its
average net assets and 1.5% of its average net assets in excess
of $100 million. Expense reimbursements, if any, are accrued
daily and paid monthly.
The Advisory Agreement became effective on August 27,
1996. The Advisory Agreement will continue in effect until July
16
<PAGE>
31, 1998 and thereafter for successive twelve-month periods
(computed from each August 1), provided, however, that such
continuance is specifically approved at least annually by a vote
of a majority of the Fund's outstanding voting securities or by
the Fund's Board of Directors, including in either case approval
by a majority of the Directors who are not parties to the
Advisory Agreement or interested persons of any such party as
defined by the 1940 Act.
Certain other clients of the Adviser may have investment
objectives and policies similar to those of the Fund. The Adviser
may, from time to time, make recommendations which result in the
purchase or sale of a particular security by its other clients
simultaneously with the Fund. If transactions on behalf of more
than one client during the same period increase the demand for
securities being sold, there may be an adverse effect on price.
It is the policy of the Adviser to allocate advisory
recommendations and the placing of orders in a manner which is
deemed equitable by the Adviser to the accounts involved,
including the Fund. When two or more of the clients of the
Adviser (including the Fund) are purchasing or selling the same
security on a given day from the same broker-dealer, such
transactions may be averaged as to price.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to the following registered investment
companies: ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Inc., The Alliance Fund, Inc., Alliance All-Asia
Investment Fund, Inc., Alliance Balanced Shares, Inc., Alliance
Bond Fund, Inc., Alliance Capital Reserves, Alliance Developing
Markets Fund, Inc., Alliance Global Dollar Government Fund, Inc.,
Alliance Global Small Cap Fund, Inc., Alliance Global Strategic
Income Trust, Inc., Alliance Government Reserves, Alliance Growth
and Income Fund, Inc., Alliance Income Builder Fund, Inc.,
Alliance International Fund, Alliance Limited Maturity Government
Fund, Inc., Alliance Money Market Fund, Alliance Mortgage
Securities Income Fund, Inc., Alliance Multi-Market Strategy
Trust, Inc., Alliance Municipal Income Fund, Inc., Alliance
Municipal Income Fund II, Alliance Municipal Trust, Alliance New
Europe Fund, Inc., Alliance North American Government Income
Trust, Inc., Alliance Premier Growth Fund, Inc., Alliance Real
Estate Investment Fund, Inc., Alliance Quasar Fund, Inc.,
Alliance Short-Term Multi-Market Trust, Inc., Alliance Technology
Fund, Inc., Alliance Utility Income Fund, Inc., Alliance Variable
Products Series Fund, Inc., Alliance World Income Trust, Inc.,
Alliance Worldwide Privatization Fund, Inc., The Alliance
Portfolios, Fiduciary Management Associates and The Hudson River
17
<PAGE>
Trust, all registered open-end investment companies; and to ACM
Government Income Fund, Inc., ACM Government Securities Fund,
Inc., ACM Government Spectrum Fund, Inc., ACM Government
Opportunity Fund, Inc., ACM Managed Income Fund, Inc., ACM
Managed Dollar Income Fund, Inc., ACM Municipal Securities Income
Fund, Inc., Alliance All-Market Advantage Fund, Inc., Alliance
Global Environment Fund, Inc., Alliance World Dollar Government
Fund, Inc., Alliance World Dollar Government Fund II, Inc., The
Austria Fund, Inc., The Korean Investment Fund, Inc., The
Southern Africa Fund, Inc. and The Spain Fund, Inc., all
registered closed-end investment companies.
________________________________________________________________
EXPENSES OF THE FUND
________________________________________________________________
Distribution Services Agreement
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributors,
Inc., the Fund's principal underwriter (the "Principal
Underwriter"), to permit the Principal Underwriter to distribute
the Fund's shares and to permit the Fund to pay distribution
services fees to defray expenses associated with the distribution
of its Class A, Class B and Class C shares in accordance with a
plan of distribution which is included in the Agreement and has
been duly adopted and approved in accordance with Rule 12b-1
adopted by the Commission under the Act (the "Plan").
Distribution services fees are accrued daily and paid
monthly and are charged as expenses of the Fund as accrued. The
distribution services fees attributable to the Class B shares and
Class C shares are designed to permit an investor to purchase
such shares through broker-dealers without the assessment of an
initial sales charge and at the same time to permit the Principal
Underwriter to compensate broker-dealers in connection with the
sale of such shares. In this regard, the purpose and function of
the combined contingent deferred sales charge and distribution
services fee on the Class B shares and Class C shares are the
same as those of the initial sales charge and distribution
services fee with respect to the Class A shares in that in each
case the sales charge and distribution services fee provide for
the financing of the distribution of the Fund's shares.
Under the Agreement, the Treasurer of the Fund reports
the amounts expended under the Plan and the purposes for which
such expenditures were made to the Directors of the Fund on a
18
<PAGE>
quarterly basis. Also, the Agreement provides that the selection
and nomination of Directors who are not "interested persons" of
the Fund, as defined in the 1940 Act, are committed to the
discretion of such disinterested Directors then in office.
The Agreement became effective on August 27, 1996. The
Agreement will continue in effect for successive twelve-month
periods with respect to Class A, Class B, Class C and Advisor
Class shares (computed from each August 1), provided, however,
that such continuance is specifically approved at least annually
by the Directors of the Fund or by vote of the holders of a
majority of the outstanding voting securities (as defined in the
1940 Act) of that class, and in either case, by a majority of the
Directors of the Fund who are not parties to the Agreement or
interested persons, as defined in the 1940 Act, of any such party
(other than as directors of the Fund) and who have no direct or
indirect financial interest in the operation of the Plan or any
agreement related thereto.
The Adviser may from time to time and from its own funds
or such other resources as may be permitted by rules of the
Commission make payments for distribution services to the
Principal Underwriter; the latter may in turn pay part or all of
such compensation to brokers or other persons for their
distribution assistance.
In the event that the Agreement is terminated or not
continued with respect to the Class A shares, Class B shares or
Class C shares, (i) no distribution services fees (other than
current amounts accrued but not yet paid) would be owed by the
Fund to the Principal Underwriter with respect to that class, and
(ii) the Fund would not be obligated to pay the Principal
Underwriter for any amounts expended under the Agreement not
previously recovered by the Principal Underwriter from
distribution services fees in respect of shares of such class or
through deferred sales charges.
All material amendments to the Plan must be approved by
a vote of the Directors or the holders of the Fund's outstanding
voting securities, voting separately by class, and in either
case, by a majority of the disinterested Directors, cast in
person at a meeting called for the purpose of voting on such
approval; and the Plan may not be amended in order to increase
materially the costs that a particular class may bear pursuant to
the Plan without the approval of a majority of the holders of the
outstanding voting shares of the class affected. The Agreement
may be terminated (a) by the Fund without penalty at any time by
a majority vote of the holders of the outstanding voting
19
<PAGE>
securities of the Fund, voting separately by class or by a
majority vote of the Directors who are not "interested persons"
as defined in the 1940 Act, or (b) by the Principal Underwriter.
To terminate the Agreement, any party must give the other parties
60 days' written notice; to terminate the Plan only, the Fund
need give no notice to the Principal Underwriter. The Agreement
will terminate automatically in the event of its assignment.
Transfer Agency Agreement
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of each of the Class A shares, Class B shares
Class C and Advisor Class shares of the Fund, plus reimbursement
for out-of-pocket expenses. The transfer agency fee with respect
to the Class B and Class C shares is higher than that with
respect to the Class A and Advisor Class shares, reflecting the
differential costs associated with the Class B and Class C
contingent deferred sales charge.
________________________________________________________________
PURCHASE OF SHARES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--How To Buy Shares."
General
Shares of the Fund will be offered on a continuous basis
at a price equal to their net asset value plus an initial sales
charge at the time of purchase ("Class A shares"), with a
contingent deferred sales charge ("Class B shares"), without any
initial sales charge and, as long as the shares are held for one
year or more, without any contingent deferred sales charge
("Class C shares"), or, to investors eligible to purchase Advisor
Class shares, without any initial, contingent deferred or asset-
based sales charge, in each case as described below. Shares of
the Fund that are offered subject to a sales charge are offered
through (i) investment dealers that are members of the National
Association of Securities Dealers, Inc. and have entered into
selected dealer agreements with the Principal Underwriter
("selected dealers"), (ii) depository institutions and other
financial intermediaries or their affiliates, that have entered
into selected agent agreements with the Principal Underwriter
("selected agents"), or (iii) the Principal Underwriter.
20
<PAGE>
Investors may purchase and hold Advisor Class shares of
the Fund solely (i) through accounts established under fee-based
programs, sponsored and maintained by registered broker-dealers
or other financial intermediaries and approved by the Principal
Underwriter, pursuant to which each investor pays an asset-based
fee at an annual rate of at least .50% of the assets in the
investor's account, to the sponsor, or its affiliate or agent,
(ii) through self-directed defined contribution employee benefit
plans (e.g., 401(k) plans) that have at least 1,000 participants
or $25 million in assets, (iii) by investment advisory clients of
Alliance Capital Management L.P. ("Alliance"), (iv) by present
directors or trustees of any registered investment company to
which Alliance provides investment advisory services (an
"Alliance Mutual Fund"), or (v) by institutional investors
introduced to Alliance by Koll Investment Management.
If you are a Fund shareholder through an account
established under a fee-based program, your fee-based program may
impose requirements with respect to the purchase, sale or
exchange of Advisor Class shares of the Fund that are different
from those described in the Prospectus and this Statement of
Additional Information. A transaction fee may be charged by your
financial representative with respect to the purchase, sale or
exchange of Advisor Class shares made through such financial
representative.
The minimum for initial investments is $250; subsequent
investments (other than reinvestments of dividends and capital
gains distributions in shares) must be in the minimum amount of
$50. As described under "Shareholder Services," the Fund offers
an automatic investment program and a 403(b)(7) retirement plan
which permit investments of $25 or more. The subscriber may use
the Subscription Application found in the Prospectus for his or
her initial investment. Sales personnel of selected dealers and
agents distributing the Fund's shares may receive differing
compensation for selling Class A, Class B, Class C or Advisor
Class shares.
Investors may purchase shares of the Fund either through
selected dealers, agents or financial representatives or directly
through the Principal Underwriter. The Fund may refuse any order
for the purchase of shares. The Fund reserves the right to
suspend the sale of its shares to the public in response to
conditions in the securities markets or for other reasons.
The public offering price of shares of the Fund is their
net asset value, plus, in the case of Class A shares, a sales
21
<PAGE>
charge which will vary depending on the purchase alternative
chosen by the investor, as shown in the table below. On each Fund
business day on which a purchase or redemption order is received
by the Fund and trading in the types of securities in which the
Fund invests might materially affect the value of Fund shares,
the per share net asset value is computed in accordance with the
Fund's Articles of Incorporation and By-Laws as of the next close
of regular trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m. Eastern time) by dividing the
value of the Fund's total assets, less its liabilities, by the
total number of its shares then outstanding. A Fund business day
is any weekday, exclusive of national holidays on which the
Exchange is closed and Good Friday. For purposes of this
computation, Exchange-listed securities and over-the-counter
securities admitted to trading on the NASDAQ National List are
valued at the last quoted sale or, if there is no such sale, at
the mean of closing bid and asked prices and portfolio bonds are
presently valued by a recognized pricing service. If accurate
quotations are not available, securities will be valued at fair
value determined in good faith by the Board of Directors.
The respective per share net asset values of the
Class A, Class B, Class C and Advisor Class shares are expected
to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class B and
Class C shares may be lower than the per share net asset value of
the Class A and Advisor Class shares, and the per share net asset
value of the Class A shares may be lower than that of the Advisor
Class shares, as a result of the differential daily expense
accruals of the distribution and transfer agency fees applicable
with respect to those classes of shares. Even under those
circumstances, the per share net asset values of the four classes
eventually will tend to converge immediately after the payment of
dividends, which will differ by approximately the amount of the
expense accrual differential among the classes. For purposes of
this computation, the securities in the Fund's portfolio are
valued at their current market value determined on the basis of
market quotations. If such quotations are not readily available,
securities will be valued by such other methods as the Directors
believe would accurately reflect fair market value.
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined (plus applicable Class A sales
charges), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange
on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on
22
<PAGE>
the Exchange on that day (plus applicable Class A sales charges).
In the case of orders for purchases of shares placed through
selected dealers, agents or financial representatives, as
applicable, the applicable public offering price will be the net
asset value as so determined, but only if the selected dealer,
agent or financial representative receives the order prior to the
close of regular trading on the Exchange and transmits it to the
Principal Underwriter prior to its close of business that same
day (normally 5:00 p.m. Eastern time). The selected dealer,
agent or financial representative, as applicable, is responsible
for transmitting such orders by 5:00 p.m. If the selected
dealer, agent or financial representative fails to do so, the
investor's right to that day's closing price must be settled
between the investor and the selected dealer, agent or financial
representative as applicable. If the selected dealer, agent or
financial representative, as applicable, receives the order after
the close of regular trading on the Exchange, the price will be
based on the net asset value determined as of the close of
regular trading on the Exchange on the next day it is open for
trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application obtained by calling the "Literature" telephone number
shown on the cover of this Statement of Additional Information.
Except with respect to certain omnibus accounts, telephone
purchase orders may not exceed $500,000. Payment for shares
purchased by telephone can be made only by Electronic Funds
Transfer from a bank account maintained by the shareholder at a
bank that is a member of the National Automated Clearing House
Association ("NACHA"). If a shareholder's telephone purchase
request is received before 3:00 p.m. Eastern time on a Fund
business day, the order to purchase shares is automatically
placed the following Fund business day, and the applicable public
offering price will be the public offering price determined as of
the close of business on such following business day.
Full and fractional shares are credited to a
subscriber's account in the amount of his or her subscription. As
a convenience to the subscriber, and to avoid unnecessary expense
to the Fund, stock certificates representing shares of the Fund
are not issued except upon written request to the Fund by the
shareholder or his or her authorized selected dealer or agent.
This facilitates later redemption and relieves the shareholder of
the responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
23
<PAGE>
although such shares remain in the shareholder's account on the
books of the Fund.
In addition to the discount or commission paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents,
including EQ Financial Consultants, Inc., formerly Equico
Securities, Inc., an affiliate of the Principal Underwriter, in
connection with the sale of shares of the Fund. Such additional
amounts may be utilized, in whole or in part, to provide
additional compensation to registered representatives who sell
shares of the Fund. On some occasions, such cash or other
incentives will be conditioned upon the sale of a specified
minimum dollar amount of the shares of the Fund and/or other
Alliance Mutual Funds, as defined below, during a specific period
of time. On some occasions, such cash or other incentives may
take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel,
lodging and entertainment incurred in connection with travel
taken by persons associated with a dealer or agent and their
immediate family members to urban or resort locations within or
outside the United States. Such dealer or agent may elect to
receive cash incentives of equivalent amount in lieu of such
payments.
Class A, Class B, Class C and Advisor Class shares each
represent an interest in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects,
except that (i) Class A shares bear the expense of the initial
sales charge (or contingent deferred sales charge, when
applicable) and Class B and Class C shares bear the expense of
the deferred sales charge, (ii) Class B shares and Class C shares
each bear the expense of a higher distribution services fee than
do Class A shares, and Advisor Class shares do not bear such a
fee, (iii) Class B and Class C shares bear higher transfer agency
costs than do Class A and Advisor Class shares, (iv) each of
Class A, Class B and Class C has exclusive voting rights with
respect to provisions of the Rule 12b-1 Plan pursuant to which
its distribution services fee is paid and other matters for which
separate class voting is appropriate under applicable law,
provided that, if the Fund submits to a vote of the Class A
shareholders and the Class B shareholders an amendment to the
Rule 12b-1 Plan that would materially increase the amount to be
paid thereunder with respect to the Class A shares, the Class A
shareholders and the Class B shareholders will vote separately by
Class, and (v) Class B shares are subject to a conversion
feature. Each class has different exchange privileges and
certain different shareholder service options available.
24
<PAGE>
The Directors of the Fund have determined that currently
no conflict of interest exists between or among the Class A,
Class B, Class C and Advisor Class shares. On an ongoing basis,
the Directors of the Fund, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
Alternative Retail Purchase Arrangements -- Class A, Class B and
Class C Shares***
Class A, Class B and Class C shares have the following
alternative purchase arrangements: Class A shares are sold to
investors choosing the initial sales charge alternative, Class B
shares are sold to investors choosing the deferred sales charge
alternative, and Class C shares are sold to investors choosing
the asset-based sales charge alternative. These alternative
purchase arrangements permit an investor to choose the method of
purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the
shares, and other circumstances. Investors should consider
whether, during the anticipated life of their investment in the
Fund, the accumulated distribution services fee and contingent
deferred sales charges on Class B shares prior to conversion, or
the accumulated distribution services fee and contingent deferred
sales charges on Class C shares, would be less than the initial
sales charge and accumulated distribution services fee on Class A
shares purchased at the same time, and to what extent such
differential would be offset by the higher return of Class A
shares. Class A shares will normally be more beneficial than
Class B shares to the investor who qualifies for reduced initial
sales charges on Class A shares, as described below. In this
regard, the Principal Underwriter will reject any order (except
orders from certain retirement plans) for more than $250,000 for
Class B shares. Class C shares will normally not be suitable for
the investor who qualifies to purchase Class A shares at net
asset value. For this reason, the Principal Underwriter will
reject any order for more than $5,000,000 for Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time
of purchase, investors purchasing Class A shares would not have
all their funds invested initially and, therefore, would
_________________________
***.Advisor Class shares are sold only to investors described
above in this section under "--General."
25
<PAGE>
initially own fewer shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for
an extended period of time might consider purchasing Class A
shares because the accumulated continuing distribution charges on
Class B shares or Class C shares may exceed the initial sales
charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration
against the fact that, because of such initial sales charges, not
all their funds will be invested initially.
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and
being subject to a contingent deferred sales charge for a four-
year and one-year period, respectively. For example, based on
current fees and expenses, an investor subject to the 4.25%
initial sales charge would have to hold his or her investment
approximately seven years for the Class C distribution services
fee to exceed the initial sales charge plus the accumulated
distribution services fee of Class A shares. In this example, an
investor intending to maintain his or her investment for a longer
period might consider purchasing Class A shares. This example
does not take into account the time value of money, which further
reduces the impact of the Class C distribution services fees on
the investment, fluctuations in net asset value or the effect of
different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
four-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
Class A Shares
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below.
26
<PAGE>
Sales Charge
________________________
Discount or
Commission
As % of to Dealers
As % of the or Agents
Net Public As % of
Amount of Amount Offering Offering
Purchase Invested Price Price
________ ________ ________ __________
Less than
$100,000. . . 4.44% 4.25% 4.00%
$100,000 but
less than
250,000. . . 3.36 3.25 3.00
250,000 but
less than
500,000. . . 2.30 2.25 2.00
500,000 but
less than
1,000,000*. . . 1.78 1.75 1.50
____________________
* There is no initial sales charge on transactions of
$1,000,000 or more.
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class A shares will be waived
on certain redemptions, and will be applied to redemptions of
shares by shareholders who hold both Class A shares and shares of
one or more other classes that are subject to a contingent
deferred sales charge, as described below under "--Class B Shares
and --Class C Shares." Proceeds from the contingent deferred
sales charge on Class A shares are paid to the Principal
Underwriter and are used by the Principal Underwriter to defray
the expenses of the Principal Underwriter related to providing
distribution-related services to the Fund in connection with the
sales of Class A shares, such as the payment of compensation to
selected dealers and agents for selling Class A shares. With
27
<PAGE>
respect to purchases of $1,000,000 or more made through selected
dealers or agents, the Adviser may, pursuant to the Agreement
described above, pay such dealers or agents from its own
resources a fee of up to 1% of the amount invested to compensate
such dealers or agents for their distribution assistance in
connection with such purchases.
No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, or (ii) in exchange for
Class A shares of other Alliance Mutual Funds (a list of which
appears in "Combined Purchase Privilege" below), except that an
initial sales charge will be imposed on Class A shares issued in
exchange for Class A shares of AFD Exchange Reserves ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge. The Fund receives the entire net asset value of
its Class A shares sold to investors. The Principal
Underwriter's commission is the sales charge shown above less any
applicable discount or commission "reallowed" to selected dealers
and agents. The Principal Underwriter will reallow discounts to
selected dealers and agents in the amounts indicated in the table
above. In this regard, the Principal Underwriter may elect to
reallow the entire sales charge to selected dealers and agents
for all sales with respect to which orders are placed with the
Principal Underwriter. A selected dealer who receives
reallowance in excess of 90% of such a sales charge may be deemed
to be an "underwriter" under the Securities Act of 1933, as
amended.
Set forth below is an example of the method of computing
the offering price of the Class A shares. The example assumes a
purchase of Class A shares of the Fund aggregating less than
$50,000 subject to the schedule of sales charges set forth above
at a price based upon the net asset value of Class A shares of
the Fund on August 27, 1996.
Net Asset Value per Class A Share at $10.00
August 27, 1996
Class A Per Share Sales Charge
4.25% of offering price (4.44% of
net asset value per share) .44
______
Class A Per Share Offering Price to
the public $10.44
======
28
<PAGE>
Investors choosing the initial sales charge alternative
may under certain circumstances be entitled to pay (i) no initial
sales charge (but subject in most cases to a contingent deferred
sales charge) or (ii) a reduced initial sales charge. The
circumstances under which such investors may pay a reduced
initial sales charge are described below.
Combined Purchase Privilege. Certain persons may
qualify for the sales charge reductions indicated in the schedule
of such charges above by combining purchases of shares of the
Fund into a single "purchase," if the resulting "purchase" totals
at least $100,000. The term "purchase" refers to: (i) a single
purchase by an individual, or to concurrent purchases, which in
the aggregate are at least equal to the prescribed amounts, by an
individual, his or her spouse and their children under the age of
21 years purchasing shares of the Fund for his, her or their own
account(s); (ii) a single purchase by a trustee or other
fiduciary purchasing shares for a single trust, estate or single
fiduciary account although more than one beneficiary is involved;
or (iii) a single purchase for the employee benefit plans of a
single employer. The term "purchase" also includes purchases by
any "company," as the term is defined in the 1940 Act, but does
not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
dealer or agent, of any other Alliance Mutual Fund. Currently,
the Alliance Mutual Funds include:
AFD Exchange Reserves
The Alliance Fund, Inc.
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Growth and Income Fund, Inc.
29
<PAGE>
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Limited Maturity Government Fund, Inc.
Alliance Money Market Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Portfolios.
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Strategic Balanced Fund
-Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting Alliance Fund Services,
Inc. at the address or the "Literature" telephone number shown on
the front cover of this Statement of Additional Information.
Cumulative Quantity Discount (Right of Accumulation). An
investor's purchase of additional Class A shares of the Fund may
qualify for a Cumulative Quantity Discount. The applicable sales
charge will be based on the total of:
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<PAGE>
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on
the previous day) of (a) all shares of the Fund
held by the investor and (b) all shares of any
other Alliance Mutual Fund held by the investor;
and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder
eligible to combine his or her purchase with that
of the investor into a single "purchase" (see
above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the sales charge for the $100,000 purchase
would be at the 2.25% rate applicable to a single $300,000
purchase of shares of the Fund, rather than the 3.25% rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
information to verify that each purchase qualifies for the
privilege or discount.
Statement of Intention. Class A investors may also
obtain the reduced sales charges shown in the table above by
means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B, Class
C and/or Advisor Class shares) of the Fund or any other Alliance
Mutual Fund. Each purchase of shares under a Statement of
Intention will be made at the public offering price or prices
applicable at the time of such purchase to a single transaction
of the dollar amount indicated in the Statement of Intention. At
the investor's option, a Statement of Intention may include
purchases of shares of the Fund or any other Alliance Mutual Fund
made not more than 90 days prior to the date that the investor
signs a Statement of Intention; however, the 13-month period
during which the Statement of Intention is in effect will begin
on the date of the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
31
<PAGE>
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at
least $100,000 in Class A shares of the Fund, the investor and
the investor's spouse each purchase shares of the Fund worth
$20,000 (for a total of $40,000), it will only be necessary to
invest a total of $60,000 during the following 13 months in
shares of the Fund or any other Alliance Mutual Fund, to qualify
for the 3.25% sales charge on the total amount being invested
(the sales charge applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5%
of such amount. Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the
name of the investor) to secure payment of the higher sales
charge applicable to the shares actually purchased if the full
amount indicated is not purchased, and such escrowed shares will
be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Fund shares, are not subject to escrow.
When the full amount indicated has been purchased, the escrow
will be released. To the extent that an investor purchases more
than the dollar amount indicated on the Statement of Intention
and qualifies for a further reduced sales charge, the sales
charge will be adjusted for the entire amount purchased at the
end of the 13-month period. The difference in sales charge will
be used to purchase additional shares of the Fund subject to the
rate of sales charge applicable to the actual amount of the
aggregate purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus while current
Class A shareholders desiring to do so can obtain a form of
Statement of Intention by contacting Alliance Fund Services, Inc.
at the address or telephone numbers shown on the cover of this
Statement of Additional Information.
Certain Retirement Plans. Multiple participant payroll
deduction retirement plans may also purchase shares of the Fund
or any other Alliance Mutual Fund at a reduced sales charge on a
monthly basis during the 13-month period following such a plan's
initial purchase. The sales charge applicable to such initial
purchase of shares of the Fund will be that normally applicable,
under the schedule of sales charges set forth in this Statement
of Additional Information, to an investment 13 times larger than
32
<PAGE>
such initial purchase. The sales charge applicable to each
succeeding monthly purchase will be that normally applicable,
under such schedule, to an investment equal to the sum of (i) the
total purchase previously made during the 13-month period, and
(ii) the current month's purchase multiplied by the number of
months (including the current month) remaining in the 13-month
period. Sales charges previously paid during such period will
not be retroactively adjusted on the basis of later purchases.
Reinstatement Privilege. A Class A shareholder who has
caused any or all of his or her shares of the Fund to be redeemed
or repurchased may reinvest all or any portion of the redemption
or repurchase proceeds in Class A shares of the Fund at net asset
value without any sales charge, provided that such reinvestment
is made within 120 calendar days after the redemption or
repurchase date. Shares are sold to a reinvesting shareholder at
the net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for Federal tax purposes except
that no loss will be recognized to the extent that the proceeds
are reinvested in shares of the Fund. The reinstatement
privilege may be used by the shareholder only once, irrespective
of the number of shares redeemed or repurchased, except that the
privilege may be used without limit in connection with
transactions whose sole purpose is to transfer a shareholder's
interest in the Fund to his or her individual retirement account
or other qualified retirement plan account. Investors may
exercise the reinstatement privilege by written request sent to
the Fund at the address shown on the cover of this Statement of
Additional Information.
Sales at Net Asset Value. The Fund may sell its Class A
shares at net asset value (i.e., without any initial sales
charge) and without any contingent deferred sales charge to
certain categories of investors, including: (i) investment
advisory clients of the Adviser or its affiliates; (ii) officers
and present or former Directors of the Fund; present or former
directors and trustees of other investment companies managed by
the Adviser; present or retired full-time employees of the
Adviser, the Principal Underwriter, Alliance Fund Services, Inc.,
Koll and their affiliates; officers and directors of ACMC, the
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; officers, directors and present and full-time
employees of selected dealers or agents; or the spouse, sibling,
direct ancestor or direct descendant (collectively "relatives")
of any such person; or any trust, individual retirement account
or retirement plan account for the benefit of any such person or
33
<PAGE>
relative; or the estate of any such person or relative, if such
shares are purchased for investment purposes (such shares may not
be resold except to the Fund); (iii) the Adviser, the Principal
Underwriter, Alliance Fund Services, Inc. and their affiliates;
and certain employee benefit plans for employees of the Adviser,
the Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; (iv) persons participating in a fee-based program,
sponsored and maintained by a registered broker-dealer and
approved by the Principal Underwriter, pursuant to which such
persons pay an asset-based fee to such broker-dealer, or its
affiliate or agent, for services in the nature of investment
advisory or administrative services; (v) persons who establish to
the Principal Underwriter's satisfaction that they are investing,
within such time period as may be designated by the Principal
Underwriter, proceeds of redemption of shares of such other
registered investment companies as may be designated from time to
time by the Principal Underwriter; and (vi) employer-sponsored
qualified pension or profit-sharing plans (including Section
401(k) plans), custodial accounts maintained pursuant to Section
403(b)(7) retirement plans and individual retirement accounts
(including individual retirement accounts to which simplified
employee pension contributions are made), if such plans or
accounts are established or administered under programs sponsored
by administrators or other persons that have been approved by the
Principal Underwriter.
Class B Shares
Investors purchase Class B shares at the public offering
price equal to the net asset value per share of the Class B
shares on the date of purchase without the imposition of a sales
charge at the time of purchase. The Class B shares are sold
without an initial sales charge so that the Fund will receive the
full amount of the investor's purchase payment.
Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class B shares, such as the
payment of compensation to selected dealers and agents for
selling Class B shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Fund to sell the Class B shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class B shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares.
34
<PAGE>
Contingent Deferred Sales Charge. Class B shares that
are redeemed within four years of purchase will be subject to a
contingent deferred sales charge at the rates set forth below
charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions.
To illustrate, assume that an investor purchased 100
Class B shares at $10 per share (at a cost of $1,000) and in the
second year after purchase, the net asset value per share is $12
and, during such time, the investor has acquired 10 additional
Class B shares upon dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 Class B shares
(proceeds of $600), 10 Class B shares will not be subject to
charge because of dividend reinvestment. With respect to the
remaining 40 Class B shares, the charge is applied only to the
original cost of $10 per share and not to the increase in net
asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the second year after purchase).
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
Contingent Deferred Sales Charge as a %
Years Since Purchase of Dollar Amount Subject to Charge
____________________ ________________________________________
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Thereafter None
In determining the contingent deferred sales charge
applicable to a redemption, it will be assumed that the
redemption is first of any shares in the shareholder's Fund
account that are not subject to a contingent deferred sales
charge, second of Class B shares held for over four years, third
35
<PAGE>
of any Class C shares that are subject to a contingent deferred
sales charge and fourth of any Class A shares that are subject to
a contingent deferred sales charge held shortest during the
one-year period during which such shares are subject to the sales
charge. When shares acquired in an exchange are redeemed, the
applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of
purchase to shares of the corresponding class of the Alliance
Mutual Fund originally purchased by the shareholder.
The contingent deferred sales charge is waived on
redemptions of shares (i) following the death or disability, as
defined in the Internal Revenue Code of 1986, as amended (the
"Code"), of a shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who
has attained the age of 70-1/2, (iii) that had been purchased by
present or former Directors of the Fund, by the relative of any
such person, by any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative, or by the estate of any such person or relative, or
(iv) pursuant to a systematic withdrawal plan (see "Shareholder
Services-Systematic Withdrawal Plan" below).
Conversion Feature. At the end of the period ending
eight years after the end of the calendar month in which the
shareholder's purchase order was accepted, Class B shares will
automatically convert to Class A shares and will no longer be
subject to a higher distribution services fee. Such conversion
will occur on the basis of the relative net asset values of the
two classes, without the imposition of any sales load, fee or
other charge. The purpose of the conversion feature is to reduce
the distribution services fee paid by holders of Class B shares
that have been outstanding long enough for the Principal
Underwriter to have been compensated for distribution expenses
incurred in the sale of such shares.
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time
any Class B shares in the shareholder's account (other than those
in the sub-account) convert to Class A, an equal pro-rata portion
of the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
36
<PAGE>
to the effect that the conversion of Class B shares to Class A
shares does not constitute a taxable event under federal income
tax law. The conversion of Class B shares to Class A shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee
for an indefinite period which may extend beyond the period
ending eight years after the end of the calendar month in which
the shareholder's purchase order was accepted.
Class C Shares
Investors purchase Class C shares at the public offering
price equal to the net asset value per share of the Class C
shares on the date of purchase without the imposition of a sales
charge either at the time of purchase or, as long as the shares
are held for one year or more, upon redemption. Class C shares
are sold without an initial sales charge so that the Fund will
receive the full amount of the investor's purchase payment and,
as long as the shares are held for one year or more, without a
contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of
his or her Class C shares. The Class C distribution services fee
enables the Fund to sell Class C shares without either an initial
or contingent deferred sales charge, as long as the shares are
held for one year or more. Class C shares do not convert to any
other class of shares of the Fund and incur higher distribution
services fees than Class A shares, and will thus have a higher
expense ratio and pay correspondingly lower dividends than Class
A shares.
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1%, charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge on Class C
shares will be waived on certain redemptions, and will be applied
to redemptions of shares by shareholders who hold both Class C
shares and shares of one or more other classes subject to a
contingent deferred sales charge, as described above under "-
- -Class B Shares."
37
<PAGE>
Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class C shares, such as the
payment of compensation to selected dealers and agents for
selling Class C shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Fund to sell the Class C shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares.
________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares -- How to Sell Shares." If you are an Advisor Class
shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
Redemption
Subject only to the limitations described below, the
Fund's Articles of Incorporation require that the Fund redeem the
shares tendered to it, as described below, at a redemption price
equal to their net asset value as next computed following the
receipt of shares tendered for redemption in proper form. Except
for any contingent deferred sales charge that may be applicable
to Class A, Class B and Class C shares, there is no redemption
charge. Payment of the redemption price will be made within
seven days after the Fund's receipt of such tender for
redemption. If a shareholder is in doubt about what documents
are required by his or her fee-based program or employee benefit
plan, the shareholder should contact his or her financial
representative.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
38
<PAGE>
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the Commission determines
that trading thereon is restricted, or for any period during
which an emergency (as determined by the Commission) exists as a
result of which disposal by the Fund of securities owned by it is
not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Commission
may by order permit for the protection of security holders of the
Fund.
Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
repurchase. Redemption proceeds on Class A shares, Class B and
Class C shares will reflect the deduction of the contingent
deferred sales charge, if any. Payment received by a shareholder
upon redemption or repurchase of his shares, assuming the shares
constitute capital assets in his hands, will result in long-term
or short-term capital gains (or loss) depending upon the
shareholder's holding period and basis in respect of the shares
redeemed.
To redeem shares of the Fund for which no share
certificates have been issued, the registered owner or owners
should forward a letter to the Fund containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an institution that is an "eligible guarantor" as
defined in Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended.
Telephone Redemption By Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer once in any 30 day period (except for certain
omnibus accounts) of shares for which no stock certificates have
been issued by telephone at (800) 221-5672 by a shareholder who
has completed the appropriate portion of the Subscription
Application or, in the case of an existing shareholder, an
"Autosell" application obtained from Alliance Fund Services, Inc.
A telephone redemption request may not exceed $100,000 (except
for certain omnibus accounts), and must be made by 4:00 p.m.
Eastern time on a Fund business day as defined above. Proceeds
of telephone redemptions will be sent by Electronic Funds
Transfer to a shareholder's designated bank account at a bank
selected by the shareholder that is a member of the NACHA.
39
<PAGE>
Telephone Redemption By Check. Except for certain
omnibus accounts or as noted below, each Fund shareholder is
eligible to request redemption by check, once in any 30-day
period, of Fund shares for which no stock certificates have been
issued by telephone at (800) 221-5672 before 4:00 p.m. Eastern
time on a Fund business day in an amount not exceeding $50,000.
Proceeds of such redemptions are remitted by check to the
shareholder's address of record. Telephone redemption by check
is not available with respect to shares (i) for which
certificates have been issued, (ii) held in nominee or "street
name" accounts, (iii) held by a shareholder who has changed his
or her address of record within the preceding 30 calendar days or
(iv) held in any retirement plan account. A shareholder
otherwise eligible for telephone redemption by check may cancel
the privilege by written instruction to Alliance Fund Services,
Inc., or by checking the appropriate box on the Subscription
Application found in the Prospectus.
Telephone Redemption--General. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information. The
Fund reserves the right to suspend or terminate its telephone
redemption service at any time without notice. Neither the Fund
nor the Adviser, the Principal Underwriter or Alliance Fund
Services, Inc. will be responsible for the authenticity of
telephone requests for redemptions that the Fund reasonably
believes to be genuine. The Fund will employ reasonable
procedures in order to verify that telephone requests for
redemptions are genuine, including, among others, recording such
telephone instructions and causing written confirmations of the
resulting transactions to be sent to shareholders. If the Fund
did not employ such procedures, it could be liable for losses
arising from unauthorized or fraudulent telephone instructions.
Selected dealers or agents may charge a commission for handling
telephone requests for redemptions.
To redeem shares of the Fund represented by stock
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Fund with the request that the
shares represented thereby, or a specified portion thereof, be
40
<PAGE>
redeemed. The stock assignment form on the reverse side of each
stock certificate surrendered to the Fund for redemption must be
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the stock certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
Repurchase
The Fund may repurchase shares through the Principal
Underwriter, selected financial intermediaries or selected
dealers or agents. The repurchase price will be the net asset
value next determined after the Principal Underwriter receives
the request (less the contingent deferred sales charge, if any,
with respect to the Class A, Class B and Class C shares), except
that requests placed through selected dealers or agents before
the close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary or selected
dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. If the financial
intermediary or selected dealer or agent fails to do so, the
shareholder's right to receive that day's closing price must be
settled between the shareholder and the dealer or agent. A
shareholder may offer shares of the Fund to the Principal
Underwriter either directly or through a selected dealer or
agent. Neither the Fund nor the Principal Underwriter charges a
fee or commission in connection with the repurchase of shares
(except for the contingent deferred sales charge, if any, with
respect to Class A, Class B and Class C shares). Normally, if
shares of the Fund are offered through a financial intermediary
or selected dealer or agent, the repurchase is settled by the
shareholder as an ordinary transaction with or through the
selected dealer or agent, who may charge the shareholder for this
service. The repurchase of shares of the Fund as described above
is a voluntary service of the Fund and the Fund may suspend or
terminate this practice at any time.
General
The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days' written notice to increase the
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account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
of the Fund recently purchased by check, redemption proceeds will
not be made available until the Fund is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
________________________________________________________________
SHAREHOLDER SERVICES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set
forth below are applicable to Class A, Class B, Class C and
Advisor Class shares unless otherwise indicated. If you are an
Advisor Class shareholder through an account established under a
fee-based program your fee-based program may impose requirements
with respect to the purchase, sale or exchange of Advisor Class
shares of the Fund that are different from those described
herein. A transaction fee may be charged by your financial
representative with respect to the purchase, sale or exchange of
Advisor Class shares made through such financial representative.
Automatic Investment Program
Investors may purchase shares of the Fund through an
automatic investment program utilizing "pre-authorized check"
drafts drawn on the investor's own bank account. Under such a
program, pre-authorized monthly drafts for a fixed amount (at
least $25) are used to purchase shares through the selected
dealer or selected agent designated by the investor at the public
offering price next determined after the Principal Underwriter
receives the proceeds from the investor's bank. Drafts may be
made in paper form or, if the investor's bank is a member of the
NACHA, in electronic form. If made in paper form, the draft is
normally made on the 20th day of each month, or the next business
day thereafter. If made in electronic form, drafts can be made
on or about a date each month selected by the shareholder.
Investors wishing to establish an automatic investment program in
connection with their initial investment should complete the
appropriate portion of the Subscription Application found in the
Prospectus. Current shareholders should contact Alliance Fund
Services, Inc. at the address or telephone numbers shown on the
cover of this Statement of Additional Information to establish an
automatic investment program.
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Exchange Privilege
You may exchange your investment in the Fund for shares
of the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by Alliance). In
addition, present Directors or Trustees of any Alliance Mutual
Fund may exchange Class A shares of any Alliance Mutual Fund for
Advisor Class shares of any other Alliance Mutual Fund, including
the Fund. If you make an exchange, you may exchange the shares
of AFD Exchange Reserves received in return only for shares of
the Fund. Exchanges of shares are made at the net asset value
next determined and without sales or service charges. Exchanges
may be made by telephone or written request. Telephone exchange
requests must be received by AFS by 4:00 p.m. Eastern time on a
Fund business day in order to receive that day's net asset value.
Shares will continue to age without regard to exchanges
for purpose of determining the CDSC, if any, upon redemption and,
in the case of Class B shares, for the purpose of conversion to
Class A shares. After an exchange, your Class B shares will
automatically convert to Class A shares in accordance with the
conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original
shares"). When redemption occurs, the CDSC applicable to the
original shares is applied.
Please read carefully the prospectus of the mutual fund
into which you are exchanging before submitting the request.
Call AFS at 800-221-5672 to exchange uncertificated shares. An
exchange is a taxable capital transaction for federal tax
purposes. The exchange service may be changed, suspended, or
terminated on 60 days written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's Prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose
shares have been tendered for exchange is reasonably assured that
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<PAGE>
the check has cleared, normally up to 15 calendar days following
the purchase date. Exchanges of shares of Alliance Mutual Funds
will generally result in the realization of a capital gain or
loss for Federal income tax purposes.
Each Fund shareholder, and the shareholder's selected
dealer, agent or financial representative, as applicable, are
authorized to make telephone requests for exchanges unless
Alliance Fund Services, Inc., receives written instruction to the
contrary from the shareholder, or the shareholder declines the
privilege by checking the appropriate box on the Subscription
Application found in the Prospectus. Such telephone requests
cannot be accepted with respect to shares then represented by
stock certificates. Shares acquired pursuant to a telephone
request for exchange will be held under the same account
registration as the shares redeemed through such exchange.
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange, at (800) 221-5672
before 4:00 p.m., Eastern time, on a Fund business day as defined
above. Telephone requests for exchange received before 4:00 p.m.
Eastern time on a Fund business day will be processed as of the
close of business on that day. During periods of drastic
economic or market developments, such as the market break of
October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information.
A shareholder may elect to initiate a monthly "Auto
Exchange" whereby a specified dollar amount's worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares
of another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the Fund
business day prior thereto.
None of the Alliance Mutual Funds, the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
exchanges that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for exchanges are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
44
<PAGE>
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Selected dealers, agents or
financial representatives, as applicable may charge a commission
for handling telephone requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Funds being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
Retirement Plans
The Fund may be a suitable investment vehicle for part
or all of the assets held in various types of retirement plans,
such as those listed below. The Fund has available forms of such
plans pursuant to which investments can be made in the Fund and
other Alliance Mutual Funds. Persons desiring information
concerning these plans should contact Alliance Fund Services,
Inc. at the "Literature" telephone number on the cover of this
Statement of Additional Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 07096-1520
Individual Retirement Account ("IRA"). Individuals who
receive compensation, including earnings from self-employment,
are entitled to establish and make contributions to an IRA.
Taxation of the income and gains paid to an IRA by the Fund is
deferred until distribution from the IRA. An individual's
eligible contribution to an IRA will be deductible if neither the
individual nor his or her spouse is an active participant in an
employer-sponsored retirement plan. If the individual or his or
her spouse is an active participant in an employer-sponsored
retirement plan, the individual's contributions to an IRA may be
deductible, in whole or in part, depending on the amount of the
adjusted gross income of the individual and his or her spouse.
Employer-Sponsored Qualified Retirement Plans. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including
Section 401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals.
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If the aggregate net asset value of shares of the
Alliance Mutual Funds held by the qualified plan reaches $5
million on or before December 15 in any year, all Class B or C
shares of the Fund held by such plan can be exchanged, at the
Plan's request, without any sales charge, for Class A shares of
such Fund.
Simplified Employee Pension Plan ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
IRA established by each eligible employee within prescribed
limits based on employee compensation.
403(b)(7) Retirement Plan. Certain tax-exempt
organizations and public educational institutions may sponsor
retirements plans under which an employee may agree that monies
deducted from his or her compensation (minimum $25 per pay
period) may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of The Equitable Life Assurance Society of the United
States, which serves as custodian or trustee under the retirement
plan prototype forms available from the Fund, charges certain
nominal fees for establishing an account and for annual
maintenance. A portion of these fees is remitted to Alliance
Fund Services, Inc. as compensation for its services to the
retirement plan accounts maintained with the Fund.
Distributions from retirement plans are subject to
certain Code requirements in addition to normal redemption
procedures. For additional information please contact Alliance
Fund Services, Inc.
Dividend Direction Plan
A shareholder who already maintains, in addition to his
or her Class A, Class B, Class C or Advisor Class Fund account, a
Class A, Class B, Class C or Advisor Class account(s) with one or
more other Alliance Mutual Funds may direct that income dividends
and/or capital gains paid on his or her Class A, Class B, Class C
or Advisor Class Fund shares be automatically reinvested, in any
amount, without the payment of any sales or service charges, in
shares of the same class of such other Alliance Mutual Fund(s).
Further information can be obtained by contacting Alliance Fund
Services, Inc. at the address or the "Literature" telephone
number shown on the cover of this Statement of Additional
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<PAGE>
Information. Investors wishing to establish a dividend direction
plan in connection with their initial investment should complete
the appropriate section of the Subscription Application found in
the Prospectus. Current shareholders should contact Alliance
Fund Services, Inc. to establish a dividend direction plan.
Systematic Withdrawal Plan
General. Any shareholder who owns or purchases shares
of the Fund having a current net asset value of at least $4,000
(for quarterly or less frequent payments), $5,000 (for bi-monthly
payments) or $10,000 (for monthly payments) may establish a
systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less
than $50 on a selected date. Systematic withdrawal plan
participants must elect to have their dividends and distributions
from the Fund automatically reinvested in additional shares of
the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such payments will be subject to any
taxes applicable to redemptions and, except as discussed below,
any applicable contingent deferred sales charge. Shares acquired
with reinvested dividends and distributions will be liquidated
first to provide such withdrawal payments and thereafter other
shares will be liquidated to the extent necessary, and depending
upon the amount withdrawn, the investor's principal may be
depleted. A systematic withdrawal plan may be terminated at any
time by the shareholder or the Fund.
Withdrawal payments will not automatically end when a
shareholder's account reaches a certain minimum level. Therefore,
redemptions of shares under the plan may reduce or even liquidate
a shareholder's account and may subject the shareholder to the
Fund's involuntary redemption provisions. See "Redemption and
Repurchase of Shares--General." Purchases of additional shares
concurrently with withdrawals are undesirable because of sales
charges when purchases are made. While an occasional lump-sum
investment may be made by a holder of Class A shares who is
maintaining a systematic withdrawal plan, such investment should
normally be an amount equivalent to three times the annual
withdrawal or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made
by check or electronically via the Automated Clearing House
("ACH") network. Investors wishing to establish a systematic
withdrawal plan in conjunction with their initial investment in
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<PAGE>
shares of the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus, while current
Fund shareholders desiring to do so can obtain an application
form by contacting Alliance Fund Services, Inc. at the address or
the "Literature" telephone number shown on the cover of this
Statement of Additional Information.
Class B and Class C CDSC Waiver. Under a systematic
withdrawal plan, up to 1% monthly, 2% bi-monthly or 3% quarterly
of the value at the time of redemption of the Class B shares in a
shareholder's account acquired after July 1, 1995 and the Class C
shares in a shareholder's account acquired on or after July 1,
1996 may be redeemed free of any contingent deferred sales
charge. Class B shares acquired after July 1, 1995 and Class C
shares acquired on or after July 1, 1996 that are not subject to
a contingent deferred sales charge (such as shares acquired with
reinvested dividends or distributions or shares held beyond the
period during which shares are subject to a contingent deferred
sales charge) will be redeemed first and will count toward these
limitations. Remaining Class B shares acquired after July 1,
1995 that are held the longest and remaining Class C shares
acquired on or after July 1, 1996 that are held the longest will
be redeemed next. Redemptions of Class B shares acquired after
July 1, 1995 and Class C shares acquired on or after July 1, 1996
in excess of the foregoing limitations and redemptions of Class B
shares acquired before July 1, 1995 will be subject to any
otherwise applicable contingent deferred sales charge.
Statements and Reports
Each shareholder of the Fund receives semi-annual and
annual reports which include a portfolio of investments,
financial statements and, in the case of the annual report, the
report of the Fund's independent auditors, Ernst & Young LLP, as
well as a confirmation of each purchase and redemption. By
contacting his or her broker or Alliance Fund Services, Inc., a
shareholder can arrange for copies of his or her account
statements to be sent to another person.
________________________________________________________________
NET ASSET VALUE
________________________________________________________________
The per share net asset value is computed in accordance
with the Fund's Articles of Incorporation and By-Laws at the next
close of regular trading on the Exchange following receipt of a
purchase or redemption order (and on such other days as the
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Directors of the Fund deem necessary in order to comply with Rule
22c-1 under the 1940 Act). The Fund's per share net asset value
is calculated by dividing the value of the Fund's total assets,
less its liabilities, by the total number of its shares then
outstanding. The net asset value is calculated at the close of
business on each Fund business day.
For purposes of this computation, readily marketable
portfolio securities listed on the Exchange are valued, except as
indicated below, at the last sale price reflected on the
consolidated tape at the close of the Exchange on the business
day as of which such value is being determined. If there has
been no sale on such day, the securities are valued at the mean
of the closing bid and asked prices on such day. If no bid or
asked prices are quoted on such day, then the security is valued
by such method as the Directors of the Fund shall determine in
good faith to reflect its fair market value. Readily marketable
securities not listed on the Exchange but listed on other
national securities exchanges or admitted to trading on the
National Association of Securities Dealers Automatic Quotations,
Inc. ("NASDAQ") National List ("List") are valued in like manner.
Portfolio securities traded on more than one national securities
exchange are valued at the last sale price on the business day as
of which such value is being determined as reflected on the tape
at the close of the exchange representing the principal market
for such securities.
Readily marketable securities traded only in the over-
the-counter market, including listed securities whose primary
market is believed by the Adviser to be over-the-counter but
excluding those admitted to trading on the List, are valued at
the mean of the current bid and asked prices as reported by
NASDAQ or, in the case of securities not quoted by NASDAQ, the
National Quotation Bureau or such other comparable sources as the
Directors of the Fund deem appropriate to reflect their fair
market value. United States Government obligations and other
debt instruments having sixty days or less remaining until
maturity are stated at amortized cost which approximates market
value. All other assets of the Fund, including restricted and
not readily marketable securities, are valued in such manner as
the Directors of the Fund in good faith deem appropriate to
reflect their fair market value.
The assets belonging to the Class A shares, Class B
shares, Class C shares and Advisor Class shares will be invested
together in a single portfolio. The net asset value of each
class will be determined separately by subtracting the
liabilities allocated to that class from the assets belonging to
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that class in conformance with the provisions of a plan adopted
by the Fund in accordance with Rule 18f-3 under the 1940 Act.
________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
________________________________________________________________
United States Federal Income Taxes
General. The Fund intends to qualify and elect to be
treated as a "regulated investment company" under sections 851
through 855 of the Code. To so qualify, the Fund must, among
other things, (i) derive at least 90% of its gross income in each
taxable year from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of
stock or securities or foreign currency, or certain other income
(including, but not limited to, gains from options, futures and
forward contracts) derived with respect to its business of
investing in stock, securities or currency; (ii) derive less than
30% of its gross income in each taxable year from the sale or
other disposition within three months of their acquisition by the
Fund of stocks, securities, options, futures or forward contracts
and foreign currencies (or options, futures or forward contracts
on foreign currencies) that are not directly related to the
Fund's principal business of investing in stock or securities (or
options and futures with respect to stocks or securities); and
(iii) diversify its holdings so that, at the end of each quarter
of its taxable year, the following two conditions are
met: (a) at least 50% of the value of the Fund's assets is
represented by cash, U.S. Government Securities, securities of
other regulated investment companies and other securities with
respect to which the Fund's investment is limited, in respect of
any one issuer, to an amount not greater than 5% of the Fund's
assets and 10% of the outstanding voting securities of such
issuer, and (b) not more than 25% of the value of the Fund's
assets is invested in securities of any one issuer (other than
U.S. Government Securities or securities of other regulated
investment companies). These requirements, among other things,
may limit the Fund's ability to sell securities short.
If the Fund qualifies as a regulated investment company
for any taxable year and makes timely distributions to its
shareholders of 90% or more of its net investment income for that
year (calculated without regard to its net capital gain, i.e.,
the excess of its net long-term capital gain over its net short-
term capital loss), it will not be subject to federal income tax
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<PAGE>
on the portion of its taxable income for the year (including any
net capital gain) that it distributes to shareholders.
The Fund intends to also avoid the 4% federal excise tax
that would otherwise apply to certain undistributed income for a
given calendar year if it makes timely distributions to the
shareholders equal to the sum of (i) 98% of its ordinary income
for that year; (ii) 98% of its capital gain net income and
foreign currency gains for the twelve-month period ending on
October 31 of that year; and (iii) any ordinary income or capital
gain net income from the preceding calendar year that was not
distributed during that year. For this purpose, income or gain
retained by the Fund that is subject to corporate income tax will
be considered to have been distributed by the Fund by year-end.
For federal income and excise tax purposes, dividends declared
and payable to shareholders of record as of a date in October,
November or December of a given year but actually paid during the
immediately following January will be treated as if paid by the
Fund on December 31 of that calendar year, and will be taxable to
these shareholders for the year declared, and not for the year in
which the shareholders actually receive the dividend.
The Fund intends to make timely distributions of the
Fund's taxable income (including any net capital gain) so that
the Fund will not be subject to federal income or excise taxes.
However, exchange control or other regulations on the
repatriation of investment income, capital or the proceeds of
securities sales, if any exist or are enacted in the future, may
limit the Fund's ability to make distributions sufficient in
amount to avoid being subject to one or both of such federal
taxes.
Dividends and Distributions. The Fund intends to make
timely distributions of the Fund's taxable income (including any
net capital gain) so that the Fund will not be subject to federal
income and excise taxes. Dividends of the Fund's net ordinary
income and distributions of any net realized short-term capital
gain are taxable to shareholders as ordinary income. Due to
distributions of amounts representing a return of capital the
Fund will receive from REITs in which the Fund is invested,
distributions made by the Fund may also include nontaxable
returns of capital, which will reduce a shareholder's basis in
shares of the Fund. If a shareholder's basis is reduced to zero
(which could happen if the shareholder does not reinvest
distributions and returns of capital are significant), any
further returns of capital will be taxable as capital gain.
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The excess of net long-term capital gains over the net
short-term capital losses realized and distributed by the Fund to
its shareholders will be taxable to the shareholders as long-term
capital gains, irrespective of the length of time a shareholder
may have held his Fund shares. Any dividend or distribution
received by a shareholder on shares of the Fund will have the
effect of reducing the net asset value of such shares by the
amount of such dividend or distribution. Furthermore, a dividend
or distribution made shortly after the purchase of such shares by
a shareholder, although in effect a return of capital to that
particular shareholder, would be taxable to him as described
above. Dividends are taxable in the manner discussed regardless
of whether they are paid to the shareholder in cash or are
reinvested in additional shares of the Fund.
After the end of the taxable year, the Fund will notify
shareholders of the federal income tax status of any
distributions made by the Fund to shareholders during such year.
It is the present policy of the Fund to distribute to
shareholders all net investment income quarterly and to
distribute realized capital gains, if any, annually. There is no
fixed dividend rate and there can be no assurance that the Fund
will pay any dividends. The amount of any dividend or
distribution paid on shares of the Fund must necessarily depend
upon the realization of income and capital gains from the Fund's
investments.
Sales and Redemptions. Any gain or loss arising from a
sale or redemption of Fund shares generally will be capital gain
or loss except in the case of a dealer or a financial
institution, and will be long-term capital gain or loss if such
shareholder has held such shares for more than one year at the
time of the sale or redemption; otherwise it will be short-term
capital gain or loss. However, if a shareholder has held shares
in the Fund for six months or less and during that period has
received a distribution taxable to the shareholder as a long-term
capital gain, any loss recognized by the shareholder on the sale
of those shares during the six-month period will be treated as a
long-term capital loss to the extent of the dividend. In
determining the holding period of such shares for this purpose,
any period during which a shareholder's risk of loss is offset by
means of options, short sales or similar transactions is not
counted.
Any loss realized by a shareholder on a sale or exchange
of shares of the Fund will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30
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days before and ending 30 days after the shares are sold or
exchanged. For this purpose, acquisitions pursuant to the
Dividend Reinvestment Plan would constitute a replacement if made
within the period. If disallowed, the loss will be reflected in
an upward adjustment to the basis of the shares acquired.
Backup Withholding. The Fund may be required to
withhold United States federal income tax at the rate of 31% of
all taxable distributions payable to shareholders who fail to
provide the Fund with their correct taxpayer identification
numbers or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to
backup withholding. Corporate shareholders and certain other
shareholders specified in the Code are exempt from such backup
withholding. Backup withholding is not an additional tax; any
amounts so withheld may be credited against a United States
Shareholder's United States federal income tax liability or
refunded.
Short Sales. In general, gain or loss realized by the
Fund on the closing of a short sale will be considered to be
short-term capital gain or loss. In addition, with regard to the
requirement discussed above that the Fund derive less than 30% of
its gross income from the disposition of certain types of
property within three months of their acquisition by the Fund,
any gain from the closing of a short sale will be treated as gain
from the sale of property held three months or less, regardless
of how long the position has been kept open by the Fund, unless
the Fund closes the short sale with securities that were held by
the Fund for more than three months at the time of the short
sale.
________________________________________________________________
BROKERAGE AND PORTFOLIO TRANSACTIONS
________________________________________________________________
The management of the Fund has the responsibility for
allocating its brokerage orders and may direct orders to any
broker. It is the Fund's general policy to seek favorable net
prices and prompt reliable execution in connection with the
purchase or sale of all portfolio securities. In the purchase
and sale of over-the-counter securities, it is the Fund's policy
to use the primary market makers except when a better price can
be obtained by using a broker. The Board of Directors has
approved, as in the best interests of the Fund and the
shareholders, a policy of considering, among other factors, sales
of the Fund's shares as a factor in the selection of broker-
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dealers to execute portfolio transactions, subject to best
execution. The Adviser is authorized under the Advisory
Agreement to place brokerage business with such brokers and
dealers. The use of brokers who supply supplemental research and
analysis and other services may result in the payment of higher
commissions than those available from other brokers and dealers
who provide only the execution of portfolio transactions. In
addition, the supplemental research and analysis and other
services that may be obtained from brokers and dealers through
which brokerage transactions are affected may be useful to the
Adviser in connection with advisory clients other than the Fund.
Investment decisions for the Fund are made independently
from those for other investment companies and other advisory
accounts managed by the Adviser. It may happen, on occasion,
that the same security is held in the portfolio of the Fund and
one or more of such other companies or accounts. Simultaneous
transactions are likely when several funds or accounts are
managed by the same Adviser, particularly when a security is
suitable for the investment objectives of more than one of such
companies or accounts. When two or more companies or accounts
managed by the Adviser are simultaneously engaged in the purchase
or sale of the same security, the transactions are allocated to
the respective companies or accounts both as to amount and price,
in accordance with a method deemed equitable to each company or
account. In some cases this system may adversely affect the
price paid or received by the Fund or the size of the position
obtainable for the Fund.
Allocations are made by the officers of the Fund or of
the Adviser. Purchases and sales of portfolio securities are
determined by the Adviser and are placed with broker-dealers by
the order department of the Adviser.
The extent to which commissions that will be charged by
broker-dealers selected by the Fund may reflect an element of
value for research cannot presently be determined. To the extent
that research services of value are provided by broker-dealers
with or through whom the Fund places portfolio transactions, the
Adviser may be relieved of expenses which it might otherwise
bear. Research services furnished by broker-dealers could be
useful and of value to the Adviser in servicing its other clients
as well as the Fund; but, on the other hand, certain research
services obtained by the Adviser as a result of the placement of
portfolio brokerage of other clients could be useful and of value
to it in serving the Fund. Consistent with the Conduct Rules of
the National Association of Securities Dealers, Inc. and subject
to seeking best execution, the Fund may consider sales of shares
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<PAGE>
of the Fund or other investment companies managed by the Adviser
as a factor in the selection of brokers to execute portfolio
transactions for the Fund.
The Fund may from time to time place orders for the
purchase or sale of securities (including listed call options)
with Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"),
an affiliate of the Adviser, and with brokers which may have
their transactions cleared or settled, or both, by the Pershing
Division of DLJ for which DLJ may receive a portion of the
brokerage commissions. In such instances, the placement of
orders with such brokers would be consistent with the Fund's
objective of obtaining best execution and would not be dependent
upon the fact that DLJ is an affiliate of the Adviser.
________________________________________________________________
GENERAL INFORMATION
________________________________________________________________
Capitalization
The authorized capital stock of the Fund currently
consists of 3,000,000,000 shares of Class A Common Stock,
3,000,000,000 shares of Class B Common Stock, 3,000,000,000
shares of Class C Common Stock and 3,000,000,000 shares of Class
Y Common Stock designated as Advisor Class Common Stock, each
having a par value of $.001 per share. All shares of the Fund,
when issued, are fully paid and non-assessable. The Directors
are authorized to reclassify and issue any unissued shares to any
number of additional series and classes without shareholder
approval. Accordingly, the Directors in the future, for reasons
such as the desire to establish one or more additional portfolios
with different investment objectives, policies or restrictions,
may create additional classes or series of shares. Any issuance
of shares of another class or series would be governed by the
1940 Act and the law of the State of Maryland. If shares of
another series were issued in connection with the creation of a
second portfolio, each share of either portfolio would normally
be entitled to one vote for all purposes. Generally, shares of
both portfolios would vote as a single series on matters, such as
the election of Directors, that affected both portfolios in
substantially the same manner. As to matters affecting each
portfolio differently, such as approval of the Advisory Agreement
and changes in investment policy, shares of each portfolio would
vote as a separate series.
55
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Procedures for calling a shareholders' meeting for the
removal of Directors of the Fund, similar to those set forth in
Section 16(c) of the 1940 Act will be available to shareholders
of the Fund. The rights of the holders of shares of a series may
not be modified except by the vote of a majority of the
outstanding shares of such series.
Custodian
The Bank of New York, 48 Wall Street, New York, New York
10286 will act as the Fund's custodian. The Fund's securities
and cash are held under a custodian agreement by The Bank of New
York. Rules adopted under the 1940 Act permit the Fund to
maintain its securities and cash in the custody of certain
eligible banks and securities depositories. Pursuant to those
rules, the Fund's portfolio of securities and cash, when invested
in securities of foreign countries, will be held by its
subcustodians, subject to approval by the Board of Directors of
the Fund as and when appropriate in accordance with the rules of
the Commission.
Principal Underwriter
Alliance Fund Distributors, Inc., 1345 Avenue of the
Americas, New York, New York 10105, serves as the Fund's
Principal Underwriter, and as such may solicit orders from the
public to purchase shares of the Fund. Under the Distribution
Services Agreement, the Fund has agreed to indemnify the
Principal Underwriter, in the absence of its willful misfeasance,
bad faith, gross negligence or reckless disregard of its
obligations thereunder, against certain civil liabilities,
including liabilities under the Securities Act of 1933, as
amended.
Counsel
Legal matters in connection with the issuance of the
shares offered hereby are passed upon by Seward & Kissel, One
Battery Park Plaza, New York, New York 10004. Seward & Kissel
has relied upon the opinion of Venable, Baetjer and Howard, LLP,
1800 Mercantile Bank & Trust Building, 2 Hopkins Place,
Baltimore, Maryland 22201, for matters relating to Maryland law.
Independent Auditors
Ernst & Young LLP, 787 Seventh Avenue, New York, New
York 10019 have been appointed as independent auditors for the
Fund.
56
<PAGE>
Performance Information
From time to time the Fund advertises its "total
return." Computed separately for each class, the Fund's "total
return" is its average annual compounded total return for its
most recently completed one, five, and ten-year periods (or the
period since the Fund's inception). The Fund's total return for
such a period is computed by finding, through the use of a
formula prescribed by the Commission, the average annual
compounded rate of return over the period that would equate an
assumed initial amount invested to the value of such investment
at the end of the period. For purposes of computing total
return, income dividends and capital gains distributions paid on
shares of the Fund are assumed to have been reinvested when paid
and the maximum sales charge applicable to purchases of Fund
shares is assumed to have been paid.
The Fund's total return is computed separately for
Class A, Class B, Class C and Advisor Class shares. The Fund's
total return is not fixed and will fluctuate in response to
prevailing market conditions or as a function of the type and
quality of the securities in the Fund's portfolio and the Fund's
expenses. Total return information is useful in reviewing the
Fund's performance but such information may not provide a basis
for comparison with bank deposits or other investments which pay
a fixed yield for a stated period of time. An investor's
principal invested in the Fund is not fixed and will fluctuate in
response to prevailing market conditions.
Advertisements quoting performance rankings of the Fund
as measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc. ("Lipper")
and Morningstar, Inc., and advertisements presenting the
historical record of payments of income dividends by the Fund may
also from time to time be sent to investors or placed in
newspapers, magazines such as The Wall Street Journal, The New
York Times, Barrons, Investor's Daily, Money Magazine, Changing
Times, Business Week and Forbes or other media on behalf of the
Fund.
Additional Information
Any shareholder inquiries may be directed to the
shareholder's broker or to Alliance Fund Services, Inc. at the
address or telephone numbers shown on the front cover of this
Statement of Additional Information. This Statement of
Additional Information does not contain all the information set
57
<PAGE>
forth in the Registration Statement filed by the Fund with the
Securities and Exchange Commission under the Securities Act of
1933. Copies of the Registration Statement may be obtained at a
reasonable charge from the Securities and Exchange Commission or
may be examined, without charge, at the offices of the Securities
and Exchange Commission in Washington, D.C.
58
<PAGE>
Report of Independent Auditors
Shareholder and Board of Directors
Alliance Real Estate Investment Fund, Inc.
We have audited the accompanying statement of assets and
liabilities of Alliance Real Estate Investment Fund, Inc. as of
August 23, 1996. This statement of assets and liabilities is the
responsibility of the Fund's management. Our responsibility is
to express an opinion on this statement of assets and liabilities
based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
this statement of assets and liabilities is free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement
of assets and liabilities. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall statement of assets
and liabilities presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred
to above presents fairly, in all material respects, the financial
position of Alliance Real Estate Investment Fund, Inc. at
August 23, 1996, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
New York, New York
August 26, 1996
59
00250231.AL3
<PAGE>
Alliance Real Estate Investment Fund, Inc.
Statement of Assets and Liabilities
August 23, 1996
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . $100,300
Deferred organization expenses (Note A). . . . . . 345,275
Total assets . . . . . . . . . . . . . . . . . . . 445,575
LIABILITIES
Deferred organization expenses payable (Note A). . 345,275
NET ASSETS
(Applicable to 10 shares of Class A common stock
issued and outstanding, 10 shares of Class B common
stock issued and outstanding, 10 shares of Class C
common stock issued and outstanding, and 10,000
shares of Class Y common stock issued and
outstanding, each with $.001 par value and
3,000,000,000 shares authorized.) . . . . . . . . . $100,300
________
CALCULATION OF MAXIMUM OFFERING PRICE
Class A Shares
Net asset value and redemption price per share
($100/10 shares issued and outstanding). . $10.00
======
Class B Shares
Net asset value and redemption price per share
($100/10 shares issued and outstanding). . $10.00
======
Class C Shares
Net asset value and redemption price per share
($100/10 shares issued and outstanding). . $10.00
======
60
<PAGE>
Class Y Shares
Net asset value and redemption price per share
($100,000/10,000 shares issued and outstanding). . $10.00
======
See notes to Statement of Assets and Liabilities
61
<PAGE>
Alliance Real Estate Investment Fund, Inc.
Notes to Statement of Assets and Liabilities
August 23, 1996
Note A-Organization
Alliance Real Estate Investment Fund, Inc. (the "Fund") was
organized as a Maryland corporation on July 15, 1996 and is
registered under the Investment Company Act of 1940 as an
open-end, diversified management investment company. The Fund
has had no operations other than the sale to Alliance Capital
Management L.P. (the "Adviser") of 10 shares of Class A common
stock for the amount of $100, 10 shares of Class B common
stock for the amount of $100, 10 shares of Class C common
stock for the amount of $100 and 10,000 shares of Class Y
common stock for the amount of $100,000, in each case on
August 23, 1996. The Fund currently offers four classes of
shares. Class A shares are sold with an initial sales charge
imposed at the time of purchase. Class B shares are sold with
a contingent deferred sales charge imposed on most redemptions
made within four years of purchase and higher distribution
fees. Class C shares are sold with a contingent deferred
sales charge imposed on redemptions made within one year of
purchase and higher distribution fees. Class Y shares (which
are marketed as Advisor Class shares) are sold without any
initial or contingent deferred sales charge and without
ongoing distribution expenses. Costs incurred and to be
incurred in connection with the organization and initial
registration of the Fund will be paid initially by the
Adviser. The Fund will reimburse the Adviser for such costs,
which will be deferred and amortized by the Fund over the
period of benefit, not to exceed 60 months from the date the
Fund commences investment operations. If any of the initial
shares of the Fund are redeemed by a holder thereof during
such amortization period, the proceeds will be reduced by the
unamortized organization expenses in the same ratio as the
number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption.
62
<PAGE>
Note B-Investment Management, Transfer Agency and Distribution
Services Agreements
Under the terms of an Advisory Agreement, the Fund will pay
the Adviser a management fee at an annual rate of .90% of the
Fund's average daily net assets. Such fee will be accrued
daily and paid monthly.
The Adviser has agreed to reimburse the Fund to the extent
that the aggregate expenses (exclusive of interest, taxes,
brokerage, distribution services fees and extraordinary
expenses, all to the extent permitted by applicable state law
and regulation) exceed the limits prescribed by any state in
which the Fund's shares are qualified for sale. The Fund
believes that the most restrictive expense ratio limitation
imposed by any state is 2.5% of the first $30 million of its
average net assets, 2% of the next $70 million of its average
net assets and 1.5% of its average net assets in excess of
$100 million. Expense reimbursements, if any, will be accrued
daily and paid monthly.
The Fund has entered into a Distribution Services Agreement
(the "Agreement") with Alliance Fund Distributors, Inc., (the
"Principal Underwriter"), a wholly-owned subsidiary of the
Adviser. The Agreement provides that with respect to Class A
shares, Class B shares and Class C shares, the Principal
Underwriter will use amounts payable under the Agreement in
their entirety for distribution assistance and promotional
activities. The Agreement also provides that the Adviser may
use its own resources to finance the distribution of the
Fund's shares.
The Fund will compensate Alliance Fund Services, Inc. (a
wholly-owned subsidiary of the Adviser) for performing
transfer agency-related services for the Fund.
63
00250231/AL3
