ALLIANCE REAL ESTATE INVESTMENT FUND ANNUAL REPORT
AUGUST 31, 1997
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
September 22, 1997
Dear Shareholder:
We are pleased to provide you with an update on the performance and investment
activity of the Alliance Real Estate Investment Fund (the Fund). This report
covers the period from inception of the Fund on October 1, 1996 through August
31, 1997 as well as the six month period since our last shareholder report
dated February 28, 1997.
INVESTMENT RESULTS
This was an exceptional period for the stock market as a whole with the S&P 500
Stock Index producing total returns of 14.78% and 33.14% for the six and 11
month periods ended August 31, 1997, respectively. Real Estate Equities also
did well during these time frames. As the accompanying table shows, the Fund's
Class A shares generated returns to shareholders of 9.02% and 32.24% for the
six and 11 month periods ended August 31, 1997, based on net asset value. Over
both periods of time, the Fund outperformed its benchmark, the National
Association of Real Estate Investment Trusts (NAREIT) Equity Index, which
produced total returns of 7.73% and 29.23%.
INVESTMENT RESULTS*
Period Ended August 31, 1997
TOTAL RETURN
-------------------------
SINCE FUND
6 MONTHS INCEPTION*
-------- ----------
ALLIANCE REAL ESTATE INVESTMENT FUND
Class A 9.02% 32.24%
Class B 8.68% 31.49%
Class C 8.68% 31.49%
S&P 500 STOCK INDEX 14.78% 33.14%
NAREIT INDEX 7.73% 29.23%
* THE FUND'S INVESTMENT RESULTS REPRESENT CUMULATIVE TOTAL RETURNS AS OF THE
FUND'S INCEPTION DATE OF OCTOBER 1, 1996 AND ARE BASED ON THE NET ASSET VALUE
OF EACH CLASS OF SHARES AS OF AUGUST 31, 1997. TOTAL RETURNS FOR ADVISOR CLASS
SHARES WILL DIFFER DUE TO DIFFERENT EXPENSES ASSOCIATED WITH THAT CLASS. ALL
FEES AND EXPENSES RELATED TO THE OPERATION OF THE FUND HAVE BEEN DEDUCTED, BUT
NO ADJUSTMENT HAS BEEN MADE FOR SALES CHARGES THAT MAY APPLY WHEN SHARES ARE
PURCHASED OR REDEEMED. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
THE FUND'S BENCHMARK NUMBERS REPRESENT RETURNS FOR THE PERIOD NEAREST TO THE
MONTH-END OF THE FUND'S INCEPTION DATE, IN THIS CASE SEPTEMBER 30, 1996. THE
S&P 500 IS AN UNMANAGED INDEX OF 500 U.S. COMPANIES. THE NATIONAL ASSOCIATION
OF REAL ESTATE INVESTMENT TRUSTS EQUITY INDEX (NAREIT) IS A MARKET VALUE
WEIGHTED INDEX BASED UPON THE LAST CLOSING PRICE OF THE MONTH FOR TAX-QUALIFIED
REITS LISTED ON THE NYSE, AMEX AND THE NASDAQ. AN INVESTOR CANNOT INVEST
DIRECTLY IN THESE INDICES. INDEX RETURNS ARE NOT ADJUSTED FOR SALES CHARGES OR
OPERATING EXPENSES.
MARKET OVERVIEW
The marketplace for publicly traded real estate companies in the United States
is continuing to grow and mature. Real Estate Investment Trusts that own rather
than finance properties (equity REITs in the jargon of the market), had a
combined equity market capitalization of $61.5 billion when we launched the
Fund at the end of September 1996. A scant 11 months later the market
capitalization had grown to $104.9 billion. This represents a 70% increase in
less than a year. At the same time, the number of equity REITs has grown a mere
3% from 166 to 171. Obviously, the average company has gotten much larger. Not
so obviously, the average REIT has gotten far more complex. Furthermore, the
twin trends of new issuance and consolidation have given rise to a shift in
focus of the whole industry.
1
ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
Over the last year the equity market capitalization of the average REIT has
grown from $370 million to over $600 million. Increasing size, by itself, is of
little value to investors. However, larger REITs do tend to have higher
valuations, thereby, affording a competitive advantage in an acquisition
oriented investment environment. This advantage accrues to those companies
which have the management depth and infrastructure to successfully absorb the
increased growth.
The growth in REIT market capitalization has come about through a combination
of appreciation and equity issuance. The new shares floated by these companies
have mostly gone toward property acquisitions which are additive to company
growth. This is a healthy sign for the real estate industry as it fosters a
continued balance between supply and demand for leasable space.
We have recently seen a shift in this acquisition activity to include the
purchase of whole companies by other companies. We suspect that this trend will
increase significantly in the coming years and that we will see strong local
companies acquired by larger, national players seeking a foothold in the
specific market. We are currently analyzing this trend to determine how it will
impact our investment strategy in the future.
INVESTMENT STRATEGY
Your Fund was designed to identify and invest in companies that have optimal
exposure to the country's strongest real estate markets and which will most
benefit from the significant shifts in real estate financing and ownership
which are sweeping across the United States today.
The ongoing involvement of Koll Management Services as a consultant to Alliance
provides us with proprietary research and insights into emerging real estate
trends in nearly 650 property-specific geographic markets across the country in
a timely manner. In August of 1997 CB Commercial Real Estate Group, Inc.
acquired Koll Management Services to form one of the world's leading real
estate services companies. This change will have no impact on the relationship
between what was formerly Koll and Alliance Capital which will continue to
maintain the same working arrangement as before. Our capital markets expertise
with regard to debt and equity financing for both real estate and companies, as
well as our analytical understanding of tenant industry trends, allow us to
determine which companies are at the forefront of industry consolidation.
Our investment approach is based on a growth oriented portfolio with specific
divergence from our benchmarks with respect to property-type and geographic
diversification. We expect the companies in our portfolio to show approximately
13% cash flow growth over the next year compared with about 9% growth for the
average real estate company. We remain overweighted in office and full service
hotel companies and on the west coast in general. These are the property types
and regions which our research suggests have the best appreciation potential
over the coming 12 to 24 months.
Although the Fund does not invest directly in real estate, it does invest
primarily in securities issued by real estate management companies and does
concentrate its investments in the real estate industry. Therefore, an
investment in the Fund is subject to certain risks associated with direct
ownership of real estate and with the real estate industry in general.
MARKET OUTLOOK AND CONCLUSIONS
Our outlook for real estate overall remains positive. By and large, new
construction remains constrained and demand continues to grow. This should
allow rental income and occupancy levels to modestly increase over time. We are
optimistic that we can deploy the Fund's assets in markets growing faster than
average and, hence, produce strong investment results for our shareholders.
In conclusion, we would like to thank you for the confidence you have shown in
the Alliance Real Estate Investment Fund. We will continue to do everything we
can to justify that confidence by providing you with continued good results.
Sincerely,
John D. Carifa
Chairman and President
Daniel G. Pine
Senior Vice President
2
INVESTMENT OBJECTIVE AND POLICIES ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
Alliance Real Estate Investment 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.
INVESTMENT RESULTS
AVERAGE ANNUAL TOTAL RETURNS AS OF AUGUST 31, 1997
CLASS A SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
Since Inception* 32.24% 26.67%
CLASS B SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
Since Inception* 31.49% 27.49%
CLASS C SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
Since Inception* 31.49% 30.49%
The average annual total returns reflect reinvestment of dividends and/or
capital gains distributions in additional shares with and without the effect of
the 4.25% maximum front-end sales charge for Class A or applicable contingent
deferred sales charge for Class B (4% year 1, 3% year 2, 2% year 3, 1% year 4);
and for Class C shares (1% year 1). Returns for Class A shares do not reflect
the imposition of the 1 year 1% contingent deferred sales charge for accounts
over $1,000,000. Total return for Advisor Class shares will differ due to
different expenses associated with that class.
Past performance does not guarantee future results. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR ENDORSED
BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
* Inception: 10/1/96 for all share Classes.
3
ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
ALLIANCE REAL ESTATE INVESTMENT FUND
GROWTH OF A $10,000 INVESTMENT
9/30/96* TO 8/31/97
$14,000
$13,000
$12,000
$11,000
$10,000
$9,000
S&P500: $13,313
NAREIT INDEX: $12,923
REAL ESTATE INVESTMENT FUND CLASS A: $12,667
9/30/96 10/31/96 11/30/96 12/31/96 1/31/97 2/28/97
3/31/97 4/30/97 5/31/97 6/30/97 7/31/97 8/31/97
This chart illustrates the total value of an assumed $10,000 investment in
Alliance Real Estate Investment Fund Class A shares (from 9/30/96 to 8/31/97)
as compared to the performance of appropriate broad-based indices. The chart
reflects the deduction of the maximum 4.25% sales charge from the initial
$10,000 investment in the Fund and assumes the reinvestment of dividends and
capital gains. Performance for Class B, Class C and Advisor Class shares will
vary from the results shown above due to differences in expenses charged to
those classes. Past performance is not indicative of future results, and is not
representative of future gain or loss in capital value or dividend income.
The unmanaged Standard &Poor's 500 Stock Index includes 500 U.S. stocks and is
a common measure of the performance of the overall U.S. stock market.
The unmanaged NAREIT Index is a market value weighted index, based upon the
last closing price of the month for tax-qualified REITs listed on the NYSE,
AMEX and the NASDAQ.
When comparing Alliance Real Estate Investment Fund to the indices shown above,
you should note that no charges or expenses are reflected in the performance of
the indices.
Real Estate Investment Fund
S&P500 Stock Index
NAREIT Index
* Month-end nearest to Fund's inception date of 10/1/96.
4
TEN LARGEST HOLDINGS
AUGUST 31, 1997 ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
PERCENT OF
COMPANY VALUE NET ASSETS
- -------------------------------------------------------------------------------
Starwood Lodging Trust $ 13,071,063 4.8%
Glenborough Realty Trust, Inc. 12,080,250 4.5
Crescent Real Estate Equities Co. 11,732,875 4.4
Excel Realty Trust, Inc. 11,613,000 4.3
Patriot American Hospitality, Inc. 10,993,125 4.1
Essex Property Trust, Inc. 10,979,200 4.1
Beacon Properties Corp. 10,116,000 3.8
Security Capital Industrial Trust 9,534,420 3.5
Spieker Properties, Inc. 9,445,625 3.5
Storage USA, Inc. 9,278,625 3.4
$108,844,183 40.4%
MAJOR PORTFOLIO CHANGES
SIX MONTHS ENDED AUGUST 31, 1997
_______________________________________________________________________________
SHARES*
-----------------------------
HOLDINGS
PURCHASES BOUGHT 8/31/97
- -------------------------------------------------------------------------------
Crescent Real Estate Equities Co. 273,000 371,000
Equity Office Properties Trust 236,000 236,000
Essex Property Trust, Inc. 187,100 343,100
Macerich Co. 247,000 247,000
Mills Corp. 208,000 208,000
Pan Pacific Retail Properties, Inc. 281,000 281,000
Public Storage, Inc. 174,000 312,000
SL Green Realty Corp. 281,000 281,000
Spieker Properties, Inc. 156,000 254,000
Starwood Lodging Trust 144,000 283,000
HOLDINGS
SALES SOLD 8/31/97
- -------------------------------------------------------------------------------
Developers Diversified Realty Corp. 112,000 -0-
J.P. Realty, Inc. 138,000 -0-
Kilroy Realty Corp. 31,500 -0-
Liberty Property Trust 47,000 -0-
Simon DeBartolo Group, Inc. 80,000 -0-
* Adjusted for stock splits.
5
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1997 ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
COMPANY SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS-97.4%
REAL ESTATE INVESTMENT TRUSTS-95.2%
APARTMENTS-12.0%
Ambassador Apartments, Inc. 353,000 $ 7,854,250
Avalon Properties, Inc. 225,000 6,314,063
Bay Apartment Communities, Inc. 196,000 7,288,750
Essex Property Trust, Inc. 343,100 10,979,200
------------
32,436,263
DIVERSIFIED-7.8%
Glenborough Realty Trust, Inc. 468,000 12,080,250
Golf Trust of America, Inc. 94,000 2,585,000
Pacific Gulf Properties, Inc. 270,000 6,176,250
------------
20,841,500
HOTELS & RESTAURANTS-16.4%
American General Hospitality Corp. 293,000 7,563,062
FelCor Suite Hotels, Inc. 103,000 3,914,000
Innkeepers USA Trust 562,000 8,570,500
Patriot American Hospitality, Inc. 451,000 10,993,125
Starwood Lodging Trust 283,000 13,071,063
------------
44,111,750
OFFICE-16.2%
Arden Realty Group, Inc. 286,000 8,258,250
Beacon Properties Corp. 281,000 10,116,000
Crescent Real Estate Equities Co. 371,000 11,732,875
Equity Office Properties Trust 236,000 6,888,250
SL Green Realty Corp. 281,000 6,691,313
------------
43,686,688
OFFICE - INDUSTRIAL MIX-17.0%
Alexandria Real Estate Equities, Inc. 201,000 5,263,687
Brandywine Realty Trust 402,000 8,592,750
Duke Realty Investments, Inc. 284,000 5,946,250
Highwoods Properties, Inc. 232,000 7,540,000
Reckson Associates Realty Corp. 372,000 8,974,500
Spieker Properties, Inc. 254,000 9,445,625
------------
45,762,812
REGIONAL MALLS-4.6%
Macerich Co. 247,000 6,838,813
Mills Corp. 208,000 5,512,000
------------
12,350,813
SHOPPING CENTERS-8.6%
Excel Realty Trust, Inc. 392,000 11,613,000
IRT Property Co. 491,000 5,953,375
Pan Pacific Retail Properties, Inc. 281,000 5,637,562
------------
23,203,937
STORAGE-6.7%
Public Storage, Inc. 312,000 8,755,500
Storage USA, Inc. 227,000 9,278,625
------------
18,034,125
WAREHOUSE & INDUSTRIAL-5.9%
Meridian Industrial Trust, Inc. 282,000 6,450,750
Security Capital Industrial Trust 451,000 9,527,375
Security Capital Industrial Trust,
rights, expiring 9/09/97 (a) 451,000 7,045
------------
$ 15,985,170
6
ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- -------------------------------------------------------------------------
REAL ESTATE DEVELOPMENT & MANAGEMENT-2.2%
Crescent Operating, Inc. (a) 33,900 $ 546,637
Rouse Co. 185,000 5,434,375
------------
5,981,012
Total Common Stocks (cost $242,064,816) 262,394,070
COMMERCIAL PAPER-2.7%
American Express Credit Corp.
5.52%, 9/03/97 $1,700 1,699,479
Ford Motor Credit Corp.
5.52%, 9/08/97 1,000 998,926
Ford Motor Credit Corp.
5.55%, 9/05/97 2,100 2,098,705
Prudential Funding
5.54%, 9/02/97 2,580 2,579,603
Total Commercial Paper
(amortized cost $7,376,713) 7,376,713
TOTAL INVESTMENTS-100.1%
(cost $249,441,529) 269,770,783
Other assets less liabilities-(0.1%) (298,910)
NET ASSETS-100% $ 269,471,873
(a) Non-income producing security.
See notes to financial statements.
7
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1997 ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $249,441,529) $ 269,770,783
Cash 86,979
Receivable for capital stock sold 3,326,754
Dividends receivable 662,635
Receivable for investment securities sold 631,575
Deferred organizational expenses 248,805
Total assets 274,727,531
LIABILITIES
Payable for investment securities purchased 4,215,369
Payable for capital stock redeemed 396,597
Advisory fee payable 197,465
Distribution fee payable 195,688
Accrued expenses 250,539
Total liabilities 5,255,658
NET ASSETS $ 269,471,873
COMPOSITION OF NET ASSETS
Capital stock, at par $ 210,677
Additional paid-in capital 247,645,095
Accumulated net realized gain on investment transactions 1,286,847
Net unrealized appreciation of investments 20,329,254
$ 269,471,873
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($37,637,744 / 2,940,235 shares of capital stock
issued and outstanding) $12.80
Sales charge--4.25% of public offering price .57
Maximum offering price $13.37
CLASS B SHARES
Net asset value and offering price per share
($186,802,168 / 14,606,441 shares of capital stock
issued and outstanding) $12.79
CLASS C SHARES
Net asset value and offering price per share
($42,718,693 / 3,340,549 shares of capital stock
issued and outstanding) $12.79
ADVISOR CLASS SHARES
Net asset value, redemption and offering price per share
($2,313,268 / 180,483 shares of capital stock issued
and outstanding) $12.82
See notes to financial statements.
8
STATEMENT OF OPERATIONS
OCTOBER 1, 1996* TO AUGUST 31, 1997 ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
INVESTMENT INCOME
Dividends $ 5,105,828
Interest 281,759 $ 5,387,587
EXPENSES
Advisory fee 1,077,321
Distribution fee - Class A 55,210
Distribution fee - Class B 824,611
Distribution fee - Class C 176,603
Transfer agency 151,006
Administrative 116,415
Registration 100,879
Custodian 89,097
Audit and legal 80,624
Amortization of organization expenses 55,945
Printing 44,638
Directors' fees 36,000
Miscellaneous 4,182
Total expenses 2,812,531
Less: expenses waived and reimbursed
by Adviser (see Note B) (31,750)
Less: expense offset arrangement (see Note B) (7,402)
Net expenses 2,773,379
Net investment income 2,614,208
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions 1,286,847
Net unrealized appreciation of investments 20,329,254
Net gain on investments 21,616,101
NET INCREASE IN NET ASSETS FROM OPERATIONS $24,230,309
* Commencement of operations.
See notes to financial statements.
9
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
OCTOBER 1, 1996(A)
TO
AUGUST 31, 1997
------------------
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income $ 2,614,208
Net realized gain on investment transactions 1,286,847
Net unrealized appreciation of investments 20,329,254
Net increase in net assets from operations 24,230,309
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (501,561)
Class B (1,712,066)
Class C (364,420)
Advisor Class (36,161)
Tax Return of capital (see Note A)
Class A (136,668)
Class B (649,850)
Class C (130,319)
Advisor Class (2,718)
CAPITAL STOCK TRANSACTIONS
Net increase 248,675,027
Total increase 269,371,573
NET ASSETS
Beginning of period 100,300
End of period $ 269,471,873
(a) Commencement of operations.
See notes to financial statements.
10
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997 ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Real Estate Investment Fund, Inc. (the "Fund") was incorporated in the
state of Maryland on July 15, 1996 as a diversified, open-end management
investment company. Prior to commencement of operations on October 1, 1996, the
Fund had no operations other than the sale to Alliance Capital Management L.P.
(the "Adviser") of 10 shares each of Class A, Class B and Class C and 10,000
shares of Advisor Class for the aggregate amount of $100 each on Class A, Class
B and Class C shares and $100,000 on the Advisor Class shares on August 22,
1996. The Fund offers Class A, Class B, Class C and Advisor Class shares. Class
A shares are sold with a front-end sales charge of up to 4.25% for purchases
not exceeding $1,000,000. 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 of 1%. Class B shares are currently sold with
a contingent deferred sales charge which declines from 4% to zero depending on
the period of time the shares are held. Class B shares will automatically
convert to Class A shares eight years after the end of the calendar month of
purchase. Class C shares are subject to a contingent deferred sales charge of
1% on redemptions made within the first year after purchase. Advisor Class
shares are sold without an initial or contingent deferred sales charge and are
not subject to ongoing distribution expenses. Advisor Class shares are offered
solely to investors participating in fee based programs. All four classes of
shares have identical voting, dividend, liquidation and other rights, except
that each class bears different distribution expenses and has exclusive voting
rights with respect to its distribution plan. The following is a summary of
significant accounting policies followed by the Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange and
over-the-counter securities listed on the NASDAQ National Market System are
valued at the last reported sales price at the regular close of the New York
Stock Exchange. Over-the-counter securities not listed on the NASDAQ National
Market System are valued at the mean of the closing bid and asked price.
Securities for which current market quotations are not readily available
(including investments which are subject to limitations as to their resale) are
valued at their fair value as determined in good faith by the Board of
Directors. Securities which mature in 60 days or less are valued at amortized
cost, which approximates market value, unless this method does not represent
fair value.
2. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
3. ORGANIZATION EXPENSES
Organization costs of $304,750 have been deferred and are being amortized on a
straight-line basis through October, 2001.
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Investment transactions are accounted for on the date the securities are
purchased or sold. Investment gains and losses are determined on the identified
cost basis. The Fund accretes discounts as adjustments to interest income.
5. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at August 31, 1997
and the reported amounts of revenues and expenses during the period. Actual
results could differ from those amounts.
Significant estimates made include the classification of distributions received
by the Fund from the issuers of the Fund's portfolio securities. These
distributions may be classified as either dividend income, capital gains or as
non-taxable distributions. The final classifications of these distributions can
not be determined until reported to the Fund by the issuers of the Fund's
portfolio securities, which normally occurs in January after the end of the
calendar year. Reclassification of distributions made to the Fund will not
affect the net assets of the Fund. The reclassification of distributions
received by the Fund may require the Fund to reclassify a portion of its
distributions to Fund shareholders.
11
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
6. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each outstanding class of shares, based on the proportionate interest
in the Fund represented by the shares of such class, except that the Fund's
Class B and Class C shares bear higher distribution and transfer agent fees
than Class A shares and the Advisory Class shares have no distribution fees.
7. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within the capital accounts based on
their federal tax basis treatment; temporary differences, do not require such
reclassification. During the current fiscal year, permanent differences,
primarily due to the estimated tax return of capital distributions as discussed
in Note A5, resulted in a net decrease in distributions in excess of net
investment income and a corresponding decrease to additional paid-in capital.
This reclassification had no affect on net assets.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an Investment Advisory Agreement, the Fund pays Alliance
Capital Management L.P. (the "Adviser"), a monthly fee equal to the annualized
rate of .90% of 1% of the average daily net assets of the Fund. Such fee is
accrued daily and paid monthly.
Pursuant to the Advisory agreement, the Adviser provides certain legal and
accounting services for the Fund. For the period ended August 31, 1997, the
Adviser voluntarily agreed to waive a portion of its fees for such services in
the amount of $31,750.
The Fund compensates Alliance Fund Services, Inc. (a wholly-owned subsidiary of
the Adviser) under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such compensation
amounted to $87,636 for the period ended August 31, 1997.
In addition, for the year ended August 31, 1997, Fund expenses were reduced by
$7,402 under an expense offset arrangement with Alliance Fund Services.
Transfer agency fees reported in the statement of operations exclude these
credits.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's shares. The Distributor received
front-end sales charges of $60,942 from the sale of Class A shares and $412,
$106,463 and $9,336 in contingent deferred sales charges imposed upon
redemptions by shareholders of Class A, Class B and Class C shares,
respectively, for the period ended August 31, 1997.
Brokerage commissions paid for the period ended August 31, 1997 on securities
transactions amounted to $526,476, none of which was paid to brokers utilizing
the services of the Pershing Division of Donaldson, Lufkin & Jenrette
Securities Corp. ("DLJ") nor to DLJ directly, an affiliate of the Adviser.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual
rate of up to .30 of 1% of the Fund's average daily net assets attributable to
Class A shares and 1% of the average daily net assets attributable to both
Class B and Class C shares. There is no distribution fee on the Advisor Class
shares. Such fee is accrued daily and paid monthly. The Agreement provides that
the Distributor will use such payments in their entirety for distribution
assistance and promotional activities. The Distributor has incurred expenses in
excess of the distribution costs reimbursed by the Fund in the amount of
$6,726,437 and $366,120, for Class B and C shares, respectively. Such costs may
be recovered from the Fund in future periods so long as the Agreement is in
effect. In accordance with the Agreement there is no provision for recovery of
unreimbursed distribution costs incurred by
12
ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
the Distributor, beyond the current fiscal year for Class A shares. The
Agreement also provides that the Adviser may use its own resources to finance
the distribution of the Fund's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, (excluding short-term investments
and U.S. Government or government agency obligations) aggregated $267,163,976
and $24,839,694, respectively, for the period ended August 31, 1997. There were
no purchases or sales of U.S. Government or government agency obligations for
the year ended August 31, 1996. At August 31, 1997, the cost of securities for
federal income tax purposes was the same as the cost for financial reporting
purposes. Accordingly, gross unrealized appreciation of investments was
$20,965,454 and gross unrealized depreciation of investments was $636,200
resulting in net unrealized appreciation of $20,329,254.
NOTE E: CAPITAL STOCK
There are 12,000,000,000 shares of $0.01 par value capital stock authorized,
divided into four classes, designated Class A, Class B, Class C and Advisor
Class shares. Each consists of 3,000,000,000 authorized shares. Transactions in
capital stock were as follows:
SHARES AMOUNT
--------------- -----------------
OCT. 1, 1996(A) OCT. 1, 1996(A)
TO TO
AUG. 31, 1997 AUG. 31, 1997
--------------- -----------------
CLASS A
Shares sold 3,343,396 $ 39,083,265
Shares issued in reinvestment of dividends 31,254 372,824
Shares converted from Class B 21,667 260,423
Shares redeemed (456,092) (5,480,852)
Net increase 2,940,225 $ 34,235,660
CLASS B
Shares sold 15,390,867 $ 182,254,693
Shares issued in reinvestment of dividends 88,493 1,059,667
Shares converted to Class A (21,686) (260,423)
Shares redeemed (851,243) (10,405,233)
Net increase 14,606,431 $ 172,648,704
CLASS C
Shares sold 3,538,401 $ 42,219,026
Shares issued in reinvestment of dividends 13,053 156,346
Shares redeemed (210,915) (2,552,750)
Net increase 3,340,539 $ 39,822,622
ADVISOR CLASS
Shares sold 198,970 $ 2,322,671
Shares issued in reinvestment of dividends 3,112 37,140
Shares redeemed (31,599) (391,770)
Net increase 170,483 $1,968,041
(a) Commencement of operations.
13
FINANCIAL HIGHLIGHTS ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT THE PERIOD
ADVISOR
CLASS A CLASSB CLASS C CLASS
-------- -------- -------- --------
OCT. 1, OCT. 1, OCT. 1, OCT. 1,
1996(A) 1996(A) 1996(A) 1996(A)
TO TO TO TO
AUG. 31, AUG. 31, AUG. 31, AUG. 31,
1997 1997 1997 1997
-------- -------- -------- --------
Net asset value, beginning of period $10.00 $10.00 $10.00 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .30 .23 .23 .35
Net realized and unrealized gain
on investments 2.88 2.89 2.89 2.88
Net increase in net asset value
from operations 3.18 3.12 3.12 3.23
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.30) (.24) (.25) (.38)
Tax return of capital (.08) (.09) (.08) (.03)
Total dividends and distributions (.38) (.33) (.33) (.41)
Net asset value, end of period $12.80 $12.79 $12.79 $12.82
TOTAL RETURN
Total investment return based on
net asset value (c) 32.24% 31.49% 31.49% 32.72%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $37,638 $186,802 $42,719 $2,313
Ratio to average net assets of:
Expenses net of waivers/
reimbursements(d)(e) 1.77% 2.44% 2.43% 1.45%
Expenses before waivers/
reimbursements(d) 1.79% 2.45% 2.45% 1.47%
Net investment income(d) 2.73% 2.08% 2.06% 3.07%
Portfolio turnover rate 20% 20% 20% 20%
Average commission rate $.0518 $.0518 $.0518 $.0518
(a) Commencement of operations.
(b) Based on average shares outstanding.
(c) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charge or contingent
deferred sales charge is not reflected in the calculation of total investment
return. Total investment return calculated for a period of less than one year
is not annualized.
(d) Annualized.
(e) Ratio reflects expenses grossed up for expense offset arrangement with the
Transfer Agent. For the year ended August 31, 1997, the ratios of expenses net
of waivers/reimbursements and expense offsets would have been 1.77%, 2.43%,
2.42% and 1.44% for Class A, B, C and Advisor Class shares respectively.
14
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
TO THE SHAREHOLDERS 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. (the "Fund"), including the
portfolio of investments, as of August 31, 1997, and the related statements of
operations and changes in net assets and financial highlights for the period
from October 1, 1996 (commencement of operations) to August 31, 1997. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights 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 the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Alliance Real Estate Investment Fund, Inc. at August 31, 1997, and the results
of its operations, changes in its net assets and the financial highlights for
the period from October 1, 1996 to August 31, 1997, in conformity with
generally accepted accounting principles.
New York, New York
October 7, 1997
15
ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
BOARD OF DIRECTORS
JOHN D. CARIFA, CHAIRMAN AND PRESIDENT
RUTH BLOCK (1)
DAVID H. DIEVLER (1)
JOHN H. DOBKIN (1)
WILLIAM H. FOULK, JR. (1)
HOWARD E. HASSLER (1)
JAMES M. HESTER (1)
CLIFFORD L. MICHEL (1)
DONALD J. ROBINSON (1)
OFFICERS
KATHLEEN A. CORBET, SENIOR VICE PRESIDENT
DANIEL G. PINE, SENIOR VICE PRESIDENT
THOMAS BARDONG, VICE PRESIDENT
DANIEL V. PANKER, VICE PRESIDENT
EDMUND P. BERGAN JR., SECRETARY
MARK D. GERSTEN, TREASURER & CHIEF FINANCIAL OFFICER
VINCENT S. NOTO, CONTROLLER
CUSTODIAN
THE BANK OF NEW YORK
48 Wall Street
New York, NY 10286
PRINCIPAL UNDERWRITER
ALLIANCE FUND DISTRIBUTORS, INC.
1345 Avenue of the Americas
New York, NY 10105
LEGAL COUNSEL
SEWARD & KISSEL
One Battery Park Plaza
New York, NY 10004
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
787 Seventh Avenue
New York, NY 10019
TRANSFER AGENT
ALLIANCE FUND SERVICES, INC.
P.O. Box 1520
Secaucus, NJ 07096-1520
Toll-free 1-(800) 221-5672
(1) Member of the Audit Committee.
16
THE ALLIANCE FAMILY OF MUTUAL FUNDS
_______________________________________________________________________________
FIXED INCOME
Alliance Bond Fund
U.S. Government Portfolio
Corporate Bond Portfolio
Alliance Global Dollar Government Fund
Alliance Global Strategic Income Trust
Alliance High Yield Fund
Alliance Mortgage Securities Income Fund
Alliance Limited Maturity Government Fund
Alliance Multi-Market Strategy Trust
Alliance North American Government Income Trust
Alliance Short-Term Multi-Market Trust
Alliance Short-Term U.S. Government Fund
Alliance World Income Trust
TAX-FREE INCOME
Alliance Municipal Income Fund
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
MONEY MARKET
AFD Exchange Reserves
GROWTH
The Alliance Fund
Alliance Global Small Cap Fund
Alliance Growth Fund
Alliance Premier Growth Fund
Alliance/Regent Sector Opportunity Fund
GROWTH & INCOME
Alliance Strategic Balanced Fund
Alliance Balanced Shares
Alliance Conservative Investors Fund
Alliance Growth & Income Fund
Alliance Growth Investors Fund
Alliance Income Builder Fund
Alliance Real Estate Investment Fund
Alliance Utility Income Fund
AGGRESSIVE GROWTH
Alliance Quasar Fund
Alliance Technology Fund
INTERNATIONAL
Alliance All-Asia Investment Fund
Alliance International Fund
Alliance New Europe Fund
Alliance Worldwide Privatization Fund
CLOSED-END FUNDS
Alliance All-Market Advantage Fund
Alliance Global Environment Fund
ACM Government Income Fund
ACM Government Opportunity Fund
ACM Government Securities Fund
ACM Government Spectrum Fund
ACM Managed Dollar Income Fund
ACM Managed Income Fund
ACM Municipal Securities Income Fund
Alliance World Dollar Government Fund
Alliance World Dollar Government Fund II
The Austria Fund
The Korean Investment Fund
The Spain Fund
The Southern Africa Fund
CASH MANAGEMENT SERVICES
ACM Institutional Reserves
Government Portfolio
Prime Portfolio
Tax-Free Portfolio
Trust Portfolio
Alliance Capital Reserves
Alliance Government Reserves
Alliance Insured Account
Alliance Money Reserves
Alliance Municipal Trust
California Portfolio
Connecticut Portfolio
Florida Portfolio
General Portfolio
Massachusetts Portfolio
New Jersey Portfolio
New York Portfolio
Virginia Portfolio
Alliance Treasury Reserves
Alliance Money Market Fund
Prime Portfolio
Government Portfolio
General Municipal Portfolio
17
ALLIANCE REAL ESTATE INVESTMENT FUND
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
ALLIANCE CAPITAL
THIS REPORT IS INTENDED SOLELY FOR DISTRIBUTION TO CURRENT SHAREHOLDERS
OF THE FUND.
R THESE REGISTERED SERVICE MARKS USED UNDER LICENSE FROM THE OWNER,
ALLIANCE CAPITAL MANAGEMENT L.P.
REIAR
