ALLIANCE REAL ESTATE INVESTMENT FUND
SEMI-ANNUAL REPORT
FEBRUARY 28, 1999
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
April 28, 1999
Dear Shareholder:
This semi-annual report provides an update on the performance and investment
activity of the Alliance Real Estate Investment Fund (the "Fund"). This report
covers the six-month period ended February 28, 1999.
INVESTMENT RESULTS
Publicly traded companies that own income producing real estate continued to
struggle in the six months ended February 28, 1999. This market, as measured by
the National Association of Real Estate Investment Trusts (NAREIT) Equity
Index, suffered a 2.66% decline during this period. As the accompanying table
shows, your Fund outperformed its benchmark, the NAREIT Index, handily. In
fact, we managed to squeeze into positive territory for this six-month period.
However, the overall stock market, as represented by the Standard & Poor's 500
Stock Index (S&P 500), roared back from its summer decline and, once again,
left real estate stocks behind.
INVESTMENT RESULTS*
Period Ended February 28, 1999
TOTAL RETURNS
6 MONTHS 12 MONTHS
-------- ---------
ALLIANCE REAL ESTATE
INVESTMENT FUND
Class A 0.61% -21.04%
Class B 0.24% -21.62%
Class C 0.33% -21.54%
S&P 500 STOCK INDEX 30.27% 19.76%
NAREIT INDEX -2.66% -19.93%
* TOTAL RETURNS ARE BASED ON THE NET ASSET VALUE OF EACH CLASS OF SHARES AS
OF FEBRUARY 28, 1999. 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. TOTAL RETURN FOR ADVISOR CLASS
SHARES WILL DIFFER DUE TO DIFFERENT EXPENSES CHARGED TO THAT CLASS. PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
THE S&P 500 STOCK INDEX IS AN UNMANAGED INDEX OF 500 U.S. COMPANIES, AND
IS A COMMON MEASURE OF THE PERFORMANCE OF THE OVERALL U.S. STOCK MARKET. THE
NAREIT INDEX IS A MARKET VALUE WEIGHTED INDEX BASED UPON THE LAST CLOSING PRICE
OF THE MONTH FOR TAX-QUALIFIED REAL ESTATE INVESTMENT TRUSTS (REIT) LISTED ON
THE NYSE, AMEX, AND THE NASDAQ. ALL COMPARATIVE INDICES ARE UNMANAGED AND
REFLECT NO FEES OR EXPENSES. AN INVESTOR CANNOT INVEST DIRECTLY IN AN INDEX.
INDEX RETURNS ARE NOT ADJUSTED FOR SALES CHARGES OR OPERATING EXPENSES.
ADDITIONAL INVESTMENT RESULTS APPEAR ON PAGE 3.
The REIT market continued to be caught in a downdraft caused by investors
focusing their attention on either large blue chip stocks (as a perceived
"flight to safety") or hot technology plays. Your Fund was not designed to
participate in either of these trends. It was, however, designed to identify
trends within real estate and capitalize on them. During the most recent
six-month period your Fund outperformed its benchmark due to an overweight
position in the top performing real estate sectors--office and industrial--and
an underweight position in the lowest performing sector, healthcare. The Fund's
relative performance was further bolstered over the past six months as one of
the companies in which the Fund invested--Irvine Apartment
Communities--announced a going private transaction at an above-market price.
This caused the stock in question to rise in price, at which point the Fund's
shares in the company were sold, boosting the Fund's performance.
MARKET OVERVIEW
The recovery of the overall stock market was impressive; however, it lacked
breadth. A small and narrowing group of stocks has been leading the market
increasingly higher. However, despite their strong underlying fundamentals,
real estate companies have not been a part of this group.
The steep decline of real estate companies' stock prices last summer and the
subsequent lack of recovery have left current prices at odds with recent and
expected fundamentals for the underlying real estate markets, as well as the
companies themselves. REITs on average have seen a 26% decline in their stock
prices in the past 12 months in spite of recording 15% average earnings growth
in 1998 and an expectation of a further 9% growth in 1999 (based on First Call
consensus estimates).
Importantly, these growth numbers are not based on the occurrence of any
unlikely events. Most real estate companies already own and operate the
properties with which they need to hit 1999 estimates. Those properties will
likely continue to do well. This is primarily because
1
ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
new construction is slowing down for lack of capital, while demand continues to
grow because of the continuing strength of the economy. From an operating
perspective, it doesn't get much better than this.
Yet valuation levels are at historic lows. The average REIT trades at about 8.0
times 1999 funds from operations (the REIT equivalent of earnings per share), a
10% to 15% discount to the value of the real estate assets that it owns, and
with a 7.7% current dividend yield.
Current valuations suggest either a severe real estate pullback or a stock
market over-reaction. We believe it is the latter of these two scenarios. We
track real estate market supply and demand changes very closely. Our research
shows that supply growth is slowing before any significant overbuilding occurs.
Furthermore, demand growth is slowing far less than had been predicted as the
U.S. economy remains firmly on track. This unlikely combination of events
should keep rents and real estate values rising. In fact, weak public markets
for real estate securities--both equity and debt--appears to be preventing real
estate markets from overheating. This should allow company growth to continue
and share prices to recover from recent lows.
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 benefit
most from the ongoing shifts in real estate financing and ownership which are
sweeping across the United States today. Although this strategy has not wavered
since the inception of the Fund in 1996, its implementation has changed as the
real estate cycle and capital markets have evolved.
As real estate markets have come into equilibrium, more emphasis must be placed
on the growth potential of existing properties (a core competency of our group)
at the expense of acquisition driven growth. As capital constraints loom on the
horizon, more emphasis must be placed on balance sheet strength. As growth has
become more difficult to achieve, more emphasis must be placed on value and
yield.
These changes have led to a transformation within our portfolio. We have
selectively added to our exposure in retail and residential companies that have
a high degree of predictability of growth. We have reduced our exposure to
hotel companies that are more volatile and cyclical in nature. We have recast
our large office exposure to target downtown markets at the expense of suburban
areas because development is more difficult. And we have incrementally added to
positions with higher dividend yields, thereby increasing the dividend paying
capacity of the Fund.
MARKET OUTLOOK AND CONCLUSIONS
Our outlook for real estate remains positive. Supply of and demand for space
remains roughly in balance in most markets. And this balance has not
deteriorated, as we feared it might. The drubbing that REITs have taken over
the past year has had a feedback effect on the larger real estate market. We
anticipate that this will govern the excesses historically present in real
estate, thereby making the business less cyclical and more predictable over
time. This, in turn, we believe will lead to more predictable and higher
earnings growth and higher multiples for real estate companies. As a result, we
are optimistic about long term results. We believe we are well positioned for
any coming rebound in real estate stocks.
In conclusion, we would like to thank you for the continued confidence you have
shown in the Alliance Real Estate Investment Fund and look forward to reporting
to you in the future.
Sincerely,
John D.Carifa
Chairman
Daniel G. Pine
Portfolio Manager
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
NAV AND SEC AVERAGE ANNUAL TOTAL RETURNS AS OF FEBRUARY 28, 1999
CLASS A SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year -21.04% -24.37%
Since Inception* 5.16% 3.26%
CLASS B SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year -21.62% -24.60%
Since Inception* 4.41% 3.62%
CLASS C SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year -21.54% -22.29%
Since Inception* 4.45% 4.45%
SEC AVERAGE ANNUAL TOTAL RETURNS (AT MAXIMUM OFFERING PRICE) AS OF THE MOST
RECENT QUARTER-END (DECEMBER 31, 1998)
CLASS A CLASS B CLASS C
------- ------- -------
One Year -23.59% -23.85% -21.52%
Since Inception* 5.60% 6.05% 6.91%
The Fund's investment results represent average annual total returns. The NAV
and SEC returns reflect reinvestment of dividends and/or capital gains
distributions in additional shares without (NAV) and with (SEC) 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.
* Inception date for Classes A, B, and C: 10/1/96
3
TEN LARGEST HOLDINGS
FEBRUARY 28, 1999 (UNAUDITED) ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
PERCENT OF
COMPANY VALUE NET ASSETS
- -------------------------------------------------------------------------------
Equity Office Properties Trust $ 15,090,041 5.0%
Pan Pacific Retail Properties, Inc. 12,798,844 4.3
Brookfield Properties Corp. 11,941,173 4.0
Public Storage, Inc. 11,436,750 3.8
Avalonbay Communities, Inc. 11,299,848 3.8
Arden Realty, Inc. 11,072,738 3.7
Glenborough Realty Trust, Inc. 10,947,681 3.7
SL Green Realty Corp. 10,801,481 3.6
Vornado Realty Trust 10,505,000 3.5
ProLogis Trust 10,016,025 3.3
$ 115,909,581 38.7%
MAJOR PORTFOLIO CHANGES
SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
SHARES
- -------------------------------------------------------------------------------
HOLDINGS
PURCHASES BOUGHT 2/28/99
- -------------------------------------------------------------------------------
Apartment Investment & Management Co. 142,000 142,000
Brookfield Properties Corp. 247,400 1,001,400
Burnham Pacific Properties, Inc. 456,200 540,700
Captec Net Lease Realty, Inc. 55,000 55,000
Entertainment Properties Trust 22,000 540,600
MeriStar Hospitality Corp. 105,750 510,973
Patriot American Hospitality, Inc. 6,320 767,320
Prime Retail, Inc. 893,300 893,000
Ramco-Gershenson Properties 171,700 171,700
Sun Communities, Inc. 187,100 187,100
HOLDINGS
SALES SOLD 2/28/99
- -------------------------------------------------------------------------------
Archstone Communities Trust 653,400 -0-
Avalonbay Communities, Inc. 128,311 358,015
Equity Office Properties Trust 207,700 586,021
Essex Property Trust, Inc. 265,500 272,600
Mack-Cali Realty Corp. 419,800 -0-
Public Storage, Inc. 180,500 448,500
SL Green Realty Corp. 296,200 559,300
Spieker Properties, Inc. 160,800 256,000
Starwood Hotels & Resorts Worldwide, Inc. 430,200 99,900
Sunstone Hotel Investors, Inc. 747,100 -0-
4
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1999 (UNAUDITED) ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
COMPANY SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS-98.3%
REAL ESTATE INVESTMENT TRUSTS-94.3%
APARTMENTS-8.2%
Apartment Investment &
Management Co. Cl.A 142,000 $ 5,555,750
Avalonbay Communities, Inc. 358,015 11,299,848
Essex Property Trust, Inc. 272,600 7,700,950
------------
24,556,548
DIVERSIFIED-16.7%
Captec Net Lease Realty, Inc. 55,000 718,437
Correctional Properties Trust 379,850 6,552,413
Entertainment Properties Trust 540,600 9,257,775
Glenborough Realty Trust, Inc. 606,100 10,947,681
Golf Trust of America, Inc. 259,600 6,262,850
Sun Communities, Inc. 187,100 5,881,956
Vornado Realty Trust 305,600 10,505,000
------------
50,126,112
HOTELS & RESTAURANTS-7.4%
Innkeepers USA Trust 572,700 5,941,762
MeriStar Hospitality Corp. 510,973 9,101,707
Patriot American Hospitality, Inc. 767,320 4,172,302
Starwood Hotels & Resorts
Worldwide, Inc. 99,900 3,096,900
------------
22,312,671
OFFICE-18.3%
Arden Realty, Inc. 473,700 11,072,738
Boston Properties, Inc. 258,900 8,365,706
Crescent Real Estate Equities Co. 448,800 9,368,700
Equity Office Properties Trust 586,021 15,090,041
SL Green Realty Corp. 559,300 10,801,481
------------
54,698,666
OFFICE - INDUSTRIAL MIX-14.6%
Brandywine Realty Trust 477,800 7,853,838
Duke Realty Investments, Inc. 280,800 6,124,950
Great Lakes REIT, Inc. 251,000 3,796,375
Highwoods Properties, Inc. 320,800 7,679,150
Reckson Associates Realty Corp. 435,500 9,254,375
Spieker Properties, Inc. 256,000 9,152,000
------------
43,860,688
REGIONAL MALLS-5.9%
Macerich Co. 387,800 9,404,150
Mills Corp. 455,800 8,289,863
------------
17,694,013
SHOPPING CENTERS-13.5%
Burnham Pacific Properties, Inc. 540,700 5,440,794
New Plan Excel Realty Trust 301,340 6,252,805
Pacific Retail Trust (a) 591,577 5,750,128
Pan Pacific Retail
Properties, Inc. 689,500 12,798,844
Prime Retail, Inc. 893,000 7,144,000
Ramco-Gershenson
Properties 171,700 2,704,275
Regency Realty Corp. 13,000 263,250
------------
40,354,096
STORAGE-3.8%
Public Storage, Inc. 448,500 11,436,750
5
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- -------------------------------------------------------------------------
WAREHOUSE & INDUSTRIAL-5.9%
Cabot Industrial Trust 400,000 $ 7,600,000
ProLogis Trust 482,700 10,016,025
------------
17,616,025
------------
282,655,569
REAL ESTATE DEVELOPMENT & MANAGEMENT-4.0%
Brookfield Properties Corp. (Canada) 1,001,400 11,941,173
Total Common Stocks
(cost $362,391,230) 294,596,742
TIME DEPOSIT-1.4%
Bank of New York
4.375%, 3/01/99
(amortized cost $4,160,000) $ 4,160 $ 4,160,000
TOTAL INVESTMENTS-99.7%
(cost $366,551,230) 298,756,742
Other assets less liabilities-0.3% 920,597
NET ASSETS-100% $ 299,677,339
(a) Illiquid security, valued at fair value (see Note A).
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1999 (UNAUDITED) ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $366,551,230) $ 298,756,742
Cash 120,716
Receivable for investment securities sold 6,128,089
Receivable for capital stock sold 1,069,703
Dividends and interest receivable 290,281
Deferred organizational expenses 157,623
Total assets 306,523,154
LIABILITIES
Payable for investment securities purchased 4,776,894
Payable for capital stock redeemed 1,262,517
Distribution fee payable 215,869
Advisory fee payable 214,782
Accrued expenses 375,753
Total liabilities 6,845,815
NET ASSETS $ 299,677,339
COMPOSITION OF NET ASSETS
Capital stock, at par $ 295,672
Additional paid-in capital 394,492,502
Undistributed net investment income 704,004
Accumulated net realized loss on investments and foreign
currency transactions (28,020,351)
Net unrealized depreciation of investments (67,794,488)
$ 299,677,339
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($38,036,894 / 3,745,361 shares of capital
stock issued and outstanding) $10.16
Sales charge--4.25% of public offering price .45
Maximum offering price $10.61
CLASS B SHARES
Net asset value and offering price per share
($207,812,523 / 20,512,237 shares of capital stock
issued and outstanding) $10.13
CLASS C SHARES
Net asset value and offering price per share
($51,432,489 / 5,073,984 shares of capital stock
issued and outstanding) $10.14
ADVISOR CLASS SHARES
Net asset value, redemption and offering price per share
($2,395,433 / 235,620 shares of capital stock
issued and outstanding) $10.17
See notes to financial statements.
7
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
INVESTMENT INCOME
Dividends (net of foreign taxes
withheld of $15,534) $ 12,652,264
Interest 128,315 $ 12,780,579
EXPENSES
Advisory fee 1,623,348
Distribution fee - Class A 69,544
Distribution fee - Class B 1,247,042
Distribution fee - Class C 311,344
Transfer agency 392,795
Custodian 76,717
Administrative 62,000
Registration 58,952
Printing 56,785
Audit and legal 42,843
Amortization of organization expenses 30,227
Directors' fees 15,000
Miscellaneous 12,684
Total expenses 3,999,281
Net investment income 8,781,298
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Net realized loss on investment transactions (31,202,096)
Net realized loss on foreign currency
transactions (18,772)
Net change in unrealized depreciation
of investments 25,441,665
Net loss on investments and foreign
currency transactions (5,779,203)
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 3,002,095
See notes to financial statements.
8
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
SIX MONTHS ENDED YEAR ENDED
FEB. 28, 1999 AUGUST 31,
(UNAUDITED) 1998
---------------- -----------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income $ 8,781,298 $ 14,025,396
Net realized gain (loss) on
investments and foreign
currency transactions (31,220,868) 6,488,125
Net change in unrealized
depreciation of investments 25,441,665 (113,565,407)
Net increase (decrease) in
net assets from operations 3,002,095 (93,051,886)
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A (1,245,380) (2,204,713)
Class B (5,777,385) (9,402,948)
Class C (1,457,237) (2,290,119)
Advisor Class (76,821) (133,960)
Net realized gain on investments
Class A (396,098) (39,960)
Class B (2,187,672) (201,260)
Class C (540,739) (44,722)
Advisor Class (24,306) (2,319)
CAPITAL STOCK TRANSACTIONS
Net increase (decrease) (84,163,313) 230,444,209
Total increase (decrease) (92,866,856) 123,072,322
NET ASSETS
Beginning of year 392,544,195 269,471,873
End of period (including
undistributed net investment
income of $704,004 and $479,529,
respectively $ 299,677,339 $ 392,544,195
See notes to financial statements.
9
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1999 (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 may 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 a pricing service when such prices are believed to reflect
the fair market value of such securities.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the
mean of the quoted bid and asked price of such currencies against the U.S.
dollar. Purchases and sales of portfolio securities are translated into U.S.
dollars at the rates of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated into U.S. dollars at rates of
exchange prevailing when accrued.
Net realized foreign exchange gains and losses represent foreign exchange gains
and losses from sales and maturities of debt securities and forward currency
exchange contracts, holding of foreign currencies, exchange gains or losses
realized between the trade and settlement dates on security transactions, and
the difference between the amounts of dividends, interest and foreign taxes
receivable recorded on the Fund's books and the U.S. dollar equivalent amounts
actually received or paid. Net currency gains and losses from valuing foreign
currency denominated assets and liabilities at year end exchange rates are
reflected as a component of net unrealized appreciation (depreciation) of
investments and foreign currency denominated assets and liabilities.
3. 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.
10
ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
4. ORGANIZATION EXPENSES
Organization costs of $304,750 have been deferred and are being amortized on a
straight-line basis through October, 2001.
5. 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.
6. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities at
August 31, 1998 and the reported amounts of income and expenses during the
period. Actual results could differ from those estimates.
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 these distributions
cannot 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.
7. 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).
8. 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 $62,000 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, 1999.
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 $219,808 for the six months ended February 28, 1999.
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 $5,502 from the sale of Class A shares and $829,536
and $32,971 in contingent deferred sales charges imposed upon redemptions by
shareholders of Class B and Class C shares, respectively, for the six months
ended February 28, 1999.
Brokerage commissions paid for the six months ended February 28, 1999 on
investment transactions amounted to $601,832, 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.
11
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
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
$12,270,065 and $690,208, 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 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 $58,821,373
and $147,033,588, respectively, for the six months ended February 28, 1999.
There were no purchases or sales of U.S. government or government agency
obligations for the six months ended February 28, 1999.
At February 28, 1999, 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 $280,645 and
gross unrealized depreciation of investments was $68,190,240 resulting in net
unrealized depreciation of $67,909,595 (excluding foreign currency
transactions).
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 ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
FEB. 28, 1999 AUGUST 31, FEB. 28, 1999 AUGUST 31,
(UNAUDITED) 1998 (UNAUDITED) 1998
------------ ------------ -------------- --------------
CLASS A
Shares sold 1,077,359 4,031,794 $ 11,749,450 $ 54,670,681
Shares issued in
reinvestment of
dividends and
distributions 103,221 107,045 1,052,964 1,392,487
Shares converted
from Class B 17,223 36,683 182,795 457,491
Shares redeemed (2,345,797) (2,222,402) (24,638,960) (28,964,016)
Net increase
(decrease) (1,147,994) 1,953,120 $ (11,653,751) $ 27,556,643
CLASS B
Shares sold 1,985,938 16,336,188 $ 21,021,229 $ 221,327,921
Shares issued in
reinvestment of
dividends and
distributions 346,792 328,979 3,535,422 4,276,970
Shares converted
to Class A (17,259) (36,750) (182,795) (457,491)
Shares redeemed (7,557,833) (5,480,259) (79,754,483) (70,036,664)
Net increase
(decrease) (5,242,362) 11,148,158 $ (55,380,627) $ 155,110,736
12
ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
SHARES AMOUNT
--------------------------- ------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
FEB. 28, 1999 AUGUST 31, FEB. 28, 1999 AUGUST 31,
(UNAUDITED) 1998 (UNAUDITED) 1998
------------ ------------ -------------- --------------
CLASS C
Shares sold 625,128 5,180,658 $ 6,603,112 $ 70,280,469
Shares issued in
reinvestment of
dividends and
distributions 75,823 63,778 773,062 824,321
Shares redeemed (2,289,181) (1,922,771) (24,073,361) (24,674,279)
Net increase
(decrease) (1,588,230) 3,321,665 $ (16,697,187) $ 46,430,511
ADVISOR CLASS
Shares sold 20,698 207,950 $ 220,197 $ 2,825,619
Shares issued in
reinvestment of
dividends and
distributions 6,544 8,017 66,819 105,015
Shares redeemed (68,312) (119,760) (718,764) (1,584,315)
Net increase
(decrease) (41,070) 96,207 $ (431,748) $ 1,346,319
NOTE F: BANK BORROWING
A number of open-end mutual funds managed by the Adviser, including the Fund,
participate in a $750 million revolving credit facility (the "Facility") to
provide short-term financing if necessary, subject to certain restrictions in
connection with abnormal redemption activity. Commitment fees related to the
Facility are paid by the participating funds and are included in the
miscellaneous expenses in the statement of operations. The Fund did not utilize
the Facility during the six months ended February 28, 1999.
13
FINANCIAL HIGHLIGHTS ALLIANCE REAL ESTATE INVESTMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A
------------------------------------
SIX MONTHS YEAR OCT. 1,
ENDED ENDED 1996(A)
FEB. 28, 1999 AUG. 31, TO
(UNAUDITED) 1998 AUG. 31, 1997
----------- ----------- -----------
Net asset value, beginning of period $10.47 $12.80 $10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (b) .29 .52 .30
Net realized and unrealized gain
(loss) on investments and
foreign currency
transactions (.22) (2.33) 2.88
Net increase (decrease) in net
asset value from operations .07 (1.81) 3.18
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.28) (.51) (.30)
Distributions from net realized
gains on investments (.10) (.01) -0-
Tax return of capital -0- -0- (.08)
Total dividends and distributions (.38) (.52) (.38)
Net asset value, end of period $10.16 $10.47 $12.80
TOTAL RETURN
Total investment return based on
net asset value (c) .61% (14.90)% 32.24%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $38,037 $51,214 $37,638
Ratio to average net assets of:
Expenses net of waivers/
reimbursements 1.60%(d) 1.55% 1.77%(d)(e)
Expenses before waivers/
reimbursements 1.60%(d) 1.55% 1.79%(d)
Net investment income 5.61%(d) 3.87% 2.73%(d)
Portfolio turnover rate 16% 23% 20%
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 YEAR OCT. 1,
ENDED ENDED 1996(A)
FEB. 28, 1999 AUG. 31, TO
(UNAUDITED) 1998 AUG. 31, 1997
----------- ----------- -----------
Net asset value, beginning of period $10.44 $12.79 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .25 .42 .23
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions (.22) (2.33) 2.89
Net increase (decrease) in net
asset value from operations .03 (1.91) 3.12
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.24) (.43) (.24)
Distributions from net realized
gains on investments (.10) (.01) -0-
Tax return of capital -0- -0- (.09)
Total dividends and distributions (.34) (.44) (.33)
Net asset value, end of period $10.13 $10.44 $12.79
TOTAL RETURN
Total investment return based on
net asset value (c) .24% (15.56)% 31.49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $207,813 $268,856 $186,802
Ratio to average net assets of:
Expenses net of waivers/
reimbursements 2.32%(d) 2.26% 2.44%(d)(e)
Expenses before waivers/
reimbursements 2.32%(d) 2.26% 2.45%(d)
Net investment income 4.75%(d) 3.16% 2.08%(d)
Portfolio turnover rate 16% 23% 20%
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 YEAR OCT. 1,
ENDED ENDED 1996(A)
FEB. 28, 1999 AUG. 31, TO
(UNAUDITED) 1998 AUG. 31, 1997
----------- ----------- -----------
Net asset value, beginning of period $10.44 $12.79 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .25 .42 .23
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions (.21) (2.33) 2.89
Net increase (decrease)in net
asset value from operations .04 (1.91) 3.12
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.24) (.43) (.25)
Distributions from net realized
gains on investments (.10) (.01) -0-
Tax return of capital -0- -0- (.08)
Total dividends and distributions (.34) (.44) (.33)
Net asset value, end of period $10.14 $10.44 $12.79
TOTAL RETURN
Total investment return based on
net asset value (c) .33% (15.56)% 31.49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $51,432 $69,575 $42,719
Ratio to average net assets of:
Expenses net of waivers/
reimbursements 2.31%(d) 2.26% 2.43%(d)(e)
Expenses before waivers/
reimbursements 2.31%(d) 2.26% 2.45%(d)
Net investment income 4.74%(d) 3.15% 2.06%(d)
Portfolio turnover rate 16% 23% 20%
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 YEAR OCT. 1,
ENDED ENDED 1996(A)
FEB. 28, 1999 AUG. 31, TO
(UNAUDITED) 1998 AUG. 31, 1997
----------- ----------- -----------
Net asset value, beginning of period $10.48 $12.82 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .29 .55 .35
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions (.21) (2.34) 2.88
Net increase (decrease) in net
asset value from operations .08 (1.79) 3.23
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.29) (.54) (.38)
Distributions from net realized
gains on investments (.10) (.01) -0-
Tax return of capital -0- -0- (.03)
Total dividends and distributions (.39) (.55) (.41)
Net asset value, end of period $10.17 $10.48 $12.82
TOTAL RETURN
Total investment return based on
net asset value (c) .77% (14.74)% 32.72%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $2,395 $2,899 $2,313
Ratio to average net assets of:
Expenses net of waivers/
reimbursements 1.30%(d) 1.25% 1.45%(d)(e)
Expenses before waivers/
reimbursements 1.30%(d) 1.25% 1.47%(d)
Net investment income 5.77%(d) 4.08% 3.07%(d)
Portfolio turnover rate 16% 23% 20%
(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
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
DAVID A. KRUTH, 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.
18
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
