ALLIANCE REAL ESTATE INVESTMENT FUND
SEMI-ANNUAL REPORT
FEBRUARY 28, 1998
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
April 27, 1998
Dear Shareholder:
We are pleased to provide you with an update on the performance and investment
activity for Alliance Real Estate Investment Fund. This semi-annual report
covers the six month period ended February 28, 1998.
INVESTMENT RESULTS
The overall U.S. stock market continued its torrid pace during the recent six
month period ended February 28, 1998. The S&P 500 Stock Index reflected this
strong performance, achieving a 17.61% total return during this time frame.
However, real estate companies were unable to keep up that pace. Real Estate
Investment Trusts (REITs), as measured by the National Association of
Investment Trusts (NAREIT) Equity Index, returned a more modest 8.17% to
investors during the period under review. As the accompanying table shows, your
Fund performed broadly in-line with its real estate benchmark. The Fund's
emphasis on rapidly growing companies, primarily in the hotel and suburban
office markets, aided performance during the period. Unfortunately, this
performance was partially offset by a serious price/earnings multiple
contraction within the hotel sector in recent weeks.
INVESTMENT RESULTS*
Periods Ended February 28, 1998
TOTAL RETURNS
6 MONTHS 12 MONTHS
---------- ----------
ALLIANCE REAL ESTATE INVESTMENT FUND
Class A 8.44% 18.21%
Class B 7.98% 17.35%
Class C 7.98% 17.35%
S&P 500 STOCK INDEX 17.61% 34.99%
NAREIT INDEX 8.17% 16.78%
* THE FUND'S INVESTMENT RESULTS REPRESENT CUMULATIVE TOTAL RETURNS AND ARE
BASED ON THE NET ASSET VALUE OF EACH CLASS OF SHARES AS OF FEBRUARY 28, 1998.
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 S&P 500 STOCK INDEX IS AN UNMANAGED INDEX OF 500 U.S. COMPANIES. THE
NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUSTS (NAREIT) EQUITY 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. INDEX RETURNS
ARE NOT ADJUSTED FOR SALES CHARGES OR OPERATING EXPENSES. AN INVESTOR CANNOT
INVEST DIRECTLY IN THESE INDICES.
ADDITIONAL INVESTMENT RESULTS APPEAR ON PAGE 3.
MARKET OVERVIEW
The returns of the REIT marketplace during the six month period ended February
28, 1998 were well within the bounds of historic norms. For the most recent
five year period, REITs have returned just under 16% per year to investors; the
8% return achieved during the last six months is certainly right in line with
this precedent.
However, this period was not "normal" in any other sense of the word. The
latter months of 1997 were exceptionally strong for REITs, whereas the first
two months of the new year were unusually weak. In fact, the ebullience of the
former period led directly to the ensuing weakness. Taken together, these
phases capture the intrinsic dynamism of the real estate markets in the United
States today.
Calendar year 1997 closed with a wave of acquisition and consolidation
activity. REITs were buying properties, portfolios of properties and whole
companies at an accelerating rate and paying increasingly rich prices in order
to maintain their pipelines of deals. This activity was justified by the easy
access to low cost capital enjoyed by the REITs, coupled with operating
synergies and strong rental rate increases on expiring leases. This suite of
characteristics was very positive for company earnings and led to increasing
stock prices. It also led to a rise in market pricing across the board for
properties. This increase in value, and expectations of further increases, led
to the first significant increases in commercial construction activity since
the end of the 1980's. The realization that increasing construction could
eventually lead to excess construction has caused a near term correction in
stock prices. Meanwhile, our proprietary access to state of the art research
from our consultant, CB Commercial, as well as our own industry research, has
convinced us that the ongoing upswing in real estate values is not reaching a
peak.
1
ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
As the second half of the Fund's fiscal year begins, the fundamentals of the
REIT market are stronger than they have ever been. The average REIT posted 12%
growth in the fourth quarter of 1997, a full percentage point better than
expected. And growth is expected to accelerate in 1998 and remain strong in
1999. This contrasts sharply with the overall U.S. economy, which continues to
slow in response to the problems in Asia. Relative pricing of securities do not
reflect this contrast. In fact, REITs trade at a substantial discount to other
stocks. This discount has widened dramatically in the past two months. We
believe that this is extremely positive for the future performance of the REIT
market.
INVESTMENT STRATEGY
Your Fund was designed to identify and invest in companies that have the
optimal exposure to the country's strongest real estate markets, and which will
benefit most from the significant shifts in real estate financing and ownership
which are sweeping across the United States today.
The positive market conditions discussed above are not uniformly felt in all
geographic markets and all property types. Broadly speaking, we continue to
believe that select hotel and office markets remain poised for significant
growth, and as a result, we are overweighted in these areas. Within these broad
categories, however, markets change and opportunities evolve. We have shifted
our hotel portfolio to further emphasize repositioning opportunities. We have
been adjusting our office exposure more towards the traditional central
business districts in the northeast and California, and away from the
burgeoning suburbs of the sunbelt. These shifts keep us focused on the most
exciting growth opportunities available in the marketplace. Although we
continue to underweight apartments and retail properties, we have added to our
west coast neighborhood shopping center holdings and sprinkled in some
apartment exposure in the midwest. These moves bolster the stable end of the
portfolio.
Overall, we have tried to maintain a portfolio heavily skewed to opportunistic
growth companies, yet balanced by property type and geography. This should
allow us to weather the periodic rough seas in the real estate markets, yet
benefit from the unique period of growth in which we find ourselves.
MARKET OUTLOOK AND CONCLUSIONS
Our outlook for real estate remains positive. Demand for space remains strong
and supply remains constrained in most markets. We believe the market has
overreacted to the beginning of a normal construction cycle and expect to
benefit as that realization becomes more widespread.
In conclusion, we would like to thank you for the continued confidence you have
shown in the Alliance Real Estate Investment Fund. We will continue to do
everything we can to justify your confidence by providing you with continued
good results.
Sincerely,
John D. Carifa
Chairman and President
Daniel G. Pine
Senior Vice President
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.
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 FEBRUARY 28, 1998
CLASS A SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 18.21% 13.21%
Since Inception* 29.13% 25.25%
CLASS B SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 17.35% 13.35%
Since Inception* 28.22% 26.30%
CLASS C SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 17.35% 16.35%
Since Inception* 28.22% 28.22%
SEC AVERAGE ANNUAL TOTAL RETURNS AS OF THE MOST RECENT QUARTER-END
(DECEMBER 31, 1997)
CLASS A CLASS B CLASS C
------- ------- -------
1 Year 17.73% 18.16% 21.16%
Since Inception* 32.15% 33.64% 35.87%
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. SEC average annual total returns
for the period shown reflect reinvestment of all distributions and deduction of
the maximum 4.25% front-end sales charges and applicable contingent deferred
sales charges.
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.
* Inception: 10/1/96 for all share Classes.
3
TEN LARGEST HOLDINGS
FEBRUARY 28, 1998 (UNAUDITED) ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
PERCENT OF
COMPANY VALUE NET ASSETS
- -------------------------------------------------------------------------------
Starwood Hotels & Resorts $ 24,361,469 5.0%
Equity Office Properties Trust 23,178,770 4.8
Public Storage, Inc. 19,723,081 4.1
SLGreen Realty Corp. 19,034,688 3.9
Pan Pacific Retail Properties, Inc. 18,594,325 3.8
Patriot American Hospitality, Inc. 18,512,500 3.8
Glenborough Realty Trust, Inc. 18,453,750 3.8
Crescent Real Estate Equities Co. 18,121,250 3.7
Essex Property Trust, Inc. 17,291,488 3.6
Highwoods Properties, Inc. 16,797,031 3.5
$ 194,068,352 40.0%
MAJOR PORTFOLIO CHANGES
SIX MONTHS ENDED FEBRUARY 28, 1998 (UNAUDITED)
_______________________________________________________________________________
SHARES*
------------------------
HOLDINGS
PURCHASES BOUGHT 2/28/98
- -------------------------------------------------------------------------------
Arden Realty Group, Inc. 301,200 587,200
Entertainment Properties Trust 479,400 479,400
Equity Office Properties Trust 549,721 785,721
Golf Trust of America, Inc. 350,000 444,000
Mack-Cali Realty Corp. 374,800 374,800
Pan Pacific Retail Properties, Inc. 554,700 835,700
Public Storage, Inc. 328,100 640,100
Security Capital Pacific Trust 679,400 679,400
SL Green Realty Corp. 435,600 716,600
Sunstone Hotel Investors, Inc. 757,600 757,600
HOLDINGS
SALES SOLD 2/28/98
- -------------------------------------------------------------------------------
Alexandria Real Estate Equities, Inc. 201,000 -0-
Ambassador Apartments, Inc. 353,000 -0-
Beacon Properties Corp. 281,000 -0-
Excel Realty Trust, Inc. 6,800 385,200
FelCor Suite Hotels, Inc. 103,000 -0-
Pacific Gulf Properties, Inc. 270,000 -0-
Rouse Co. 185,000 -0-
Security Capital Industrial Trust Rights,
expiring 9/09/97 451,000 -0-
Storage USA, Inc. 227,000 -0-
* Adjusted for stock merger.
4
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1998 (UNAUDITED) ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
COMPANY SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER INVESTMENTS-97.3%
REAL ESTATE INVESTMENT TRUSTS-97.2%
APARTMENTS-11.4%
Avalon Properties, Inc. 410,700 $ 11,807,625
Bay Apartment Communities, Inc. 281,400 10,640,437
Essex Property Trust, Inc. 534,100 17,291,488
Security Capital Pacific Trust 679,400 15,583,738
------------
55,323,288
DIVERSIFIED-6.4%
Glenborough Realty Trust, Inc. 647,500 18,453,750
Golf Trust of America, Inc. 444,000 12,820,500
------------
31,274,250
HOTELS & RESTAURANTS-16.2%
American General Hospitality Corp. 443,600 11,977,200
Innkeepers USA Trust 792,400 11,737,425
Patriot American Hospitality, Inc. 740,500 18,512,500
Starwood Hotels & Resorts 430,700 24,361,469
Sunstone Hotel Investors, Inc. 757,600 12,121,600
------------
78,710,194
OFFICE-15.5%
Arden Realty Group, Inc. 587,200 16,771,900
Boston Properties, Inc. 205,600 6,990,400
Crescent Real Estate Equities Co. 532,000 18,121,250
Mack-Cali Realty Corp. 374,800 14,148,700
SL Green Realty Corp. 716,600 19,034,688
------------
75,066,938
OFFICE - INDUSTRIAL MIX-20.6%
Brandywine Realty Trust 633,300 14,961,713
Duke Realty Investments, Inc. 469,400 10,766,862
Equity Office Properties Trust 785,721 23,178,770
Great Lakes REIT, Inc. 257,100 4,868,831
Highwoods Properties, Inc. 482,500 16,797,031
Reckson Associates Realty Corp. 558,800 14,074,775
Spieker Properties, Inc. 391,800 15,549,563
------------
100,197,545
REGIONAL MALLS-5.7%
Macerich Co. 511,500 14,449,875
Mills Corp. 498,200 13,295,712
------------
27,745,587
SHOPPING CENTERS-11.1%
Entertainment Properties Trust 479,400 9,348,300
Excel Realty Trust, Inc. 385,200 12,374,550
IRT Property Co. 512,100 5,953,162
Pacific Retail Trust (a) 591,577 7,690,501
Pan Pacific Retail Properties, Inc. 835,700 18,594,325
------------
53,960,838
STORAGE-4.1%
Public Storage, Inc. 640,100 19,723,081
WAREHOUSE & INDUSTRIAL-6.2%
Cabot Industrial Trust 283,100 6,051,262
Meridian Industrial Trust, Inc. 352,400 8,743,925
Security Capital Industrial Trust 625,100 15,158,675
Warrants, expiring 9/18/98 (b) 20,993 77,412
------------
30,031,274
------------
472,032,995
5
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- -------------------------------------------------------------------------
REAL ESTATE DEVELOPMENT & MANAGEMENT-0.1%
Crescent Operating, Inc. (b) 33,900 $ 673,762
Total Common Stocks &Other Investments
(cost $441,483,648) 472,706,757
COMMERCIAL PAPER-2.9%
American Express Credit Corp.
5.52%, 3/03/98 $4,900 4,899,249
Ford Motor Credit Corp.
5.60%, 3/04/98 2,400 2,399,253
5.60%, 3/06/98 2,600 2,598,382
Prudential Funding Corp.
5.48%, 3/02/98 1,180 1,180,000
5.56%, 3/05/98 2,784 2,782,710
Total Commercial Paper
(amortized cost $13,859,594) 13,859,594
TOTAL INVESTMENTS-100.2%
(cost $455,343,242) 486,566,351
Other assets less liabilities-(0.2%) (810,170)
NET ASSETS-100% $ 485,756,181
(a) Restricted security, valued at fair value (see Note A).
(b) Non-income producing security.
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1998 (UNAUDITED) ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $455,343,242) $ 486,566,351
Cash 499,125
Receivable for capital stock sold 6,795,393
Receivable for investment securities sold 3,499,383
Dividends receivable 484,752
Deferred organization expenses 218,411
Total assets 498,063,415
LIABILITIES
Payable for investment securities purchased 10,449,162
Payable for capital stock redeemed 954,243
Advisory fee payable 341,586
Distribution fee payable 339,484
Accrued expenses 222,759
Total liabilities 12,307,234
NET ASSETS $ 485,756,181
COMPOSITION OF NET ASSETS
Capital stock, at par $ 357,519
Additional paid-in capital 449,757,257
Distributions in excess of net investment income (294,491)
Accumulated net realized gain on investment transactions 4,712,787
Net unrealized appreciation of investments 31,223,109
$ 485,756,181
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share ($67,023,291/
4,925,791 shares of capital stock issued and outstanding) $13.61
Sales charge--4.25% of public offering price .60
Maximum offering price $14.21
CLASS B SHARES
Net asset value and offering price per share ($331,120,722/
24,376,471 shares of capital stock issued and outstanding) $13.58
CLASS C SHARES
Net asset value and offering price per share ($83,622,230/
6,156,767 shares of capital stock issued and outstanding) $13.58
ADVISOR CLASS SHARES
Net asset value, redemption and offering price per share
($3,989,938/292,881 shares of capital stock issued
and outstanding) $13.62
See notes to financial statements.
7
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1998 (UNAUDITED)
ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
INVESTMENT INCOME
Dividends $ 8,913,051
Interest 336,659 $ 9,249,710
EXPENSES
Advisory fee 1,705,316
Distribution fee - Class A 80,581
Distribution fee - Class B 1,308,632
Distribution fee - Class C 301,717
Transfer agency 179,004
Registration 84,143
Administrative 63,500
Custodian 55,332
Audit and legal 47,913
Printing 35,134
Amortization of organization expenses 30,394
Directors' fees 18,000
Miscellaneous 7,400
Total expenses 3,917,066
Net investment income 5,332,644
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions 3,714,201
Net change in unrealized appreciation
of investments 10,893,855
Net gain on investments 14,608,056
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 19,940,700
See notes to financial statements.
8
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
SIX MONTHS ENDED OCTOBER 1, 1996(A)
FEBRUARY 28, 1998 TO
(UNAUDITED) AUGUST 31, 1997
----------------- ---------------
INCREASE IN NET ASSETS
FROM OPERATIONS
Net investment income $ 5,332,644 $ 2,614,208
Net realized gain on
investment transactions 3,714,201 1,286,847
Net change in unrealized
appreciation of investments 10,893,855 20,329,254
Net increase in net assets
from operations 19,940,700 24,230,309
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income
Class A (898,450) (501,561)
Class B (3,817,995) (1,712,066)
Class C (855,961) (364,420)
Advisor Class (54,729) (36,161)
Net realized gain on investments
Class A (39,960) -0-
Class B (201,260) -0-
Class C (44,722) -0-
Advisor Class (2,319) -0-
Tax return of capital (see Note A)
Class A -0- (136,668)
Class B -0- (649,850)
Class C -0- (130,319)
Advisor Class -0- (2,718)
CAPITAL STOCK TRANSACTIONS
Net increase 202,259,004 248,675,027
Total increase 216,284,308 269,371,573
NET ASSETS
Beginning of period 269,471,873 100,300
End of period $ 485,756,181 $ 269,471,873
(a) Commencement of operations.
See notes to financial statements.
9
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998 (UNAUDITED) 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
to investors participating in fee based programs and to certain retirement plan
accounts. 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 or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sales price or if no sale occurred, at
the mean of the closing bid and asked prices of that day. Readily marketable
securities traded in the over-the-counter market, securities listed on a
foreign securities exchange whose operations are similar to the U.S.
over-the-counter market, and securities listed on a national securities
exchange whose primary market is believed to be over-the-counter, are valued at
the mean of the current bid and asked prices. U.S. government and fixed income
securities which mature in 60 days or less are valued at amortized cost, unless
this method does not represent fair value. Securities for which current market
quotations are not readily available are valued at their fair value as
determined in good faith by, or in accordance with procedures adopted by, the
Board of Directors. Fixed income securities may be valued on the basis of
prices obtained from pricing service when such prices are believed to reflect
the fair value of such securities.
2. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
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 February 28, 1998
and the reported amounts of revenues and expenses during the period. Actual
results could differ from those amounts.
Significant estimates may 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
10
ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
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.
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 Advisor Class shares (Advisor 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.
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 Fund paid $63,500 to the Adviser
representing the cost of certain legal and accounting services provided to the
Fund by the Adviser for the six months ended February 28, 1998.
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 $113,228 for the six months ended February 28, 1998.
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 $93,916 from the sale of Class A shares and $1,272,
$276,995 and $31,860 in contingent deferred sales charges imposed upon
redemptions by shareholders of Class A, Class B and Class C shares,
respectively, for the six months ended February 28, 1998.
Brokerage commissions paid for the six months ended February 28, 1998 on
investment transactions amounted to $533,217, 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
$11,570,648 and $610,271, 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
11
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 $250,890,597
and $55,185,945, respectively, for the six months ended February 28, 1998.
There were no purchases or sales of U.S. government or government agency
obligations for the six months ended February 28, 1998.
At February 28, 1998, the cost of investments for federal income tax purposes
was substantially the same as the cost for financial reporting purposes.
Accordingly, gross unrealized appreciation of investments was $33,655,218 and
gross unrealized depreciation of investments was $2,432,109 resulting in net
unrealized appreciation of $31,223,109.
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
--------------------------- ------------------------------
SIX MONTHS OCT. 1, SIX MONTHS OCT. 1,
ENDED 1996(A) ENDED 1996(A)
FEB. 28, 1998 TO FEB. 28, 1998 TO
(UNAUDITED) AUG. 31, 1997 (UNAUDITED) AUG. 31, 1997
------------ ------------ -------------- --------------
CLASS A
Shares sold 2,780,484 3,343,396 $ 38,196,128 $ 39,083,265
Shares issued in
reinvestment of
dividends and
distributions 42,874 31,254 577,510 372,824
Shares converted
from Class B 12,176 21,667 169,738 260,423
Shares redeemed (849,978) (456,092) (11,584,201) (5,480,852)
Net increase 1,985,556 2,940,225 $ 27,359,175 $ 34,235,660
CLASS B
Shares sold 10,817,170 15,390,867 $ 148,902,368 $ 182,254,693
Shares issued in
reinvestment of
dividends and
distributions 133,291 88,493 1,795,089 1,059,667
Shares converted
to Class A (12,191) (21,686) (169,738) (260,423)
Shares redeemed (1,168,240) (851,243) (16,083,667) (10,405,233)
Net increase 9,770,030 14,606,431 $ 134,444,052 $ 172,648,704
CLASS C
Shares sold 3,264,535 3,538,401 $ 45,048,598 $ 42,219,026
Shares issued in
reinvestment of
dividends and
distributions 20,402 13,053 274,740 156,346
Shares redeemed (468,719) (210,915) (6,425,352) (2,552,750)
Net increase 2,816,218 3,340,539 $ 38,897,986 $ 39,822,622
(a) Commencement of operations.
12
ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
SHARES AMOUNT
--------------------------- ------------------------------
SIX MONTHS OCT. 1, SIX MONTHS OCT. 1,
ENDED 1996(A) ENDED 1996(A)
FEB. 28, 1998 TO FEB. 28, 1998 TO
(UNAUDITED) AUG. 31, 1997 (UNAUDITED) AUG. 31, 1997
------------ ------------ -------------- --------------
ADVISOR CLASS
Shares sold 130,775 198,970 $ 1,802,187 $ 2,322,671
Shares issued in
reinvestment of
dividends and
distributions 3,639 3,112 49,020 37,140
Shares redeemed (22,016) (31,599) (293,416) (391,770)
Net increase 112,398 170,483 $ 1,557,791 $ 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 EACH PERIOD
CLASS A
-----------------------------------
SIX MONTHS ENDED OCTOBER 1, 1996(A)
FEBRUARY 28, 1998 TO
(UNAUDITED) AUGUST 31, 1997
----------------- ----------------
Net asset value, beginning of period $12.80 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .23 .30
Net realized and unrealized gain
on investment transactions .85 2.88
Net increase in net asset value
from operations 1.08 3.18
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.26) (.30)
Distributions from net realized
gains on investments (.01) -0-
Tax return of capital -0- (.08)
Total dividends and distributions (.27) (.38)
Net asset value, end of period $13.61 $12.80
TOTAL RETURN
Total investment return based on
net asset value (c) 8.44% 32.24%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $67,023 $37,638
Ratio to average net assets of:
Expenses net of waivers/
reimbursements (d) 1.47% 1.77%(e)
Expenses before waivers/
reimbursements (d) 1.47% 1.79%
Net investment income (d) 3.41% 2.73%
Portfolio turnover rate 15% 20%
Average commission rate $.0571 $.0518
See footnote summary on page 17.
14
ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS B
-------------------------------------
SIX MONTHS ENDED OCTOBER 1, 1996(A)
FEBRUARY 28, 1998 TO
(UNAUDITED) AUGUST 31, 1997
----------------- -----------------
Net asset value, beginning of period $12.79 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .18 .23
Net realized and unrealized gain
on investment transactions .84 2.89
Net increase in net asset value
from operations 1.02 3.12
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.22) (.24)
Distributions from net realized
gains on investments (.01) -0-
Tax return of capital -0- (.09)
Total dividends and distributions (.23) (.33)
Net asset value, end of period $13.58 $12.79
TOTAL RETURN
Total investment return based on
net asset value (c) 7.98% 31.49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $331,121 $186,802
Ratio to average net assets of:
Expenses net of waivers/
reimbursements (d) 2.17% 2.44%(e)
Expenses before waivers/
reimbursements (d) 2.17% 2.45%
Net investment income (d) 2.72% 2.08%
Portfolio turnover rate 15% 20%
Average commission rate $.0571 $.0518
See footnote summary on page 17.
15
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS C
-------------------------------------
SIX MONTHS ENDED OCTOBER 1, 1996(A)
FEBRUARY 28, 1998 TO
(UNAUDITED) AUGUST 31, 1997
----------------- -----------------
Net asset value, beginning of period $12.79 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .18 .23
Net realized and unrealized gain on
investment transactions .84 2.89
Net increase in net asset value
from operations 1.02 3.12
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.22) (.25)
Distributions from net realized gains
on investments (.01) -0-
Tax return of capital -0- (.08)
Total dividends and distributions (.23) (.33)
Net asset value, end of period $13.58 $12.79
TOTAL RETURN
Total investment return based on
net asset value (c) 7.98% 31.49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $83,622 $42,719
Ratio to average net assets of:
Expenses net of waivers/
reimbursements (d) 2.18% 2.43%(e)
Expenses before waivers/
reimbursements (d) 2.18% 2.45%
Net investment income (d) 2.66% 2.06%
Portfolio turnover rate 15% 20%
Average commission rate $.0571 $.0518
See footnote summary on page 17.
16
ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
ADVISOR CLASS
-------------------------------------
SIX MONTHS ENDED OCTOBER 1, 1996(A)
FEBRUARY 28, 1998 TO
(UNAUDITED) AUGUST 31, 1997
----------------- -----------------
Net asset value, beginning of period $12.82 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .25 .35
Net realized and unrealized gain
on investment transactions .83 2.88
Net increase in net asset value
from operations 1.08 3.23
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.27) (.38)
Distributions from net realized
gains on investments (.01) -0-
Tax return of capital -0- (.03)
Total dividends and distributions (.28) (.41)
Net asset value, end of period $13.62 $12.82
TOTAL RETURN
Total investment return based on
net asset value (c) 8.48% 32.72%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $3,990 $2,313
Ratio to average net assets of:
Expenses net of waivers/
reimbursements (d) 1.17% 1.45%(e)
Expenses before waivers/
reimbursements (d) 1.17% 1.47%
Net investment income (d) 3.68% 3.07%
Portfolio turnover rate 15% 20%
Average commission rate $.0571 $.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 were 1.77%, 2.43%, 2.42% and 1.44% for Class A, B, C
and Advisor Class shares, respectively.
17
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
DMUND 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.
18
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 Environment 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 Global Small Cap Fund
Alliance Quasar Fund
Alliance Technology Fund
INTERNATIONAL
Alliance All-Asia Investment Fund
Alliance Greater China '97 Fund
Alliance International Fund
Alliance New Europe Fund
Alliance Worldwide Privatization Fund
CLOSED-END FUNDS
Alliance All-Market Advantage 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
19
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.
REISR
