<PAGE>
As filed with the Securities and Exchange
Commission on November 14, 1997
File Nos. 333-37177
811-08403
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1 X
Post-Effective Amendment No.
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 1 X
_______________________________
Alliance Institutional Funds, Inc.
(Exact Name of Registrant as Specified in Charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code:(212) 969-1000
_____________________________
EDMUND P. BERGAN, JR.
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent for service)
Copies of communications to:
Bruce D. Senzel
Seward & Kissel
One Battery Park Plaza
New York, New York 10004
It is proposed that this filing will become effective (check
appropriate box)
<PAGE>
immediately upon filing pursuant to paragraph (b)
on (date) pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
The Registrant hereby amends this Registration Statement under
the Securities Act of 1933 on such date or dates as may be
necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in
accordance with the provisions of Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to
Section 8(a), may determine.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
N-1A Item No. Location in Prospectus
_____________ (Caption)
_______________________
PART A
Item 1. Cover Page........................ Cover Page
Item 2. Synopsis.......................... Expense Information
Item 3. Condensed Financial
Information....................... Not Applicable
Item 4. General Description
of Registrant..................... Description of the
Funds; General
Information
Item 5. Management of the Fund............ Management of the
Funds; General
Information
Item 6. Capital Stock and Other
Securities........................ Dividends,
Distributions and
Taxes; General
Information
Item 7. Purchase of Securities
Being Offered..................... Purchase and Sale of
Shares; General
Information
Item 8. Redemption or Repurchase.......... Purchase and Sale of
Shares; General
Information
Item 9. Pending Legal Proceedings......... Not Applicable
Location in Statements of
PART B Additional Information
______ (Caption)
_________________________
Item 10. Cover Page........................ Cover Page
Item 11. Table of Contents................. Cover Page
<PAGE>
Item 12. General Information
and History....................... Management of the
Fund; General
Information
Item 13. Investment Objectives and
Policies.......................... Description of the
Fund
Item 14. Management of the Registrant ..... Management of the
Fund
Item 15. Control Persons and
Principal Holders of
Securities ....................... Not Applicable
Item 16. Investment Advisory and
Other Services.................... Management of the
Fund, Expenses of
the Fund, General
Information
Item 17. Brokerage Allocation and
Other Practices................... Portfolio
Transactions
Item 18. Capital Stock and Other
Securities........................ General Information
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered....... Purchase of Shares;
Redemption and
Repurchase of
Shares; Dividends,
Distributions and
Taxes; Shareholder
Services
Item 20. Tax Status........................ Description of the
Fund, Dividends,
Distributions and
Taxes
Item 21. Underwriters...................... General Information
Item 22. Calculation of Performance
Data.............................. General Information
Item 23. Financial Statements.............. Not Applicable
<PAGE>
<PAGE>
ALLIANCE
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INSTITUTIONAL FUNDS
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P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
Prospectus and Application
November 14, 1997
-Alliance Premier Growth Institutional Fund
-Alliance Quasar Institutional Fund
-Alliance Real Estate Investment
Institutional Fund
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Table of Contents Page
The Funds at a Glance ..................................................... 2
Expense Information ....................................................... 3
Glossary .................................................................. 4
Description of the Funds .................................................. 5
Investment Objectives and Policies ..................................... 5
Additional Investment Practices ........................................ 7
Certain Fundamental Investment Policies ................................ 12
Risk Considerations .................................................... 13
Purchase and Sale of Shares ............................................... 15
Management of the Funds ................................................... 17
Dividends, Distributions and Taxes ........................................ 20
Conversion Feature ........................................................ 21
General Information ....................................................... 22
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Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105
Alliance Institutional Funds, Inc. (the "Company") provides a selection of
equity investment alternatives to institutional and other investors through
qualifying programs who seek capital growth or high total return. The Company is
an open-end management investment company structured as a series fund with
multiple investment portfolios (each such portfolio is hereinafter referred to
as a "Fund"). The Company currently is comprised of three Funds, Alliance
Premier Growth Institutional Fund, Alliance Quasar Institutional Fund, and
Alliance Real Estate Investment Institutional Fund.
This Prospectus sets forth concisely the information which a prospective
investor should know about the Company and each Fund before investing. A
"Statement of Additional Information" for each Fund which provides further
information regarding certain matters discussed in this Prospectus and other
matters which may be of interest to some investors has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. For
a free copy, call or write Alliance Fund Services, Inc. at the indicated address
or call the "For Literature" telephone number shown above.
Each Fund offers two classes of shares which may be purchased through this
Prospectus at net asset value without any initial or contingent deferred sales
charges. Class I shares are not subject to any ongoing distribution expenses
while Class II shares are subject to an ongoing distribution fee. The minimum
initial investment in the Company is $2 million, which may be invested in any
one or more of the Funds. See "Purchase and Sale of Shares."
An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.
Investors are advised to read this Prospectus carefully and to retain it for
future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[LOGO] Alliance(R)
Investing without the Mystery.(SM)
(R)/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
<PAGE>
The Funds At A Glance
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
The Funds' Investment Adviser Is . . .
Alliance Capital Management L.P. ("Alliance"), a global investment manager
providing diversified services to institutions and individuals through a broad
line of investments including more than 100 mutual funds. Since 1971, Alliance
has earned a reputation as a leader in the investment world with over $217
billion in assets under management as of September 30, 1997. Alliance provides
investment management services to employee benefit plans for 28 of the FORTUNE
100 companies.
Premier Growth Institutional Fund
Seeks . . . Long-term growth of capital by investing in the equity securities of
a limited number of large, carefully selected, high-quality American companies
from a relatively small universe of intensively researched companies.
Invests Principally in . . . A diversified portfolio of equity securities that,
in the judgment of Alliance, are likely to achieve superior earnings growth.
Normally, approximately 40 companies will be represented in the Fund's
investment portfolio. The Fund's investments in 25 of these companies most
highly regarded at any point in time by Alliance will usually constitute
approximately 70% of the Fund's net assets.
Quasar Institutional Fund
Seeks . . . Growth of capital by pursuing aggressive investment policies.
Invests Principally in . . . A diversified portfolio of equity securities of any
company and industry and in any type of security which is believed to offer
possibilities for capital appreciation.
Real Estate Investment Institutional Fund
Seeks . . . Total return on its assets from long-term growth of capital and from
income.
Invests Principally in . . . A diversified portfolio of equity securities of
issuers that are primarily engaged in or related to the real estate industry.
Distributions
Real Estate Investment Institutional Fund intends to make distributions
quarterly, in March, June, September and December. These distributions may
include ordinary income and capital gain (each which is taxable) and a return of
capital (which is generally non-taxable). See "Dividends, Distributions and
Taxes."
A Word About Risk . . .
The price of the shares of the Funds will fluctuate as the daily prices of the
individual securities in which they invest fluctuate, so that your shares, when
redeemed, may be worth more or less than their original cost. While the Funds
invest principally in common stocks and other equity securities, in order to
achieve their investment objectives the Funds may at times use certain types of
investment derivatives, such as options, futures, forwards and swaps. These
involve risks different from, and, in certain cases, greater than, the risks
presented by more traditional investments. An investment in the Real Estate
Investment Institutional Fund is subject to certain risks associated with the
direct ownership of real estate industry in general, including possible declines
in the value of real estate, general and local economic conditions,
environmental problems and changes in interest rates. These risks are fully
discussed in this Prospectus.
Getting Started . . .
Shares of the Funds are available through your financial representative. The
minimum initial investment in the Company is $2 million, which may be invested
in any one or more of the Funds. Investments made through fee-based or
"wrap-fee" programs will satisfy the minimum initial investment requirement if
the fee-based or wrap fee program, as a whole, invests at least $2 million in
one or more of the Funds. There is no minimum for subsequent investments.
Class I shares may be purchased and held solely (i) through accounts established
under a fee-based program sponsored and maintained by a registered broker-dealer
or other financial intermediary and approved by the Alliance Fund Distributors,
Inc., each Fund's principal underwriter (the "Distributor" or "AFD"), (ii)
through employee benefit plans, including defined contribution and defined
benefit plans ("Employee Plans"), that have at least $10 million in assets,
(iii) by investment advisory clients of, and certain other persons associated
with, Alliance and its affiliates or the Funds, and (iv) through registered
investment advisers or other financial intermediaries who charge a management,
consulting or other fee for their service and who purchase shares through a
broker or agent approved by the Distributor, and clients of such registered
investment advisers or financial intermediaries whose accounts are linked to the
master account of such investment adviser or financial intermediary on the books
of such approved broker or agent. A shareholder's Class I shares will
automatically convert to Class II shares of the same Fund under certain
circumstances. See "Conversion Feature--Conversion to Class II Shares." Class II
shares may be purchased and held solely (i) by investors participating in
wrap-fee or other similar programs offered by registered broker-dealers or other
financial intermediaries that meet certain requirements established by the
Distributor, and (ii) Employee Plans that have at least $10 million in assets.
For more detailed information about who may purchase and hold the shares of each
Fund see the Fund's Statement of Additional Information. Fee-based and other
programs may impose different requirements with respect to investment in the
shares of the Funds than described above. For detailed information about
purchasing and selling shares, see "Purchase and Sale of Shares."
[LOGO] Alliance(R)
Investing without the Mystery.(SM)
(R)/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
2
<PAGE>
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EXPENSE INFORMATION
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Shareholder Transaction Expenses are one of several factors to consider when you
invest in a Fund. The following table summarizes your maximum transaction costs
from investing in the shares of each Fund and estimated annual expenses for each
class of shares of each Fund. For each Fund, the "Examples" to the right of the
table below show the cumulative expenses attributable to a hypothetical $1,000
investment in shares for the periods specified.
Maximum sales charge imposed on purchases ......................... None
Sales charge imposed on dividend reinvestments .................... None
Deferred sales charge ............................................. None
Exchange fee ...................................................... None
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Operating Expenses Examples
- ---------------------------------------------------------- ----------------------------------------
Premier Growth
Institutional Fund Class I Class II Class I Class II
-------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Management fees(a) .90% .90% After 1 year $ 9 $ 13
12b-1 fees None .30% After 3 years $ 29 $ 41
Other expenses (b) .00% .10%
---- ----
Total fund
operating expenses (c)(d) .90% 1.30%
==== ====
<CAPTION>
Quasar Institutional Fund Class I Class II Class I Class II
-------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Management fees 1.00% 1.00% After 1 year $ 12 $ 16
12b-1 fees None .30% After 3 years $ 38 $ 50
Other expenses (b) .20% .30%
---- ----
Total fund
operating expenses (c)(d) 1.20% 1.60%
==== ====
<CAPTION>
Real Estate Investment
Institutional Fund Class I Class II Class I Class II
-------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Management fees .90% .90% After 1 year $ 10 $ 14
12b-1 fees None .30% After 3 years $ 32 $ 44
Other expenses (b) .10% .20%
---- ----
Total fund
operating expenses (c)(d) 1.00% 1.40%
==== ====
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Reflects the undertaking of Alliance to waive management fees to the extent
necessary to ensure that total fund operating expenses for each class do
not exceed the amount shown above. In the absence of such an undertaking,
management fees would have been 1.00% for Premier Growth Institutional
Fund.
(b) These expenses include a transfer agency fee payable Alliance Fund
Services, Inc., an affiliate of Alliance. Reflects the undertaking of
Alliance to reimburse the Fund to the extent necessary to ensure that total
fund operating expenses for each class do not exceed the amount shown
above. In the absence of such an undertaking, it is estimated that other
expenses would have been, for Class I and Class II, respectively .97% and
1.05% for Premier Growth Institutional Fund, .97% and 1.05% for Quasar
Institutional Fund and .97% and 1.05% for Real Estate Investment
Institutional Fund.
(c) Reflects the undertaking of Alliance to limit the total Fund operating
expenses. In the absence of such an undertaking, it is estimated that total
fund operating expenses would have been, for Class I and Class II,
respectively 1.87% and 2.25% for Premier Growth Institutional Fund, 1.97%
and 2.35% for Quasar Institutional Fund and 1.87% and 2.25% for Real Estate
Investment Institutional Fund.
(d) The expense information does not reflect any charges or expenses imposed by
your financial representative or your employee benefit plan.
The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. Long-term shareholders of the Fund may pay aggregate sales
charges totaling more than the economic equivalent of the maximum initial sales
charges permitted by the Conduct Rules of the National Association of Securities
Dealers, Inc. See "Management of the Fund--Distribution Services Agreement." The
Rule 12b-1 fee for the Class II shares comprises a service fee not exceeding
.25% of the aggregate average daily net assets of the Fund attributable to the
class and an asset-based sales charge equal to the remaining portion of the Rule
12b-1 fee. "Other Expenses" are based on estimated amounts for the Fund's
current fiscal year. The Example set forth above assumes reinvestment of all
dividends and distributions and utilizes a 5% annual rate of return as mandated
by Securities and Exchange Commission regulations. THE EXAMPLE SHOULD NOT BE
CONSIDERED REPRESENTATIVE OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
3
<PAGE>
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GLOSSARY
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The following terms are frequently used in this Prospectus.
Equity securities are (i) common stocks, partnership interests, business trust
shares and other equity or ownership interests in business enterprises, and (ii)
securities convertible into, and rights and warrants to subscribe for the
purchase of, such stocks, shares and interests.
Debt securities are bonds, debentures, notes, bills, repurchase agreements,
loans, other direct debt instruments and other fixed, floating and variable rate
debt obligations, but do not include convertible securities.
Fixed-income securities are debt securities and dividend-paying preferred stocks
and include floating rate and variable rate instruments.
Convertible securities are fixed-income securities that are convertible into
common stock.
U.S. Government securities are securities issued or guaranteed by the United
States Government, its agencies or instrumentalities.
Foreign government securities are securities issued or guaranteed, as to payment
of principal and interest, by governments, quasi-governmental entities,
governmental agencies or other governmental entities.
Moody's is Moody's Investors Service, Inc.
S&P is Standard & Poor's Ratings Services.
Duff & Phelps is Duff & Phelps Credit Rating Co.
Fitch is Fitch Investors Service, L.P.
Prime commercial paper is commercial paper rated Prime 1 by Moody's or A-1 or
higher by S&P or, if not rated, issued by companies that have an outstanding
debt issue rated Aa or higher by Moody's or AA or higher by S&P.
Qualifying bank deposits are certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of banks having total assets of more than $1
billion and which are members of the Federal Deposit Insurance Corporation.
Rule 144A securities are securities that may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "Securities Act").
Depositary receipts include American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") and other types of depositary receipts.
Commission is the Securities and Exchange Commission.
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
4
<PAGE>
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DESCRIPTION OF THE FUNDS
- --------------------------------------------------------------------------------
Except as noted, (i) the Funds' investment objectives are "fundamental" and
cannot be changed without shareholder vote, and (ii) the Funds' investment
policies are not fundamental and thus can be changed without a shareholder vote.
No Fund will change a non-fundamental objective or policy without notifying its
shareholders. There is no guarantee that any Fund will achieve its investment
objective.
INVESTMENT OBJECTIVES AND POLICIES
Alliance Premier Growth Institutional Fund
Alliance Premier Growth Institutional Fund ("Premier Growth Fund") seeks
long-term growth of capital by investing predominantly in the equity securities
of a limited number of large, carefully selected, high-quality U.S. companies
that are judged likely to achieve superior earnings growth. Normally, about 40
companies will be represented in the Fund's portfolio, with the 25 most highly
regarded of these companies usually constituting approximately 70% of the Fund's
net assets. The Fund is thus atypical from most equity mutual funds in its focus
on a relatively small number of intensively researched companies and is designed
for those seeking to accumulate capital over time with less volatility than that
associated with investment in smaller companies.
As a matter of fundamental policy, the Fund normally invests at least 85% of its
total assets in the equity securities of U.S. companies. These are companies (i)
organized under U.S. law that have their principal office in the U.S., and (ii)
the equity securities of which are traded principally in the U.S.
Alliance's investment strategy for the Fund emphasizes stock selection and
investment in the securities of a limited number of issuers. Alliance relies
heavily upon the fundamental analysis and research of its large internal
research staff, which generally follows a primary research universe of more than
600 companies that have strong management, superior industry positions,
excellent balance sheets and superior earnings growth prospects. An emphasis is
placed on identifying companies whose substantially above average prospective
earnings growth is not fully reflected in current market valuations.
In managing the Fund, Alliance seeks to utilize market volatility judiciously
(assuming no change in company fundamentals), striving to capitalize on
apparently unwarranted price fluctuations, both to purchase or increase
positions on weakness and to sell or reduce overpriced holdings. The Fund
normally remains nearly fully invested and does not take significant cash
positions for market timing purposes. During market declines, while adding to
positions in favored stocks, the Fund becomes somewhat more aggressive,
gradually reducing the number of companies represented in its portfolio.
Conversely, in rising markets, while reducing or eliminating fully valued
positions, the Fund becomes somewhat more conservative, gradually increasing the
number of companies represented in its portfolio. Alliance thus seeks to gain
positive returns in good markets while providing some measure of protection in
poor markets.
Alliance expects the average market capitalization of companies represented in
the Fund's portfolio normally to be in the range, or in excess, of the average
market capitalization of companies comprising the "S&P 500" (the Standard &
Poor's 500 Composite Stock Price Index, a widely recognized unmanaged index of
market activity).
The Fund, which is diversified under the 1940 Act, may also: (i) invest up to
20% of its net assets in convertible securities of companies whose common stocks
are eligible for purchase by it; (ii) invest up to 5% of its net assets in
rights or warrants; (iii) invest up to 15% of its total assets in securities of
foreign issuers whose common stocks are eligible for purchase by it; (iv)
purchase and sell exchange-traded index options and stock index futures
contracts; and (v) write covered exchange-traded call options on common stocks,
unless as a result, the amount of its securities subject to call options would
exceed 15% of its total assets, and purchase and sell exchange-traded call and
put options on common stocks written by others, but the total cost of all
options held by the Fund (including exchange-traded index options) may not
exceed 10% of its total assets. For additional information on the use, risks and
costs of these policies and practices see "Additional Investment Practices." The
Fund will not write put options.
Alliance Quasar Institutional Fund
Alliance Quasar Institutional Fund ("Quasar Fund") seeks growth of capital by
pursuing aggressive investment policies. It invests for capital appreciation and
only incidentally for current income. The selection of securities based on the
possibility of appreciation cannot prevent loss in value. Moreover, because the
Fund's investment policies are aggressive, an investment in the Fund is risky
and investors who want assured income or preservation of capital should not
invest in the Fund.
The Fund invests in any company and industry and in any type of security with
potential for capital appreciation. It invests in well-known and established
companies and in new and unseasoned companies. When selecting securities,
Alliance considers the economic and political outlook, the values of specific
securities relative to other investments, trends in the determinants of
corporate profits and management capability and practices.
The Fund invests principally in equity securities, but it also invests to a
limited degree in non-convertible bonds and preferred stocks. The Fund invests
in listed and unlisted U.S. and foreign securities. The Fund periodically
invests in special situations, which occur when the securities of a company are
expected to appreciate due to a development particularly or uniquely applicable
to that company and regardless of general business conditions or movements of
the market as a whole.
The Fund, which is diversified under the 1940 Act, may also: (i) invest in
restricted securities and in other assets having no ready market, but not more
than 10% of its total assets may
5
<PAGE>
be invested in such securities or assets; (ii) make short sales of securities
"against the box," but not more than 15% of its net assets may be deposited on
short sales; and (iii) write call options and purchase and sell put and call
options written by others. For additional information on the use, risks and
costs of these policies and practices see "Additional Investment Practices."
Alliance Real Estate Investment Institutional Fund
Alliance Real Estate Investment Institutional Fund ("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.
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in equity securities of real estate investment trusts ("REITs") and
other real estate industry companies. A "real estate industry company" is a
company that derives at least 50% of its gross revenues or net profits from the
ownership, development, construction, financing, management or sale of
commercial, industrial or residential real estate or interests therein. The
equity securities in which the Fund will invest for this purpose consist of
common stock, shares of beneficial interest of REITs and securities with common
stock characteristics, such as preferred stock or convertible securities ("Real
Estate Equity Securities").
The Fund may invest up to 35% of its total assets in (a) securities that
directly or indirectly represent participations in, or are collateralized by and
payable from, mortgage loans secured by real property ("Mortgage-Backed
Securities"), such as mortgage pass-through certificates, real estate mortgage
investment conduit ("REMIC") certificates and collateralized mortgage
obligations ("CMOs") and (b) short-term investments. These instruments are
described below. The risks associated with the Fund's transactions in REMICs,
CMOs and other types of mortgage-backed securities, which are considered to be
derivative securities, may include some or all of the following: market risk,
leverage and volatility risk, correlation risk, credit risk and liquidity and
valuation risk. See "Risk Considerations" for a description of these and other
risks.
As to any investment in Real Estate Equity Securities, Alliance's analysis will
focus on determining the degree to which the company involved can achieve
sustainable growth in cash flow and dividend paying capability. Alliance
believes that the primary determinant of this capability is the economic
viability of property markets in which the company operates and that the
secondary determinant of this capability is the ability of management to add
value through strategic focus and operating expertise. The Fund will purchase
Real Estate Equity Securities when, in the judgment of Alliance, their market
price does not adequately reflect this potential. In making this determination,
Alliance will take into account fundamental trends in underlying property
markets as determined by proprietary models, site visits conducted by
individuals knowledgeable in local real estate markets, price-earnings ratios
(as defined for real estate companies), cash flow growth and stability, the
relationship between asset value and market price of the securities, dividend
payment history, and such other factors which Alliance may determine from time
to time to be relevant. Alliance will attempt to purchase for the Fund Real
Estate Equity Securities of companies whose underlying portfolios are
diversified geographically and by property type. The Fund may invest without
limitation in shares of REITs. REITs are pooled investment vehicles which invest
primarily in income producing real estate or real estate related loans or
interests. REITs are generally classified as equity REITs, mortgage REITs or a
combination of equity and mortgage REITs. Equity REITs invest the majority of
their assets directly in real property and derive income primarily from the
collection of rents. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage REITs invest the majority of
their assets in real estate mortgages and derive income from the collection of
interest payments. Similar to investment companies such as the Fund, REITs are
not taxed on income distributed to shareholders provided they comply with
several requirements of the Code. The Fund will indirectly bear its
proportionate share of expenses incurred by REITs in which the Fund invests in
addition to the expenses incurred directly by the Fund.
Investment Process for Real Estate Equity Securities
Real Estate Investment Fund's investment strategy with respect to Real Estate
Equity Securities is based on the premise that property market fundamentals are
the primary determinant of growth underlying the success of Real Estate Equity
Securities. Value added management will further distinguish the most attractive
Real Estate Equity Securities. The Fund's research and investment process is
designed to identify those companies with strong property fundamentals and
strong management teams. This process is comprised of real estate market
research, specific property inspection and securities analysis.
The universe of property-owning real estate industry firms consists of
approximately 130 companies of sufficient size and quality to merit
consideration for investment by the Fund. In implementing the Fund's research
and investment process, Alliance will avail itself of the consulting services of
CB Commercial Real Estate Group, Inc. ("CBC"), a publicly held company and the
largest real estate services company in the United States, comprised of real
estate brokerage, property and facilities management, and real estate finance
and investment advisory activities (CBC in August of 1997 acquired Koll
Management Services ("Koll"), which previously provided these consulting
services to Alliance). In 1996, CBC (and Koll, on a combined basis) completed
25,000 sale and lease transactions, managed over 4,100 client properties,
created over $3.5 billion in mortgage originations, and completed over 2,600
appraisal and consulting assignments. In addition, they advised and managed for
institutions over $4 billion in real estate investments. As consultant to
Alliance, CBC provides access to its proprietary model, REIT o Score, that
analyzes the approximately 12,000 properties owned by these companies. Using
proprietary databases and algorithms, CBC analyzes local market rent, expense,
and occupancy trends, market specific transaction pricing, demographic and
economic trends, and leading indicators of real estate supply such as building
permits. Over 650 asset-type specific geographic markets are
6
<PAGE>
analyzed and ranked on a relative scale by CBC in compiling its REIT o Score
database. The relative attractiveness of these real estate industry companies is
similarly ranked based on the composite rankings of the properties they own. See
"Management of the Fund--Consultant to Adviser" for more information about CBC.
Once the universe of real estate industry companies has been distilled through
the market research process, CBC's local market presence provides the capability
to perform site specific inspections of key properties. This analysis examines
specific location, condition, and sub-market trends. CBC's use of locally based
real estate professionals provides Alliance with a window on the operations of
the portfolio companies as information can immediately be put in the context of
local market events. Only those companies whose specific property portfolios
reflect the promise of their general markets will be considered for initial and
continued investment by the Fund.
Alliance further screens the universe of real estate industry companies by using
rigorous financial models and by engaging in regular contact with management of
targeted companies. Each management's strategic plan and ability to execute the
plan are determined and analyzed. Alliance will make extensive use of CBC's
network of industry analysts in order to assess trends in tenant industries.
This information is then used to further interpret management's strategic plans.
Financial ratio analysis is used to isolate those companies with the ability to
make value-added acquisitions. This information is combined with property market
trends and used to project future earnings potential.
Alliance believes that this process will result in a portfolio that will consist
of Real Estate Equity Securities of companies that own assets in the most
desirable markets across the country, diversified geographically and by property
type.
The short-term investments in which Real Estate Investment Fund may invest are:
corporate commercial paper and other short-term commercial obligations, in each
case rated or issued by companies with similar securities outstanding that are
rated Prime-1, Aa or better by Moody's or A-1, AA or better by S&P; obligations
(including certificates of deposit, time deposits, demand deposits and bankers'
acceptances) of banks with securities outstanding that are rated Prime-1, Aa or
better by Moody's or A-1, AA or better by S&P; and obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities with
remaining maturities not exceeding 18 months.
The Fund may invest in debt securities rated BBB or higher by S&P or Baa or
higher by Moody's or, if not so rated, of equivalent credit quality as
determined by Alliance. The Fund expects that it will not retain a debt security
which is downgraded below BBB or Baa or, if unrated, determined by Alliance to
have undergone similar credit quality deterioration, subsequent to purchase by
the Fund.
The Fund, which is diversified under the 1940 Act, may also engage in the
following investment practices to the extent indicated: (i) invest up to 10% of
its net assets in rights or warrants; (ii) invest up to 15% of its net assets in
the convertible securities of companies whose common stocks are eligible for
purchase by the Fund; (iii) lend portfolio securities equal in value to not more
than 25% of total assets; (iv) enter into repurchase agreements of up to seven
days' duration; (v) enter into forward commitments transactions as long as the
Fund's aggregate commitments under such transactions are not more than 30% of
the Fund's total assets; (vi) enter into standby commitment agreements; (vii)
make short sales of securities or maintain a short position but only if at all
times when a short position is open not more than 25% of the Fund's net assets
(taken at market value) is held as collateral for such sales; and (viii) invest
in illiquid securities unless, as a result, more than 15% of its net assets
would be so invested.
ADDITIONAL INVESTMENT PRACTICES
Some or all of the Funds may engage in the following investment practices to the
extent described above.
Convertible Securities. Prior to conversion, convertible securities have the
same general characteristics as non-convertible debt securities, which provide a
stable stream of income with yields that are generally higher than those of
equity securities of the same or similar issuers. The price of a convertible
security will normally vary with changes in the price of the underlying stock,
although the higher yield tends to make the convertible security less volatile
than the underlying common stock. As with debt securities, the market value of
convertible securities tends to decline as interest rates increase and increase
as interest rates decline. While convertible securities generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality, they offer investors the potential to benefit from increases in the
market price of the underlying common stock.
Rights and Warrants. A Fund will invest in rights or warrants only if the
underlying equity securities themselves are deemed appropriate by Alliance for
inclusion in the Fund's portfolio. Rights and warrants entitle the holder to buy
equity securities at a specific price for a specific period of time. Rights are
similar to warrants except that they have a substantially shorter duration.
Rights and warrants may be considered more speculative than certain other types
of investments in that they do not entitle a holder to dividends or voting
rights with respect to the underlying securities nor do they represent any
rights in the assets of the issuing company. The value of a right or warrant
does not necessarily change with the value of the underlying security, although
the value of a right or warrant may decline because of a decrease in the value
of the underlying security, the passage of time or a change in perception as to
the potential of the underlying security, or any combination thereof. If the
market price of the underlying security is below the exercise price set forth in
the warrant on the expiration date, the warrant will expire worthless. Moreover,
a right or warrant ceases to have value if it is not exercised prior to the
expiration date.
Depositary Receipts and Securities of Supranational Entities. Depositary
receipts may not necessarily be denominated in the
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same currency as the underlying securities into which they may be converted. In
addition, the issuers of the stock of unsponsored depositary receipts are not
obligated to disclose material information in the United States and, therefore,
there may not be a correlation between such information and the market value of
the depositary receipts. ADRs are depositary receipts typically issued by a U.S.
bank or trust company that evidence ownership of underlying securities issued by
a foreign corporation. GDRs and other types of depositary receipts are typically
issued by foreign banks or trust companies and evidence ownership of underlying
securities issued by either a foreign or a U.S. company. Generally, depositary
receipts in registered form are designed for use in the U.S. securities markets,
and depositary receipts in bearer form are designed for use in foreign
securities markets.
A supranational entity is an entity designated or supported by the national
government of one or more countries to promote economic reconstruction or
development. Examples of supranational entities include, among others, the World
Bank (International Bank for Reconstruction and Development) and the European
Investment Bank. A European Currency Unit is a basket of specified amounts of
the currencies of the member states of the European Economic Community.
"Semi-governmental securities" are securities issued by entities owned by either
a national, state or equivalent government or are obligations of one of such
government jurisdictions which are not backed by its full faith and credit and
general taxing powers.
Zero-Coupon and Payment-in-Kind Bonds. Zero-coupon bonds are issued at a
significant discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer to make current interest
payments on the bonds in additional bonds. Because zero-coupon bonds and
payment-in-kind bonds do not pay current interest in cash, their value is
generally subject to greater fluctuation in response to changes in market
interest rates than bonds that pay interest in cash currently. Both zero-coupon
and payment-in-kind bonds allow an issuer to avoid the need to generate cash to
meet current interest payments. Accordingly, such bonds may involve greater
credit risks than bonds paying interest currently. Even though such bonds do not
pay current interest in cash, a Fund is nonetheless required to accrue interest
income on such investments and to distribute such amounts at least annually to
shareholders. Thus, a Fund could be required at times to liquidate other
investments in order to satisfy its dividend requirements.
Equity-Linked Debt Securities. Equity-linked debt securities are securities with
respect to which the amount of interest and/or principal that the issuer thereof
is obligated to pay is linked to the performance of a specified index of equity
securities. Such amount may be significantly greater or less than payment
obligations in respect of other types of debt securities. Adverse changes in
equity securities indices and other adverse changes in the securities markets
may reduce payments made under, and/or the principal of, equity-linked debt
securities held by the Fund. Furthermore, as with any debt securities, the
values of equity-linked debt securities will generally vary inversely with
changes in interest rates. The Fund's ability to dispose of equity-linked debt
securities will depend on the availability of liquid markets for such
securities. Investment in equity-linked debt securities may be considered to be
speculative. As with other securities, the Fund could lose its entire investment
in equity-linked debt securities.
Mortgage-Backed Securities and Associated Risks. Mortgage-Backed Securities
include mortgage pass-through certificates and multiple-class pass-through
securities, such as REMIC pass-through certificates, CMOs and stripped
mortgage-backed securities ("SMBS"), and other types of Mortgage-Backed
Securities that may be available in the future.
Guaranteed Mortgage Pass-Through Securities. Real Estate Investment Fund may
invest in guaranteed mortgage pass-through securities which represent
participation interests in pools of residential mortgage loans and are issued by
U.S. governmental or private lenders and guaranteed by the U.S. Government or
one of its agencies or instrumentalities, including but not limited to the
Government National Mortgage Association ("Ginnie Mae"), the Federal National
Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage
Corporation ("Freddie Mac"). Ginnie Mae certificates are guaranteed by the full
faith and credit of the United States Government for timely payment of principal
and interest on the certificates. Fannie Mae certificates are guaranteed by
Fannie Mae, a federally chartered and privately-owned corporation for full and
timely payment of principal and interest on the certificates. Freddie Mac
certificates are guaranteed by Freddie Mac, a corporate instrumentality of the
United States Government, for timely payment of interest and the ultimate
collection of all principal of the related mortgage loans.
Multiple-Class Pass-Through Securities and Collateralized Mortgage Obligations.
Mortgage-Backed Securities also include CMOs and REMIC pass-through or
participation certificates, which may be issued by, among others, U.S.
Government agencies and instrumentalities as well as private lenders. CMOs and
REMIC certificates are issued in multiple classes and the principal of and
interest on the mortgage assets may be allocated among the several classes of
CMOs or REMIC certificates in various ways. Each class of CMOs or REMIC
certificates, often referred to as a "tranche," is issued at a specific
adjustable or fixed interest rate and must be fully retired no later than its
final distribution date. Generally, interest is paid or accrues on all classes
of CMOs or REMIC certificates on a monthly basis. Real Estate Investment Fund
will not invest in the lowest tranche of CMOs and REMIC certificates.
Typically, CMOs are collateralized by Ginnie Mae or Freddie Mac certificates but
also may be collateralized by other mortgage assets such as whole loans or
private mortgage pass-through securities. Debt service on CMOs is provided from
payments of principal and interest on collateral of mortgaged assets and any
reinvestment income thereon.
A REMIC is a CMO that qualifies for special tax treatment under the Code and
invests in certain mortgages primarily secured by interests in real property and
other permitted investments. Investors may purchase "regular" and "residual"
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interest shares of beneficial interest in REMIC trusts although the Fund does
not intend to invest in residual interests.
Risks. Investing in Mortgage-Backed Securities involves certain unique risks in
addition to those generally associated with investing in the real estate
industry in general. These unique risks include the failure of a counterparty to
meet its commitments, adverse interest rate changes and the effects of
prepayments on mortgage cash flows. See "Risk Considerations--Mortgage-Backed
Securities" for a more complete description of the characteristics of
Mortgage-Backed Securities and associated risks.
Illiquid Securities. Subject to any more restrictive applicable fundamental
investment policy, none of the Funds will maintain more than 15% of its net
assets in illiquid securities. Illiquid securities generally include (i) direct
placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
when trading in the security is suspended or, in the case of unlisted
securities, when market makers do not exist or will not entertain bids or
offers), including many individually negotiated currency swaps and any assets
used to cover currency swaps and most privately negotiated investments in state
enterprises that have not yet conducted an initial equity offering, (ii)
over-the-counter options and assets used to cover over-the-counter options, and
(iii) repurchase agreements not terminable within seven days.
Because of the absence of a trading market for illiquid securities, a Fund may
not be able to realize their full value upon sale. With respect to each Fund
that may invest in such securities, Alliance will monitor their illiquidity
under the supervision of the Directors of the Fund. To the extent permitted by
applicable law, Rule 144A securities will not be treated as "illiquid" for
purposes of the foregoing restriction so long as such securities meet liquidity
guidelines established by a Fund's Directors.
A Fund that invests in securities for which there is no ready market may
therefore not be able to readily sell such securities. To the extent that these
securities are foreign securities, there is no law in many of the countries in
which a Fund may invest similar to the Securities Act requiring an issuer to
register the sale of securities with a governmental agency or imposing legal
restrictions on resales of securities, either as to length of time the
securities may be held or manner of resale. However, there may be contractual
restrictions on resale of securities.
Options. An option gives the purchaser of the option, upon payment of a premium,
the right to deliver to (in the case of a put) or receive from (in the case of a
call) the writer a specified amount of a security on or before a fixed date at a
predetermined price. A call option written by a Fund is "covered" if the Fund
owns the underlying security, has an absolute and immediate right to acquire
that security upon conversion or exchange of another security it holds, or holds
a call option on the underlying security with an exercise price equal to or less
than that of the call option it has written. A put option written by a Fund is
covered if the Fund holds a put option on the underlying securities with an
exercise price equal to or greater than that of the put option it has written.
In purchasing an option, a Fund would be in a position to realize a gain if,
during the option period, the price of the underlying security increased (in the
case of a call) or decreased (in the case of a put) by an amount in excess of
the premium paid; otherwise the Fund would experience a loss equal to the
premium paid for the option.
If an option written by a Fund were exercised, the Fund would be obligated to
purchase (in the case of a put) or sell (in the case of a call) the underlying
security at the exercise price. The risk involved in writing an option is that,
if the option were exercised, the underlying security would then be purchased or
sold by the Fund at a disadvantageous price. These risks could be reduced by
entering into a closing transaction (i.e., by disposing of the option prior to
its exercise). A Fund retains the premium received from writing a put or call
option whether or not the option is exercised. The writing of covered call
options could result in increases in a Fund's portfolio turnover rate,
especially during periods when market prices of the underlying securities
appreciate.
Quasar Fund will not write uncovered call options and will not write a call
option if, as a result, the aggregate of the Fund's portfolio securities subject
to outstanding call options (valued at the lower of the option price or market
value of such securities) would exceed 15% of the Fund's total assets or more
than 10% of the Fund's assets would be committed to call options that at the
time of sale have a remaining term of more than 100 days. The aggregate cost of
all outstanding options purchased and held by each of Premier Growth Fund and
Quasar Fund will at no time exceed 10% of the Fund's total assets.
A Fund that purchases or writes options on securities in privately negotiated
(i.e., over-the-counter) transactions will effect such transactions only with
investment dealers and other financial institutions (such as commercial banks or
savings and loan institutions) deemed creditworthy by Alliance, and Alliance has
adopted procedures for monitoring the creditworthiness of such entities. Options
purchased or written by a Fund in negotiated transactions are illiquid and it
may not be possible for the Fund to effect a closing transaction at an
advantageous time. See "Illiquid Securities."
Options on Securities Indices. An option on a securities index is similar to an
option on a security except that, rather than the right to take or make delivery
of a security at a specified price, an option on a securities index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing level of the chosen index is greater than (in the case of a call) or
less than (in the case of a put) the exercise price of the option.
Futures Contracts and Options on Futures Contracts. A "sale" of a futures
contract means the acquisition of a contractual obligation to deliver the
securities or foreign currencies or other commodity called for by the contract
at a specified price on a specified date. A "purchase" of a futures contract
means the incurring of an obligation to acquire the securities, foreign
currencies or other commodity called for by the contract at a specified price on
a specified date. The purchaser of a futures contract on an index agrees to take
or make delivery of an
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amount of cash equal to the difference between a specified dollar multiple of
the value of the index on the expiration date of the contract ("current contract
value") and the price at which the contract was originally struck. No physical
delivery of the securities underlying the index is made.
Options on futures contracts written or purchased by a Fund will be traded on
U.S. or foreign exchanges or over-the-counter. These investment techniques will
be used only to hedge against anticipated future changes in market conditions
and interest or exchange rates which otherwise might either adversely affect the
value of the Fund's portfolio securities or adversely affect the prices of
securities which the Fund intends to purchase at a later date.
No Fund will enter into any futures contracts or options on futures contracts if
immediately thereafter the market values of the outstanding futures contracts of
the Fund and the currencies and futures contracts subject to outstanding options
written by the Fund would exceed 50% of its total assets. Premier Growth Fund
may not purchase or sell a stock index future if immediately thereafter more
than 30% of its total assets would be hedged by stock index futures. Premier
Growth Fund may not purchase or sell a stock index future if, immediately
thereafter, the sum of the amount of margin deposits on the Fund's existing
futures positions would exceed 5% of the market value of the Fund's total
assets.
Options on Foreign Currencies. As in the case of other kinds of options, the
writing of an option on a foreign currency constitutes only a partial hedge, up
to the amount of the premium received, and a Fund could be required to purchase
or sell foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates although, in the event of
rate movements adverse to a Fund's position, it may forfeit the entire amount of
the premium plus related transaction costs. See the Statement of Additional
Information of each Fund that may invest in options on foreign currencies for
further discussion of the use, risks and costs of options on foreign currencies.
Forward Foreign Currency Exchange Contracts. A Fund purchases or sells forward
contracts to minimize the risk to it from adverse changes in the relationship
between the U.S. dollar and other currencies. A forward contract is an
obligation to purchase or sell a specific currency for an agreed price at a
future date, and is individually negotiated and privately traded.
A Fund may enter into a forward contract, for example, when it enters into a
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security
("transaction hedge"). A Fund will not engage in transaction hedges with respect
to the currency of a particular country to an extent greater than the aggregate
amount of the Fund's transactions in that currency. When a Fund believes that a
foreign currency may suffer a substantial decline against the U.S. dollar, it
may enter into a forward sale contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency, or when the Fund believes that
the U.S. dollar may suffer a substantial decline against a foreign currency, it
may enter into a forward purchase contract to buy that foreign currency for a
fixed dollar amount ("position hedge"). A Fund will not position hedge with
respect to the currency of a particular country to an extent greater than the
aggregate market value (at the time of making such sale) of the securities held
in its portfolio denominated or quoted in that particular foreign currency.
Instead of entering into a position hedge, a Fund may, in the alternative, enter
into a forward contract to sell a different foreign currency for a fixed U.S.
dollar amount where the Fund believes that the U.S. dollar value of the currency
to be sold pursuant to the forward contract will fall whenever there is a
decline in the U.S. dollar value of the currency in which portfolio securities
of the Fund are denominated ("cross-hedge"). Unanticipated changes in currency
prices may result in poorer overall performance for the Fund than if it had not
entered into such forward contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for a Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates.
Forward Commitments. Forward commitments for the purchase or sale of securities
may include purchases on a "when-issued" basis or purchases or sales on a
"delayed delivery" basis. In some cases, a forward commitment may be conditioned
upon the occurrence of a subsequent event, such as approval and consummation of
a merger, corporate reorganization or debt restructuring (i.e., a "when, as and
if issued" trade).
When forward commitment transactions are negotiated, the price is fixed at the
time the commitment is made, but delivery and payment for the securities take
place at a later date. Normally, the settlement date occurs within two months
after the transaction, but settlements beyond two months may be negotiated.
Securities purchased or sold under a forward commitment are subject to market
fluctuation, and no interest or dividends accrue to the purchaser prior to the
settlement date. At the time a Fund intends to enter into a forward commitment,
it records the transaction and thereafter reflects the value of the security
purchased or, if a sale, the proceeds to be received, in determining its net
asset value. Any unrealized appreciation or depreciation reflected in such
valuation of a "when, as and if issued" security would be canceled in the event
that the required conditions did not occur and the trade was canceled.
The use of forward commitments enables a Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling prices.
In periods of falling interest rates and rising bond prices, a Fund
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might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. However, if Alliance were to forecast
incorrectly the direction of interest rate movements, a Fund might be required
to complete such when-issued or forward transactions at prices inferior to the
then current market values. When-issued securities and forward commitments may
be sold prior to the settlement date, but a Fund enters into when-issued and
forward commitments only with the intention of actually receiving securities or
delivering them, as the case may be. If a Fund chooses to dispose of the right
to acquire a when-issued security prior to its acquisition or dispose of its
right to deliver or receive against a forward commitment, it may incur a gain or
loss. Any significant commitment of Fund assets to the purchase of securities on
a "when, as and if issued" basis may increase the volatility of the Fund's net
asset value. No forward commitments will be made by Real Estate Investment Fund
if, as a result, the Fund's aggregate commitments under such transactions would
be more than 30% of the Fund's total assets. In the event the other party to a
forward commitment transaction were to default, a Fund might lose the
opportunity to invest money at favorable rates or to dispose of securities at
favorable prices.
Standby Commitment Agreements. Standby commitment agreements commit a Fund, for
a stated period of time, to purchase a stated amount of a security that may be
issued and sold to the Fund at the option of the issuer. The price and coupon of
the security are fixed at the time of the commitment. At the time of entering
into the agreement the Fund is paid a commitment fee, regardless of whether the
security ultimately is issued, typically equal to approximately 0.5% of the
aggregate purchase price of the security the Fund has committed to purchase. A
Fund will enter into such agreements only for the purpose of investing in the
security underlying the commitment at a yield and price considered advantageous
to the Fund and unavailable on a firm commitment basis. No Fund will enter into
a standby commitment with a remaining term in excess of 45 days. Investments by
the Real Estate Investment Fund in standby commitments will be limited so that
the aggregate purchase price of the securities subject to the commitments will
not exceed 25% of the Fund's assets taken at the time of making the commitment.
There is no guarantee that a security subject to a standby commitment will be
issued and the value of the security, if issued, on the delivery date may be
more or less than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, a Fund will bear the
risk of capital loss in the event the value of the security declines and may not
benefit from an appreciation in the value of the security during the commitment
period if the issuer decides not to issue and sell the security to the Fund.
Repurchase Agreements. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an agreed-upon
future date, normally a day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed-upon interest rate for the period
the buyer's money is invested in the security. Such agreements permit a Fund to
keep all of its assets at work while retaining "overnight" flexibility in
pursuit of investments of a longer-term nature. If a vendor defaults on its
repurchase obligation, a Fund would suffer a loss to the extent that the
proceeds from the sale of the collateral were less than the repurchase price. If
a vendor goes bankrupt, a Fund might be delayed in, or prevented from, selling
the collateral for its benefit. Alliance monitors the creditworthiness of the
vendors with which the Fund enters into repurchase agreements. There is no
percentage restriction on a Fund's ability to enter into repurchase agreements,
other than as indicated under "Investment Objectives and Policies."
Short Sales. A short sale is effected by selling a security that a Fund does not
own, or if the Fund does own such security, it is not to be delivered upon
consummation of the sale. A short sale is "against the box" to the extent that a
Fund contemporaneously owns or has the right to obtain securities identical to
those sold short without payment. Real Estate Investment Fund may not make a
short sale if as a result more than 25% of the Fund's net assets would be held
as collateral for short sales. If the price of the security sold short increases
between the time of the short sale and the time a Fund replaces the borrowed
security, the Fund will incur a loss; conversely, if the price declines, the
Fund will realize a capital gain. See "Certain Fundamental Investment Policies."
Certain special federal income tax considerations may apply to short sales
entered into by a Fund. See "Dividends, Distributions and Taxes" in the relevant
Fund's Statement of Additional Information.
Loans of Portfolio Securities. The risk in lending portfolio securities, as with
other extensions of credit, consists of the possible loss of rights in the
collateral should the borrower fail financially. In determining whether to lend
securities to a particular borrower, Alliance will consider all relevant facts
and circumstances, including the creditworthiness of the borrower. While
securities are on loan, the borrower will pay the Fund any income earned thereon
and the Fund may invest any cash collateral in portfolio securities, thereby
earning additional income, or receive an agreed upon amount of income from a
borrower who has delivered equivalent collateral. Each Fund will have the right
to regain record ownership of loaned securities or equivalent securities in
order to exercise ownership rights such as voting rights, subscription rights
and rights to dividends, interest or distributions. A Fund may pay reasonable
finders', administrative and custodial fees in connection with a loan. A Fund
will not lend its portfolio securities to any officer, director, employee or
affiliate of the Fund or Alliance.
General. The successful use of the foregoing investment practices draws upon
Alliance's special skills and experience with respect to such instruments and
usually depends on Alliance's ability to forecast price movements, interest
rates or currency exchange rate movements correctly. Should interest rates,
prices or exchange rates move unexpectedly, a Fund may not achieve the
anticipated benefits of the transactions or may realize losses and thus be in a
worse position than if such strategies had not been used. Unlike many
exchange-traded futures contracts and options on futures contracts, there are no
daily price fluctuation
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limits with respect to certain options and forward contracts, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
In addition, the correlation between movements in the prices of futures
contracts, options and forward contracts and movements in the prices of the
securities and currencies hedged or used for cover will not be perfect and could
produce unanticipated losses.
A Fund's ability to dispose of its position in futures contracts, options and
forward contracts depends on the availability of liquid markets in such
instruments. Markets in options and futures with respect to a number of types of
securities and currencies are relatively new and still developing, and there is
no public market for forward contracts. It is impossible to predict the amount
of trading interest that may exist in various types of futures contracts,
options and forward contracts. If a secondary market does not exist with respect
to an option purchased or written by a Fund, it might not be possible to effect
a closing transaction in the option (i.e., dispose of the option) with the
result that (i) an option purchased by the Fund would have to be exercised in
order for the Fund to realize any profit and (ii) the Fund may not be able to
sell currencies or portfolio securities covering an option written by the Fund
until the option expires or it delivers the underlying security, futures
contract or currency upon exercise. Therefore, no assurance can be given that
the Funds will be able to utilize these instruments effectively for the purposes
set forth above. Furthermore, a Fund's ability to engage in options and futures
transactions may be limited by tax considerations. See "Dividends, Distributions
and Taxes" in the Statement of Additional Information of each Fund that invests
in options and futures.
Future Developments. A Fund may, following written notice to its shareholders,
take advantage of other investment practices that are not currently contemplated
for use by the Fund or are not available but may yet be developed, to the extent
such investment practices are consistent with the Fund's investment objective
and legally permissible for the Fund. Such investment practices, if they arise,
may involve risks that exceed those involved in the activities described above.
Defensive Position. For temporary defensive purposes, each Fund may invest in
certain types of short-term, liquid, high grade or high quality (depending on
the Fund) debt securities. These securities may include U.S. Government
securities, qualifying bank deposits, money market instruments, prime commercial
paper and other types of short-term debt securities including notes and bonds.
For Funds that may invest in foreign countries, such securities may also include
short-term, foreign-currency denominated securities of the type mentioned above
issued by foreign governmental entities, companies and supranational
organizations. For a complete description of the types of securities each Fund
may invest in while in a temporary defensive position, please see such Fund's
Statement of Additional Information.
Portfolio Turnover. Alliance anticipates that the annual portfolio turnover will
be approximately 150% for Premier Growth Fund, and Quasar Fund and approximately
100% for Real Estate Investment Fund. A high rate of portfolio turnover involves
correspondingly greater brokerage and other expenses than a lower rate, which
must be borne by the Fund and its shareholders. High portfolio turnover also may
result in the realization of substantial net short-term capital gains. See
"Dividends, Distributions and Taxes" in each Fund's Statement of Additional
Information.
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
Each Fund has adopted certain fundamental investment policies listed below,
which may not be changed without the approval of its shareholders. Additional
investment restrictions with respect to a Fund are set forth in its Statement of
Additional Information.
Premier Growth Fund may not: (i) purchase more than 10% of the outstanding
voting securities of any one issuer; (ii) invest 25% or more of the value of its
total assets in the same industry; (iii) borrow money or issue senior securities
except for temporary or emergency purposes in an amount not exceeding 5% of the
value of its total assets at the time the borrowing is made; (iv) pledge,
mortgage, hypothecate or otherwise encumber any of its assets except in
connection with the writing of call options and except to secure permitted
borrowings; or (v) invest in the securities of any issuer that has a record of
less than three years of continuous operation (including the operation of any
predecessor) if as a result more than 10% of the value of the total assets of
the Fund would be invested in the securities of such issuer or issuers.
Quasar Fund may not: (i) purchase the securities of any one issuer, other than
the U.S. Government or any of its agencies or instrumentalities, if as a result
more than 5% of its total assets would be invested in such issuer or the Fund
would own more than 10% of the outstanding voting securities of such issuer,
except that up to 25% of its total assets may be invested without regard to
these 5% and 10% limitations; (ii) invest more than 25% of its total assets in
any particular industry; (iii) borrow money except for temporary or emergency
purposes in an amount not exceeding 5% of its total assets at the time the
borrowing is made; or (iv) invest more than 10% of its assets in restricted
securities.
Real Estate Investment Fund may not: (i) with respect to 75% of its total
assets, have such assets represented by other than: (a) cash and cash items, (b)
U.S. Government securities, or (c) securities of any one issuer (other than the
U.S. Government and its agencies or instrumentalities) not greater in value than
5% of the Fund's total assets, and not more than 10% of the outstanding voting
securities of such issuer; (ii) purchase the securities of any one issuer, other
than the U.S. Government and its agencies or instrumentalities, if as a result
(a) the value of the holdings of the Fund in the securities of such issuer
exceeds 25% of its total assets, or (b) the Fund owns more than 25% of the
outstanding securities of any one class of securities of such
12
<PAGE>
issuer; (iii) invest 25% or more of its total assets in the securities of
issuers conducting their principal business activities in any one industry,
other than the real estate industry in which the Fund will invest at least 25%
or more of its total assets, except that this restriction does not apply to U.S.
Government securities; (iv) purchase or sell real estate, except that it may
purchase and sell securities of companies which deal in real estate or interests
therein, including Real Estate Equity Securities; or (v) borrow money except for
temporary or emergency purposes or to meet redemption requests, in an amount not
exceeding 5% of the value of its total assets at the time the borrowing is made.
RISK CONSIDERATIONS
Investment in certain of the Funds involves the special risk considerations
described below. These risks may be heightened when investing in emerging
markets.
Foreign Investment. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, a Fund whose investment portfolio includes such
securities may experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in equity securities of United States
companies. These markets may be subject to greater influence by adverse events
generally affecting the market, and by large investors trading significant
blocks of securities, than is usual in the United States. Securities settlements
may in some instances be subject to delays and related administrative
uncertainties. These problems are particularly severe in India, where settlement
is through physical delivery, and, where, currently, a severe shortage of vault
capacity exists among custodial banks, although efforts are being undertaken to
alleviate the shortage. Certain foreign countries require governmental approval
prior to investments by foreign persons or limit investment by foreign persons
to only a specified percentage of an issuer's outstanding securities or a
specific class of securities which may have less advantageous terms (including
price) than securities of the company available for purchase by nationals. These
restrictions or controls may at times limit or preclude investment in certain
securities and may increase the costs and expenses of a Fund. In addition, the
repatriation of investment income, capital or the proceeds of sales of
securities from certain of the countries is controlled under regulations,
including in some cases the need for certain advance government notification or
authority, and if a deterioration occurs in a country's balance of payments, the
country could impose temporary restrictions on foreign capital remittances.
A Fund could be adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation, as well as by the application
to it of other restrictions on investment. Investing in local markets may
require a Fund to adopt special procedures, which may involve additional costs
to a Fund. The liquidity of a Fund's investments in any country in which any of
these factors exists could be affected and Alliance will monitor the effect of
any such factor or factors on a Fund's investments. Furthermore, transaction
costs including brokerage commissions for transactions both on and off the
securities exchanges in many foreign countries are generally higher than in the
U.S. Issuers of securities in foreign jurisdictions are generally not subject to
the same degree of regulation as are U.S. issuers with respect to such matters
as insider trading rules, restrictions on market manipulation, shareholder proxy
requirements and timely disclosure of information. The reporting, accounting and
auditing standards of foreign countries may differ, in some cases significantly,
from U.S. standards in important respects and less information may be available
to investors in foreign securities than to investors in U.S. securities.
Substantially less information is publicly available about certain non-U.S.
issuers than is available about U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability or diplomatic
developments could affect adversely the economy of a foreign country or the
Fund's investments in such country. In the event of expropriation,
nationalization or other confiscation, a Fund could lose its entire investment
in the country involved. In addition, laws in foreign countries governing
business organizations, bankruptcy and insolvency may provide less protection to
security holders such as the Fund than that provided by U.S. laws.
Investment in Smaller, Emerging Companies. The Funds may invest in smaller,
emerging companies. Investment in such companies involves greater risks than is
customarily associated with securities of more established companies. The
securities of smaller companies may have relatively limited marketability and
may be subject to more abrupt or erratic market movements than securities of
larger companies or broad market indices.
The Real Estate Industry. Although Real Estate Investment Fund does not invest
directly in real estate, it does invest primarily in Real Estate Equity
Securities and does have a policy of concentration of its investments in the
real estate industry. Therefore, an investment in the Fund is subject to certain
risks associated with the direct ownership of real estate and with the real
estate industry in general. These risks include, among others: possible declines
in the value of real estate; risks related to general and local economic
conditions; possible lack of availability of mortgage funds; overbuilding;
extended vacancies of properties; increases in competition, property taxes and
operating expenses; changes in zoning laws; costs resulting from the clean-up
of, and liability to third parties for damages resulting from, environmental
problems; casualty or condemnation losses; uninsured damages from floods,
earthquakes or other natural disasters; limitations on and variations in rents;
and changes in interest rates. To the
13
<PAGE>
extent that assets underlying the Fund's investments are concentrated
geographically, by property type or in certain other respects, the Fund may be
subject to certain of the foregoing risks to a greater extent.
In addition, if Real Estate Investment Fund receives rental income or income
from the disposition of real property acquired as a result of a default on
securities the Fund owns, the receipt of such income may adversely affect the
Fund's ability to retain its tax status as a regulated investment company. See
"Dividends, Distributions and Taxes" in the Statement of Additional Information.
Investments by the Fund in securities of companies providing mortgage servicing
will be subject to the risks associated with refinancings and their impact on
servicing rights.
REITs. Investing in REITs involves certain unique risks in addition to those
risks associated with investing in the real estate industry in general. Equity
REITs may be affected by changes in the value of the underlying property owned
by the REITs, while mortgage REITs may be affected by the quality of any credit
extended. REITs are dependent upon management skills, are not diversified, are
subject to heavy cash flow dependency, default by borrowers and
self-liquidation. REITs are also subject to the possibilities of failing to
qualify for tax free pass-through of income under the Code and failing to
maintain their exemptions from registration under the 1940 Act.
REITs (especially mortgage REITs) are also subject to interest rate risks. When
interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT's investments in such loans will gradually
align themselves to reflect changes in market interest rates, causing the value
of such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
Investing in REITs involves risks similar to those associated with investing in
small capitalization companies. REITs may have limited financial resources, may
trade less frequently and in a limited volume and may be subject to more abrupt
or erratic price movements than larger company securities. Historically, small
capitalization stocks, such as REITs, have been more volatile in price than the
larger capitalization stocks included in the S&P Index of 500 Common Stocks.
Mortgage-Backed Securities. As discussed above, investing in Mortgage-Backed
Securities involves certain unique risks in addition to those risks associated
with investment in the real estate industry in general. These risks include the
failure of a counterparty to meet its commitments, adverse interest rate changes
and the effects of prepayments on mortgage cash flows. When interest rates
decline, the value of an investment in fixed rate obligations can be expected to
rise. Conversely, when interest rates rise, the value of an investment in fixed
rate obligations can be expected to decline. In contrast, as interest rates on
adjustable rate mortgage loans are reset periodically, yields on investments in
such loans will gradually align themselves to reflect changes in market interest
rates, causing the value of such investments to fluctuate less dramatically in
response to interest rate fluctuations than would investments in fixed rate
obligations.
Further, the yield characteristics of Mortgage-Backed Securities, such as those
in which Real Estate Investment Fund may invest, differ from those of
traditional fixed-income securities. The major differences typically include
more frequent interest and principal payments (usually monthly), the
adjustability of interest rates, and the possibility that prepayments of
principal may be made substantially earlier than their final distribution dates.
Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors, and cannot be
predicted with certainty. Both adjustable rate mortgage loans and fixed rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal
prepayments in an increasing interest rate environment. Early payment associated
with Mortgage-Backed Securities causes these securities to experience
significantly greater price and yield volatility than that experienced by
traditional fixed-income securities. Under certain interest rate and prepayment
rate scenarios, the Fund may fail to recoup fully its investment in
Mortgage-Backed Securities notwithstanding any direct or indirect governmental
or agency guarantee. When the Fund reinvests amounts representing payments and
unscheduled prepayments of principal, it may receive a rate of interest that is
lower than the rate on existing adjustable rate mortgage pass-through
securities. Thus, Mortgage-Backed Securities, and adjustable rate mortgage
pass-through securities in particular, may be less effective than other types of
U.S. Government securities as a means of "locking in" interest rates.
U.S. and Foreign Taxes. A Fund's investment in foreign securities may be subject
to taxes withheld at the source on dividend or interest payments. Foreign taxes
paid by a Fund may be creditable or deductible by U.S. shareholders for U.S.
income tax purposes. No assurance can be given that applicable tax laws and
interpretations will not change in the future. Moreover, non-U.S. investors may
not be able to credit or deduct such foreign taxes. Investors should review
carefully the information discussed under the heading "Dividends, Distributions
and Taxes" and should discuss with their tax advisers the specific tax
consequences of investing in a Fund.
Fixed-Income Securities. The value of each Fund's shares will fluctuate with the
value of its investments. The value of each Fund's investments in fixed-income
securities will change as the general level of interest rates fluctuates. During
periods of falling interest rates, the values of fixed-income securities
generally rise. Conversely, during periods of rising interest rates, the values
of fixed-income securities generally decline.
Under normal market conditions, the average dollar-weighted maturity of a Fund's
portfolio of debt or other fixed-income securities is expected to vary between
one year or less and 30 years in the case of all Funds that invest in such
securities. In
14
<PAGE>
periods of increasing interest rates, each of the Funds may, to the extent it
holds mortgage-backed securities, be subject to the risk that the average
dollar-weighted maturity of the Fund's portfolio of debt or other fixed-income
securities may be extended as a result of lower than anticipated prepayment
rates. See "Additional Investment Practices--Mortgage-Backed Securities."
Securities Ratings. The ratings of securities by S&P, Moody's, Duff & Phelps and
Fitch are a generally accepted barometer of credit risk. They are, however,
subject to certain limitations from an investor's standpoint. The rating of an
issuer is heavily weighted by past developments and does not necessarily reflect
probable future conditions. There is frequently a lag between the time a rating
is assigned and the time it is updated. In addition, there may be varying
degrees of difference in credit risk of securities within each rating category.
Securities rated Aaa by Moody's and AAA by S&P, Duff & Phelps and Fitch are
considered to be of the highest quality; capacity to pay interest and repay
principal is extremely strong. Securities rated Aa by Moody's and AA by S&P,
Duff & Phelps and Fitch are considered to be high quality; capacity to repay
principal is considered very strong, although elements may exist that make risks
appear somewhat larger than exist with securities rated Aaa or AAA. Securities
rated A are considered by Moody's to possess adequate factors giving security to
principal and interest. S&P, Duff & Phelps and Fitch consider such securities to
have a strong capacity to pay interest and repay principal. Such securities are
more susceptible to adverse changes in economic conditions and circumstances
than higher-rated securities.
Securities rated Baa by Moody's and BBB by S&P, Duff & Phelps and Fitch are
considered to have an adequate capacity to pay interest and repay principal.
Such securities are considered to have speculative characteristics and share
some of the same characteristics as lower-rated securities. Sustained periods of
deteriorating economic conditions or of rising interest rates are more likely to
lead to a weakening in the issuer's capacity to pay interest and repay principal
than in the case of higher-rated securities. Securities rated Ba by Moody's and
BB by S&P, Duff & Phelps and Fitch are considered to have speculative
characteristics with respect to capacity to pay interest and repay principal
over time; their future cannot be considered as well-assured. Securities rated B
by Moody's, S&P, Duff & Phelps and Fitch are considered to have highly
speculative characteristics with respect to capacity to pay interest and repay
principal. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Securities rated Caa by Moody's and CCC by S&P, Duff & Phelps and Fitch are of
poor standing and there is a present danger with respect to payment of principal
or interest. Securities rated Ca by Moody's and CC by S&P and Fitch are
minimally protected, and default in payment of principal or interest is
probable. Securities rated C by Moody's, S&P and Fitch are in imminent default
in payment of principal or interest and have extremely poor prospects of ever
attaining any real investment standing. Securities rated D by S&P and Fitch are
in default. The issuer of securities rated DD by Duff & Phelps is under an order
of liquidation.
Foreign government securities are not treated like U.S. Government securities
for purposes of the diversification tests described in the preceding paragraph,
but instead are subject to these tests in the same manner as the securities of
non-governmental issuers.
- --------------------------------------------------------------------------------
PURCHASE AND SALE
- --------------------------------------------------------------------------------
OF SHARES
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
You can purchase shares of any of the Funds at a price based on the next
calculation of their net asset value after receipt of a proper purchase order
either through broker-dealers, banks or other financial intermediaries, or
directly through AFD.
Each Fund offers two classes of shares. Shares of the Funds are available
through your financial representative. Class I shares may be purchased and held
solely (i) through accounts established under a fee-based program sponsored and
maintained by a registered broker-dealer or other financial intermediary and
approved by the Distributor, (ii) through Employee Plans that have at least $10
million in assets, (iii) by investment advisory clients of, and certain other
persons associated with, Alliance and its affiliates or the Funds, and (iv)
through registered investment advisers or other financial intermediaries who
charge a management, consulting or other fee for their service and who purchase
shares through a broker or agent approved by the Distributor and clients of such
registered investment advisers or financial intermediaries whose accounts are
linked to the master account of such investment adviser or financial
intermediary on the books of such approved broker or agent. A shareholder's
Class I shares will automatically convert to Class II shares of the same Fund
under certain circumstances. See "Conversion Feature--Conversion to Class II
Shares." Class II shares may be purchased and held solely (i) by investors
participating in wrap-fee or other similar programs offered by registered
broker-dealers or other financial intermediaries that meet certain requirements
established by the Distributor, and (ii) Employee Plans that have at least $10
million in assets. For more detailed information about who may purchase and hold
the shares of each Fund, see the Fund's Statement of Additional Information.
Fee-based and other programs may impose different requirements with respect to
investment in the shares of the Funds than described above.
The minimum initial investment in the Company is $2 million, which may be
invested in any one or more of the Funds.
15
<PAGE>
Investments made through fee-based or wrap-fee programs will satisfy the minimum
initial investment requirement if the fee-based or wrap-fee program, as a whole,
invests at least $2 million in one or more of the Funds. There is no minimum for
subsequent investments. The minimum initial investment may be waived in the
discretion of the Company. The Funds may refuse any order to purchase shares. In
this regard, the Funds reserve the right to restrict purchases of shares
(including through exchanges) when there appears to be evidence of a pattern of
frequent purchases and sales made in response to short-term considerations.
How the Funds Value Their Shares
The net asset value of shares of a class of each Fund is calculated by dividing
the value of the Fund's net assets allocable to the class by the outstanding
shares of that class. Shares are valued each day the New York Stock Exchange
(the "Exchange") is open as of the close of regular trading (currently 4:00 p.m.
Eastern time). The securities in a Fund are valued at their current market value
determined on the basis of market quotations or, if such quotations are not
readily available, such other methods as the Company's Directors believe would
accurately reflect fair market value.
General
In addition to the discount or commission which may be paid to dealers or agents
in connection with the sale of shares of a Fund, AFD may from time to time pay
additional cash or other incentives to dealers or agents, including EQ Financial
Consultants, Inc., an affiliate of AFD, in connection with such sales. Such
additional amounts may be utilized, in whole or in part, in some cases together
with other revenues of such dealers or agents, to provide additional
compensation to registered representatives who sell shares of the Funds. On some
occasions, such cash or other incentives will be conditioned upon the sale of a
specified minimum dollar amount of the shares of a Fund and/or other Alliance
Mutual Funds during a specific period of time. Such incentives may take the form
of payment for attendance at seminars, meals, sporting events or theater
performances, or payment for travel, lodging and entertainment incurred in
connection with travel by persons associated with a dealer or agent and their
immediate family members to urban or resort locations within or outside the
United States. Such dealer or agent may elect to receive cash incentives of
equivalent amount in lieu of such payments.
HOW TO SELL SHARES
You may "redeem," i.e., sell your shares in a Fund to the Company on any day the
Exchange is open, either directly or through your financial representative. The
price you will receive is the net asset value next calculated after the Company
receives your request in proper form. Proceeds generally will be sent to you
within seven days. However, for shares recently purchased by check or electronic
funds transfer, the Company will not send proceeds until it is reasonably
satisfied that the check or electronic funds transfer has been collected (which
may take up to 15 days). If you are in doubt about what documents are required
by your fee-based program or other program, you should contact your financial
representative.
Selling Shares Through Your Financial Representative
Your financial representative must receive your request before 4:00 p.m. Eastern
time, and your financial representative must transmit your request to the Fund
by 5:00 p.m. Eastern time, for you to receive that day's net asset value. Your
financial representative is responsible for furnishing all necessary
documentation to the Company and may charge you for this service.
Selling Shares Directly To The Company
Send a signed letter of instruction or stock power form to AFS along with
certificates, if any, that represent the shares you want to sell. For your
protection, signatures must be guaranteed by a bank, a member firm of a national
stock exchange or other eligible guarantor institution. Stock power forms are
available from your financial representative, AFS, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
intermediaries, fiduciaries and surviving joint owners. For details contact:
Alliance Fund Services
P.O. Box 1520
Secaucus, NJ 07096-1520
1-800-221-5672
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672.
Telephone redemption requests must be made by 4 p.m. Eastern time on a Fund
business day in order to receive that day's net asset value, and, except for
certain omnibus accounts, may be made only once in any 30-day period. A
shareholder who has completed the Telephone Transactions section of the
Subscription Application, or the Shareholder Options form obtained from AFS, can
elect to have the proceeds of his or her redemption sent to his or her bank via
an electronic funds transfer. Proceeds of telephone redemptions also may be sent
by check to a shareholder's address of record. Except for certain omnibus
accounts, redemption requests by electronic funds transfer may not exceed
$100,000 and redemption requests by check may not exceed $50,000. Telephone
redemption is not available for shares held in nominee or "street name" accounts
or retirement plan accounts or shares held by a shareholder who has changed his
or her address of record within the previous 30 calendar days.
General
The sale of shares is a taxable transaction for federal tax purposes. Under
unusual circumstances, the Company may suspend redemptions or postpone payment
for up to seven days or longer, as permitted by federal securities law. The
Company reserves the right to close an account that through redemption has
remained below $200 for 90 days. Shareholders will receive 60 days' written
notice to increase the account value before the account is closed.
During drastic economic or market developments, you might have difficulty
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ
16
<PAGE>
reasonable procedures to verify that telephone requests are genuine, and could
be liable for losses resulting from unauthorized transactions if it failed to do
so. Dealers and agents may charge a commission for handling telephonic requests.
The telephone service may be suspended or terminated at any time without notice.
HOW TO EXCHANGE SHARES
You may exchange your shares of any Fund for the same class of shares of any
other Fund and for Class A shares of any other Alliance Mutual Fund. Exchanges
of shares are made at the net asset value next determined and without sales or
service charges. Exchanges may be made by telephone or written request.
Telephone exchange requests must be received by AFS by 4:00 p.m. Eastern time on
a Fund business day in order to receive that day's net asset value.
Please read carefully the prospectus of the Fund into which you are exchanging
before submitting the request. Call AFS at 800-221-5672 to exchange
uncertificated shares. An exchange is a taxable capital transaction for federal
tax purposes. The exchange service may be changed, suspended, or terminated on
60 days' written notice.
GENERAL
If you are a Fund shareholder through an account established under a fee-based
or other program, your fee-based or other program may impose requirements with
respect to the purchase, sale or exchange of shares of a Fund that are different
from those described in this Prospectus. A transaction, service, administrative
or other similar fee may be charged by your broker-dealer, agent, financial
intermediary or other financial representative with respect to the purchase,
sale or exchange of shares made through such financial representative. Such
financial intermediaries may also impose requirements with respect to the
purchase, sale or exchange of shares that are different from, or in addition to,
those imposed by the Company, including requirements as to the minimum initial
and subsequent investment amounts.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
ADVISER
Alliance, which is a Delaware limited partnership with principal offices at 1345
Avenue of the Americas, New York, New York 10105, has been retained under an
advisory agreement (the "Advisory Agreement") to provide investment advice and,
in general, to conduct the management and investment program of each Fund,
subject to the general supervision and control of the Directors of the Fund.
The following table lists the person or persons who are primarily responsible
for the day-to-day management of each Fund, the length of time that each person
has been primarily responsible, and each person's principal occupation during
the past five years.
Principal occupation
during the past
Fund Employee; year; title five years
- --------------------------------------------------------------------------------
Premier Growth Fund Alfred Harrison since inception-- Associated with
Vice Chairman of Alliance Capital Alliance
Management Corporation ("ACMC")*
Quasar Fund Alden M. Stewart since 1997-- Associated with
Executive Vice President of ACMC Alliance since
1993; prior
thereto,
associated with
Equitable Capital
Management
Corporation
("Equitable
Capital")**
Randall E. Haase since 1997-- Associated with
Senior Vice President of ACMC Alliance since
1993; prior
thereto,
associated with
Equitable Capital
Real Estate Daniel G. Pine since 1996-- Associated with
Investment Fund Senior Vice President Alliance since
of ACMC 1996; prior
thereto, Senior
Vice President of
Desai Capital
Management
David Kruth since 1997-- Associated with
Vice President of ACMC Alliance since
1997; prior
thereto, Senior
Vice President of
the Yarmouth
Group
- --------------------------------------------------------------------------------
* The sole general partner of Alliance.
** Equitable Capital was, prior to Alliance's acquisition of it, a management
firm under common control with Alliance.
*** An indirect wholly-owned subsidiary of Alliance.
Alliance is a leading international investment manager supervising client
accounts with assets as of September 30, 1997 totaling more than $217 billion
(of which approximately $81 billion represented the assets of investment
companies). Alliance's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies, foundations and
endowment funds. The 54 registered investment companies managed by Alliance
comprising 116 separate investment portfolios currently have over two million
shareholders. As of September 30, 1997, Alliance was an investment manager of
employee benefit plan assets for 28 of the Fortune 100 companies.
ACMC, the sole general partner of, and the owner of a 1% general partnership
interest in, Alliance, is an indirect wholly-owned subsidiary of The Equitable
Life Assurance Society of the United States ("Equitable"), one of the largest
life insurance -of The Equitable Companies Incorporated, a holding company
controlled by AXA-UAP, a French insurance holding company. Certain information
concerning the ownership and control of Equitable by AXA-UAP is set forth in
each Fund's Statement of Additional Information under "Management of the Fund."
17
<PAGE>
Performance of Similarly Managed Investment Companies. Each of the Funds is
identical in its investment objectives, policies and practices to a currently
existing open-end management investment company managed by Alliance, Alliance
Premier Growth Fund, Inc., Alliance Quasar Fund, Inc. and Alliance Real Estate
Investment Fund, Inc. (each, a "Retail Fund"). Each Fund is managed by the same
investment personnel, in the identical investment style and following the same
investment strategy, as its corresponding Retail Fund. Set forth below is
performance data for each of the Retail Funds for the 1, 5 and 10 year (or since
inception) periods through September 30, 1997. As of September 30, 1997, the
assets in the corresponding Retail Funds totaled approximately $1.3 billion for
Alliance Premier Growth Fund, $1.1 billion for Alliance Quasar Fund and $324
million for Alliance Real Estate Investment Fund. The following performance data
for the Retail Funds is net of actual fees incurred by those Funds for the
relevant periods and is based on each Fund's Class A shares with imposition of
the maximum 4.25% sales charge.
<TABLE>
<CAPTION>
Year ended 5 Years ended 10 Years ended
Retail Funds 9/30/97 9/30/97 9/30/97
- ------------ ------- ------- -------
<S> <C> <C> <C>
Alliance Premier Growth Fund 47.16% 21.93% 21.88*%
Alliance Quasar Fund 22.38 23.53 12.48
Alliance Real Estate
Investment Fund 40.67* -- --
</TABLE>
- ---------
* Inception dates for Alliance Premier Growth Fund--September 28, 1992 and
Alliance Real Estate Investment Fund--October 1, 1996.
Performance of Similarly Managed Portfolios--Premier Growth Institutional Fund.
In addition to managing the assets of Premier Growth Institutional Fund, Mr.
Harrison has ultimate responsibility for the management of discretionary
tax-exempt accounts of institutional clients managed as described below without
significant client-imposed restrictions ("Historical Portfolios"). These
accounts have substantially the same investment objectives and policies and are
managed in accordance with essentially the same investment strategies and
techniques as those for Premier Growth Institutional Fund, except for the
ability of Premier Growth Institutional Fund to use futures and options as
hedging tools and to invest in warrants. The Historical Portfolios are also not
subject to certain limitations, diversification requirements and other
restrictions imposed under the 1940 Act and the Code to which Premier Growth
Institutional Fund, as a portfolio within a registered investment company, is
subject and which if applicable to the Historical Portfolios, may have adversely
affected the performance results of the Historical Portfolios. See "Investment
Objective and Policies."
Set forth below is performance data provided by the Adviser relating to the
Historical Portfolios for each of the eighteen full calendar years during which
Mr. Harrison has managed the Historical Portfolios as an employee of Alliance
and cumulatively through September 30, 1997. As of September 30, 1997, the
assets in the Historical Portfolios totaled approximately $12.4 billion and the
average size of an institutional account in the Historical Portfolio was $355
million. Each Historical Portfolio has a nearly identical composition of
individual investment holdings and related percentage weightings.
The performance data is net of all fees (including brokerage commissions)
charged to those accounts. The performance data is computed in accordance with
standards formulated by the Association of Investment Management and Research
and has not been adjusted to reflect any fees that will be payable by Premier
Growth Institutional Fund, which are higher than the fees imposed on the
Historical Portfolio and will result in a higher expense ratio and lower returns
for Premier Growth Institutional Fund. The performance data has also not been
adjusted for corporate or individual taxes, if any, payable by the account
owners.
The Adviser has calculated the investment performance of the Historical
Portfolios on a trade-date basis. Dividends have been accrued at the end of the
month and cash flows weighted daily. Composite investment performance for all
portfolios has been determined on an asset-weighted basis. New accounts are
included in the composite investment performance computations at the beginning
of the quarter following the initial contribution. The composite total returns
set forth below are calculated using a method that links the monthly return
amounts for the disclosed periods, resulting in a time-weighted rate of return.
As reflected below, the Historical Portfolios have over time performed favorably
when compared with the performance of recognized performance indices. The S&P
500 Index is a widely recognized, unmanaged index of market activity based upon
the aggregate performance of a selected portfolio of publicly traded common
stocks, including monthly adjustments to reflect the reinvestment of dividends
and other distributions. The S&P 500 Index reflects the total return of
securities comprising the Index, including changes in market prices as well as
accrued investment income, which is presumed to be reinvested. The Russell 1000
universe of securities is compiled by Frank Russell Company and is segmented
into two style indices, based on the capitalization-weighted median
book-to-price ratio of each of the securities. At each reconstitution, the
Russell 1000 constituents are ranked by their book-to-price ratio. Once so
ranked, the breakpoint for the two styles is determined by the median market
capitalization of the Russell 1000. Thus, those securities falling within the
top fifty percent of the cumulative market capitalization (as ranked by
descending book-to-price) become members of the Russell Price-Driven Indices.
The Russell 1000 Growth Index is, accordingly, designed to include those Russell
1000 securities with a greater-than-average growth orientation. In contrast with
the securities in the Russell Price-Driven Indices, companies in the Growth
Index tend to exhibit higher price-to-book and price-earnings ratios, lower
dividend yield and higher forecasted growth values.
To the extent Premier Growth Institutional Fund does not invest in U.S. common
stocks or utilizes investment techniques such as futures or options, the S&P 500
and Russell 1000 Growth Index may not be substantially comparable to Premier
Growth Institutional Fund. The S&P 500 and Russell 1000 Growth Index are
included to illustrate material economic and market factors that existed during
the time period shown. The S&P 500 and Russell 1000 Growth Index do not reflect
the deduction of any fees. If Premier Growth Institutional Fund
18
<PAGE>
were to purchase a portfolio of securities substantially identical to the
securities comprising the S&P 500 Index or the Russell 1000 Growth Index,
Premier Growth Institutional Fund's performance relative to the index would be
reduced by Premier Growth Institutional Fund's expenses, including brokerage
commissions, advisory fees, distribution fees, custodial fees, transfer agency
costs and other administrative expenses as well as by the impact on Premier
Growth Institutional Fund's shareholders of sales charges and income taxes.
The Lipper Growth Fund Index is prepared by Lipper Analytical Services, Inc. and
represents a composite index of the investment performance for the 30 largest
growth mutual funds. The composite investment performance of the Lipper Growth
Fund Index reflects investment management and administrative fees and other
operating expenses paid by these mutual funds and reinvested income dividends
and capital gain distributions, but excludes the impact of any income taxes and
sales charges.
The following performance data is provided solely to illustrate Mr. Harrison's
performance in managing the Historical Portfolios as measured against certain
broad based market indices and against the composite performance of other
open-end growth mutual funds. Investors should not rely on the following
performance data of the Historical Portfolios as an indication of future
performance of Premier Growth Institutional Fund. The composite investment
performance for the periods presented may not be indicative of future rates of
return. Other methods of computing investment performance may produce different
results, and the results for different periods may vary.
Schedule of Composite Investment Performance Historical Portfolios*
<TABLE>
<CAPTION>
Russell Lipper
Historical S&P 500 1000 Growth
Portfolios Index Growth Index Fund Index
Total Return** Total Return Total Return Total Return
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Year ended December:
1996*** ............... 22.22% 22.96% 23.12% 17.48%
1995*** ............... 40.12 37.58 37.19 32.65
1994 .................. (4.83) 1.32 2.66 (1.57)
1993 .................. 10.62 10.08 2.90 11.98
1992 .................. 12.27 7.62 5.00 7.63
1991 .................. 39.19 30.47 41.16 35.20
1990 .................. (1.57) (3.10) (0.26) (5.00)
1989 .................. 39.08 31.69 35.92 28.60
1988 .................. 10.96 16.61 11.27 15.80
1987 .................. 8.57 5.25 5.31 1.00
1986 .................. 27.60 18.67 15.36 15.90
1985 .................. 37.68 31.73 32.85 30.30
1984 .................. (3.33) 6.27 (.95) (2.80)
1983 .................. 20.95 22.56 15.98 22.30
1982 .................. 28.23 21.55 20.46 20.20
1981 .................. (1.10) (4.92) (11.31) (8.40)
1980 .................. 51.10 32.50 39.57 37.30
1979 .................. 30.99 18.61 23.91 27.40
Cumulative total return
for the period
January 1, 1979 to
September 30, 1997 .... 3188.99 1888.65 1656.41 1772.84
- -------------------------------------------------------------------------------------
</TABLE>
* Total return is a measure of investment performance that is based upon the
change in value of an investment from the beginning to the end of a
specified period and assumes reinvestment of all dividends and other
distributions. The basis of preparation of this data is described in the
preceding discussion.
** Assumes imposition of the maximum advisory fee charged by Alliance for any
Historical Portfolio for the period involved, although not the impact of
the payment of that fee on a quarterly rather than an annual basis and the
compounding effect thereof over the periods for which return information is
provided in the table following this footnote, which would correspondingly
reduce the returns presented.
*** During this period, the Historical Portfolios differed from Premier Growth
Institutional Fund in that the Historical Portfolios were unable, by their
investment restrictions, to purchase warrants on equity securities in which
Premier Growth Institutional Fund could have invested. In lieu of warrants,
the Historical Portfolios acquired the common stock upon which the warrants
were based.
The average annual total returns presented below are based upon the cumulative
total return as of September 30, 1997, and for more than one year assume a
steady compounded rate of return and are not year-by-year results, which
fluctuated over the periods as shown.
<TABLE>
<CAPTION>
Average Annual Total Returns
-------------------------------------------------
Russell Lipper
Historical S&P 500 1000 Growth
Portfolios Index Growth Index Fund Index
---------- ----- ------------ ----------
<S> <C> <C> <C> <C>
One year ................ 54.05% 40.45% 36.30% 33.52%
Three years ............. 32.26 29.92 29.81 24.84
Five years. ............. 21.99 20.77 19.66 18.62
Ten years ............... 16.03 14.75 14.66 13.19
Since January 1, 1979 ... 20.48 17.29 16.51 16.18
</TABLE>
CONSULTANT TO ALLIANCE WITH RESPECT TO INVESTMENT IN REAL ESTATE SECURITIES
Alliance, with respect to investment in real estate securities, has retained as
a consultant CB Commercial Real Estate Group, Inc. ("CBC"), a publicly held
company and the largest real estate services company in the United States,
comprised of real estate brokerage, property and facilities management, and real
estate finance and investment advisory activities (CBC in August of 1997
acquired Koll, which previously provided these consulting services to Alliance).
In 1996, CBC (and Koll, on a combined basis) completed 25,000 sale and lease
transactions, managed over 4,100 client properties, created over $3.5 billion in
mortgage originations, and completed over 2,600 appraisal and consulting
assignments. In addition, they advised and managed for institutions over $4
billion in real estate investments. CBC will make available to Alliance the CBC
National Real Estate Index, which gathers, analyzes and publishes targeted
research data for the 65 largest U.S. markets, based on a variety of
public-sector and private-sector sources as well as CBC's proprietary database
of approximately 60,000 property transactions representing over $400 billion of
investment property. This information provides a substantial component of the
research and data used to create the REIT o Score model. As a consultant, CBC
provides to Alliance, at Alliance's expense, such in-depth information regarding
the real estate market, the factors influencing regional valuations and analysts
of recent transactions in office, retail, industrial and multi-family properties
as Alliance shall from time to time request. CBC will not furnish advice or make
recommendations regarding the purchase or sale of securities by the Fund nor
will it be responsible for making investment decisions involving Fund assets.
19
<PAGE>
CBC is one of the three largest fee-based property management firms in the
United States, the largest commercial real estate brokerage firm in the country,
the largest investment property brokerage firm in the country, as well as one of
the largest publishers of real estate research, with approximately 6,000
employees nationwide. CBC will provide Alliance with exclusive access to its
REIT o Score model which ranks approximately 130 REITs based on the relative
attractiveness of the property markets in which they own real estate. This model
scores approximately 12,000 individual properties owned by these companies.
REIT o Score is in turn based on CBC's National Real Estate Index which gathers,
analyzes and publishes targeted research for the 65 largest U.S.real estate
markets based on a variety of public- and private-sector sources as well as
CBC's proprietary database of 60,000 commercial property transactions
representing over $400 billion of investment property and over 3,000 tracked
properties which report rent and expense data quarterly. CBC has previously
provided access to its REIT o Score model results primarily to the institutional
market through subscriptions. The model is no longer provided to any research
publications and the Fund is currently the only mutual fund available to retail
investors that has access to CBC's REIT o Score model.
DISTRIBUTION SERVICES AGREEMENTS
Rule 12b-1 adopted by the Commission under the 1940 Act permits an investment
company to pay expenses associated with the distribution of its shares in
accordance with a duly adopted plan. Each Fund has entered into a Distribution
Services Agreement (the "Agreement") with AFD and, with respect to its Class II
shares, has adopted a "Rule 12b-1 plan" (for each Fund, a "Plan"). Pursuant to
its Plan, a Fund pays to AFD a Rule 12b-1 distribution services fee with respect
to its Class II shares; which may not exceed an annual rate of .30% of the
Fund's aggregate average daily net assets for distribution expenses. The Plans
provide that a portion of the distribution services fee in an amount not to
exceed .25% of the aggregate average daily net assets of each Fund constitutes a
service fee used for personal service and/or the maintenance of shareholder
accounts.
The Plans provide that AFD will use the distribution services fee received from
a Fund in its entirety for payments (i) to compensate broker-dealers or the
other persons for providing distribution assistance, (ii) to otherwise promote
the sale of shares of the Fund, and (iii) to compensate broker-dealers,
depository institutions and other financial intermediaries for providing
administrative, accounting and other services with respect to the Fund's
shareholders. In this regard, some payments under the Plans are used to
compensate financial intermediaries with trail or maintenance commissions in an
amount equal to .25%, annualized. Distribution services fees received from the
Funds, will not be used to pay any interest expenses, carrying charges or other
financing costs or allocation of overhead of AFD. The Plans also provide that
Alliance may use its own resources to finance the distribution of each Fund's
shares.
The Glass-Steagall Act and other applicable laws may limit the ability of a bank
or other depository institution to become an underwriter or distributor of
securities. However, in the opinion of the Funds' management, based on the
advice of counsel, these laws do not prohibit such depository institutions from
providing services for investment companies such as the administrative,
accounting and other services referred to in the Agreements. In the event that a
change in these laws prevented a bank from providing such services, it is
expected that other service arrangements would be made and that shareholders
would not be adversely affected.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS
- --------------------------------------------------------------------------------
AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
If you receive an income dividend or capital gains distribution in cash you may,
within 120 days following the date of its payment, reinvest the dividend or
distribution in additional shares of the same class of the Fund which paid the
dividend or distribution without charge by returning to Alliance, with
appropriate instructions, the check representing such dividend or distribution.
Thereafter, unless you otherwise specify, you will be deemed to have elected to
reinvest all subsequent dividends and distributions in shares of that Fund.
Each income dividend and capital gains distribution, if any, declared by a Fund
on its outstanding shares will, at the election of each shareholder, be paid in
cash or in additional shares of the same class of shares of that Fund having an
aggregate net asset value as of the payment date of such dividend or
distribution equal to the cash amount of such income dividend or distribution.
Election to receive dividends and distributions in cash or shares is made at the
time shares are initially purchased and may be changed at any time prior to the
record date for a particular dividend or distribution. Cash dividends can be
paid by check or, if the shareholder so elects, electronically via the ACH
network. There is no sales or other charge in connection with the reinvestment
of dividends and capital gains distributions.
While its is the intention of each Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and time of any such dividend or distribution must
necessarily depend upon the realization by such Fund of income and capital gains
from investments. There is no fixed dividend rate, and there can be no assurance
that a Fund will pay any dividends or realize any capital gains. Since REITs pay
distributions based on cash flow, without regard to depreciation and
amortization, it is likely that a portion of the distributions paid to Real
Estate Investment Fund and subsequently distributed to shareholders may be a
nontaxable return of capital. The final determination of the amount of a Fund's
return of capital distributions for the period will be made after the end of
each calendar year.
If you buy shares just before a Fund deducts a distribution from its net asset
value, you will pay the full price for the shares and then receive a portion of
the price back as a taxable distribution.
FOREIGN INCOME TAXES
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes
20
<PAGE>
withheld at the source. To the extent that any Fund is liable for foreign income
taxes withheld at the source, each Fund intends, if possible, to operate so as
to meet the requirements of the Code to "pass through" to the Fund's
shareholders credits for foreign income taxes paid, but there can be no
assurance that any Fund will be able to do so.
U.S. FEDERAL INCOME TAXES
Each Fund intends to qualify to be taxed as a "regulated investment company"
under the Code. To the extent that a Fund distributes its taxable income and net
capital gain to its shareholders, qualification as a regulated investment
company relieves that Fund of federal income taxes on that part of its taxable
income including net capital gains which it pays out to its shareholders.
Dividends out of net ordinary income and distributions of net short-term capital
gains are taxable to the recipient shareholders as ordinary income. In the case
of corporate shareholders, such dividends may be eligible for the
dividends-received deduction, except that the amount eligible for the deduction
is limited to the amount of qualifying dividends received by the Fund. Dividends
received from REITs generally do not constitute qualifying dividends. A
corporation's dividends-received deduction with respect to a dividend will be
disallowed unless the corporation holds shares in the Fund on the ex-dividend
date and for at least 45 other days during the 90-day period beginning 45 days
prior to the ex-dividend date. Furthermore, the dividends-received deduction
will be disallowed to the extent a corporation's investment in shares of a Fund
is financed with indebtedness.
Pursuant to the Taxpayer Relief Act of 1997, two different tax rates apply to
net capital gains--that is, the excess of net gains from capital assets held for
more than one year over net losses from capital assets held for not more than
one year. One rate (generally 28%) applies to net gains on capital assets held
for more than one year but not more than 18 months ("mid-term gains"), and a
second rate (generally 20%) applies to the balance of such net capital gains
("adjusted net capital gains"). Distributions of mid-term gains and adjusted net
capital gains will be taxable to shareholders as such, regardless of how long a
shareholder has held shares in the Fund. Distributions of net capital gains are
not eligible for the dividends-received deduction referred to above.
Distributions received by a shareholder may include nontaxable returns of
capital, which will reduce a shareholder's basis in shares of the Fund. If that
basis is reduced to zero (which could happen if the shareholder does not
reinvest distributions and returns of capital are significant) any further
returns of capital will be taxable as capital gain.
Under the current federal tax law, the amount of an income dividend or capital
gains distribution declared by a Fund during October, November or December of a
year to shareholders of record as of a specified date in such a month that is
paid during January of the following year is includable in the prior year's
taxable income of shareholders that are calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of a Fund will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder, although in effect a
return of capital to that particular shareholder, would be taxable to him or her
as described above. If a shareholder held shares six months or less and during
that period received a distribution of net capital gains, any loss realized on
the sale of such shares during such six-month period would be a long-term
capital loss to the extent of such distribution.
A dividend or capital gains distribution with respect to shares of a Fund held
by a tax-deferred or qualified plan, generally such as an individual retirement
account, 403(b)(7) retirement plan or corporate pension or profit-sharing plan,
generally will not be taxable to the plan. Distributions from such plans will be
taxable to individual participants under applicable tax rules without regard to
the character of the income earned by the qualified plan.
Distributions by a Fund may be subject to state and local taxes. Premier Growth
Fund and Quasar Fund are qualified to do business in the Commonwealth of
Pennsylvania and, therefore, are subject to the Pennsylvania foreign franchise
and corporate net income tax in respect of their business activities in
Pennsylvania. Accordingly, shares of such Funds are exempt from Pennsylvania
personal property taxes. These Funds anticipate continuing such business
activities but reserve the right to suspend them at any time, resulting in the
termination of the exemptions.
A Fund will be required to withhold 31% of any payments made to a shareholder if
the shareholder has not provided a certified taxpayer identification number to
the Fund, or the Secretary of the Treasury notifies a Fund that a shareholder
has not reported all interest and dividend income required to be shown on the
shareholder's Federal income tax return.
Under certain circumstances, if a Fund realizes losses from fluctuations in
currency exchange rates after paying a dividend, all or a portion of the
dividend may subsequently be characterized as a return of capital. See
"Dividends, Distributions and Taxes" in the Statement of Additional Information.
Shareholders will be advised annually as to the tax status of dividends and
capital gains and return of capital distributions. Shareholders are urged to
consult their tax advisers regarding their own tax situation.
- --------------------------------------------------------------------------------
CONVERSION FEATURE
- --------------------------------------------------------------------------------
CONVERSION TO CLASS II SHARES
Class I shares may be held solely through the fee-based program accounts,
employee benefit plans and registered investment advisory or other financial
intermediary relationships described above under "--How to Buy Shares," and by
investment advisory clients of, and certain other persons associated with,
Alliance and its affiliates or the Funds. If (i) a holder of Class I shares
ceases to participate in the fee-based program or plan, or to be associated with
an investment advisor or financial intermediary, in each case that satisfies the
requirements to purchase shares set forth under "--How to Buy Shares" or (ii)
the holder is otherwise no longer eligible to purchase Class I shares as
described in this Prospectus (each, a "Conversion Event"), then
21
<PAGE>
all Class I shares held by the shareholder will convert automatically and
without notice to the shareholder, other than the notice contained in this
Prospectus, to Class II shares of the Fund during the calendar month following
the month in which the Fund is informed of the occurrence of the Conversion
Event.
The failure of a shareholder or a fee-based program to satisfy the minimum
investment requirements to purchase Class I shares will not constitute a
Conversion Event. The conversion would occur on the basis of the relative net
asset values of the two classes and without the imposition of any sales load,
fee or other charge.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, a Fund may
consider sales of its shares as a factor in the selection of dealers to enter
into portfolio transactions with the Fund.
ORGANIZATION
Alliance Institutional Funds, Inc., is a Maryland corporation organized on
October 3, 1997. It is anticipated that annual shareholder meetings will not be
held; shareholder meetings will be held only when required by federal or state
law. Shareholders have available certain procedures for the removal of
Directors.
A shareholder in a Fund will be entitled to share pro rata with other holders of
the same class of shares all dividends and distributions arising from the Fund's
assets and, upon redeeming shares, will receive the then current net asset value
of the Fund represented by the redeemed shares. The Company is empowered to
establish, without shareholder approval, additional portfolios in the Company,
which may have different investment objectives, and additional classes of shares
in the Funds. If an additional portfolio or class were established in a Fund,
each share of the portfolio or class would normally be entitled to one vote for
all purposes. Generally, shares of each portfolio and class would vote together
as a single class on matters, such as the election of Directors, that affect
each portfolio and class in substantially the same manner. Each class has
identical voting, dividend, liquidation and other rights, except that each class
bears its own transfer agency expenses, Class II shares bear their own
distribution expenses and Class I shares convert to Class II shares under
certain circumstances. Each class of shares votes separately with respect to
matters for which separate class voting is appropriate under applicable law.
Shares are freely transferable, are entitled to dividends as determined by the
Directors and, in liquidation of a Fund, are entitled to receive the net assets
of the Fund. Since this Prospectus sets forth information about all the Funds,
it is theoretically possible that a Fund might be liable for any materially
inaccurate or incomplete disclosure in this Prospectus concerning another Fund.
Based on the advice of counsel, however, the Funds believe that the potential
liability of each Fund with respect to the disclosure in this Prospectus extends
only to the disclosure relating to that Fund. Certain additional matters
relating to a Fund's organization are discussed in its Statement of Additional
Information.
REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as each Fund's registrar, transfer agent
and dividend-disbursing agent for a fee based upon the number of shareholder
accounts maintained for the Funds.
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue of
the Americas, New York, New York 10105, is the principal underwriter of shares
of the Funds.
PERFORMANCE INFORMATION
From time to time, the Funds advertise their "total return," which is computed
separately for each class of shares. Such advertisements disclose a Fund's
average annual compounded total return for the periods prescribed by the
Commission. A Fund's total return for each such period is computed by finding,
through the use of a formula prescribed by the Commission, the average annual
compounded rate of return over the period that would equate an assumed initial
amount invested to the value of the investment at the end of the period. For
purposes of computing total return, income dividends and capital gains
distributions paid on shares of a Fund are assumed to have been reinvested when
paid and the maximum sales charges applicable to purchases and redemptions of a
Fund's shares are assumed to have been paid.
A Fund's advertisements may quote performance rankings or ratings of a Fund by
financial publications or independent organizations such as Lipper Analytical
Services, Inc. and Morningstar, Inc. or compare a Fund's performance to various
indices.
ADDITIONAL INFORMATION
This Prospectus and the Statements of Additional Information, which have been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statements filed by the Funds with the Commission under the
Securities Act. Copies of the Registration Statements may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at the
offices of the Commission in Washington, D.C.
This prospectus does not constitute an offering in any state in which such
offering may not lawfully be made.
This prospectus is intended to constitute an offer by each Fund only of the
securities of which it is the issuer and is not intended to constitute an offer
by any Fund of the securities of any other Fund whose securities are also
offered by this prospectus. No Fund intends to make any representation as to the
accuracy or completeness of the disclosure in this prospectus relating to any
other Fund. See "General Information--Organization."
22
<PAGE>
(LOGO) ALLIANCE INSTITUTIONAL FUNDS, INC.
- ALLIANCE PREMIER GROWTH
INSTITUTIONAL FUND
_________________________________________________________________
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
_________________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
November 14, 1997
_________________________________________________________________
This Statement of Additional Information is not a
prospectus but supplements and should be read in conjunction with
the current Prospectus (the "Prospectus") for Alliance
Institutional Funds, Inc. (the "Company"). Copies of the
Prospectus may be obtained by contacting Alliance Fund Services,
Inc. at the address or the "For Literature" telephone number
shown above.
TABLE OF CONTENTS
PAGE
DESCRIPTION OF THE FUND.....................................
MANAGEMENT OF THE FUND......................................
EXPENSES OF THE FUND........................................
PURCHASE OF SHARES..........................................
REDEMPTION AND REPURCHASE OF SHARES.........................
SHAREHOLDER SERVICES........................................
NET ASSET VALUE.............................................
DIVIDENDS, DISTRIBUTIONS AND TAXES..........................
PORTFOLIO TRANSACTIONS......................................
GENERAL INFORMATION.........................................
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL
STATEMENTS................................................
APPENDIX A..................................................
- ----------------------
(R) This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
_________________________________________________________________
DESCRIPTION OF THE FUND
_________________________________________________________________
The Company is an open-end management investment company
whose shares are offered in separate series referred to as
"Funds." Each Fund is a separate pool of assets constituting, in
effect, a separate fund with its own investment objective and
policies. A shareholder in a Fund will be entitled to his or her
pro-rata share of all dividends and distributions arising from
that Fund's assets and, upon redeeming shares of that Fund, the
shareholder will receive the then current net asset value of the
applicable class of shares of that Fund. (See "Purchase of
Shares" and "Redemption and Repurchase of Shares," in the
Prospectus.) The Company is empowered to establish, without
shareholder approval, additional Funds which may have different
investment objectives.
The Company currently has three portfolios: Alliance
Premier Growth Institutional Fund (the "Fund"), which is
described in this Statement of Additional Information, and
Alliance Quasar Institutional Fund and Alliance Real Estate
Investment Institutional Fund which are each described in a
separate Statement of Additional Information, copies of which can
be obtained by contacting Alliance Fund Services, Inc. at the
address or the "For Literature" telephone number shown on the
cover of this Statement of Additional Information.
Investment Objective
The Fund's investment objective is to seek long-term
growth of capital by investing predominantly in the equity
securities (common stocks, securities convertible into common
stocks and rights and warrants to subscribe for or purchase
common stocks) of a limited number of large, carefully selected,
high-quality American companies that, in the judgment of Alliance
Capital Management L.P., the Fund's adviser (the "Adviser"), are
likely to achieve superior earnings growth. The Fund's
investments in the 25 of these companies most highly regarded at
any point in time by the Adviser will usually constitute
approximately 70% of the Fund's net assets. Normally,
approximately 40 companies will be represented in the Fund's
investment portfolio. The Fund thus differs from more typical
equity mutual funds by investing most of its assets in a
relatively small number of intensively researched companies. The
Fund is designed for the investor who seeks to accumulate capital
over a period of years with less volatility than that typically
associated with a more aggressive strategy of investment in
smaller companies.
2
<PAGE>
How the Fund Pursues its Objective
As a matter of fundamental policy, the Fund will, under
normal circumstances, invest at least 85% of the value of its
total assets in the equity securities of American companies
(except when in a temporarily defensive position). The Fund
defines American companies to be entities (i) that are organized
under the laws of the United States and have their principal
office in the United States, and (ii) the equity securities of
which are traded principally in the United States securities
markets. This policy is deemed a "fundamental policy" within the
meaning of the Investment Company Act of 1940, as amended (the
"1940 Act"), and may not be changed without the approval of a
majority of the Fund's outstanding voting securities. For this
purpose (and for the purpose of changing the Fund's investment
restrictions and approving the Fund's advisory agreement, each as
more fully described below), the approval of a majority of the
Fund's outstanding voting securities means the affirmative vote
of (i) 67% or more of the shares represented at a meeting at
which more than 50% of the outstanding shares are present in
person or by proxy, or (ii) more than 50% of the outstanding
shares, whichever is less.
Within the investment framework described herein, Alfred
Harrison, who heads the Adviser's "Large Cap Growth Group," is
ultimately responsible for the investment decisions for the Fund.
In managing the Fund's assets, the Adviser's investment strategy
emphasizes stock selection and investment in the securities of a
limited number of issuers. The Adviser depends heavily upon the
fundamental analysis and research of its large internal research
staff in making investment decisions for the Fund. The research
staff generally follows a primary research universe of
approximately 600 companies which are considered by the Adviser
to have strong managements, superior industry positions,
excellent balance sheets and the ability to demonstrate superior
earnings growth. As one of the largest multi-national investment
advisory firms, the Adviser has access to considerable
information concerning all of the companies followed, an in-depth
understanding of the products, services, markets and competition
of these companies and a good knowledge of the managements of the
companies in its research universe.
The Adviser's analysts prepare their own earnings
estimates and financial models for each company followed. While
each analyst has responsibility for following companies in one or
more identified sectors and/or industries, the lateral structure
of the Adviser's research organization and constant communication
among the analysts result in decision-making based on the
relative attractiveness of stocks among industry sectors. The
focus during this process is on the early recognition of change
on the premise that value is created through the dynamics of
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<PAGE>
changing company, industry and economic fundamentals. Research
emphasis is placed on the identification of companies whose
substantially above average prospective earnings growth is not
fully reflected in current market valuations.
The Adviser continually reviews its primary research
universe of approximately 600 companies to maintain a list of
favored securities, the "Adviser 100," considered by the Adviser
to have the most clearly superior earnings potential and
valuation attraction. The Adviser's concentration on a limited
universe of companies allows it to devote its extensive resources
to constant intensive research of these companies. Companies are
constantly added to and deleted from the Adviser 100 as
fundamentals and valuations change. The Adviser's Large Cap
Growth Group, in turn, further refines, on a weekly basis, the
selection process for the Fund with each portfolio manager in the
Group selecting 25 such companies which appear to the manager
most attractive at current prices. These individual ratings are
then aggregated and ranked to produce a composite list of the 25
most highly regarded stocks, the "Favored 25." As noted above,
approximately 70% of the Fund's net assets will usually be
invested in the Favored 25 with the balance of the Fund's
investment portfolio consisting principally of other stocks in
the Adviser 100. Portfolio emphasis upon particular industries
or sectors is a by-product of the stock selection process rather
than the result of assigned targets or ranges.
In the management of the Fund's investment portfolio,
the Adviser will seek to utilize market volatility judiciously
(assuming no change in company fundamentals) to adjust the Fund's
portfolio positions. The Fund will strive to capitalize on
apparently unwarranted price fluctuations, both to purchase or
increase positions on weakness and to sell or reduce overpriced
holdings. Under normal circumstances, the Fund will remain
substantially fully invested in equity securities and will not
take significant cash positions for market timing purposes.
Rather, during a market decline, while adding to positions in
favored stocks, the Fund will tend to become somewhat more
aggressive, gradually reducing somewhat the number of companies
represented in the Fund's portfolio. Conversely, in rising
markets, while reducing or eliminating fully valued positions,
the Fund will tend to become somewhat more conservative,
gradually increasing somewhat the number of companies represented
in the Fund's portfolio. Through this "buying into declines" and
"selling into strength," the Adviser seeks to gain positive
returns in good markets while providing some measure of
protection in poor markets.
The Adviser expects the average weighted market
capitalization of companies represented in the Fund's portfolio
(i.e., the number of a company's shares outstanding multiplied by
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<PAGE>
the price per share) to normally be in the range of or exceed the
average weighted market capitalization of companies comprising
the Standard & Poor's 500 Composite Stock Price Index, a widely
recognized unmanaged index of market activity based upon the
aggregate performance of a selected portfolio of publicly traded
stocks, including monthly adjustments to reflect the reinvestment
of dividends and distributions. Investments will be made based
upon their potential for capital appreciation. Because of the
market risks inherent in any investment, the selection of
securities on the basis of their appreciation possibilities
cannot ensure against possible loss in value, and there is, of
course, no assurance that the Fund's investment objective will be
met.
Additional Investment Policies and Practices
The following investment policies and practices,
including restrictions, supplement those set forth above and in
the Prospectus. Except as otherwise noted, the Fund's investment
policies and practices described below are not designated
"fundamental policies" within the meaning of the 1940 Act and may
be changed by the Board of Directors of the Company (the "Board
of Directors" or the "Directors") without shareholder approval.
However, the Fund will not change its investment policies and
practices without contemporaneous written notice to shareholders.
Convertible Securities. The Fund may invest in
convertible securities which include bonds, debentures, corporate
notes and preferred stocks that are convertible at a stated
exchange rate into common stock. Prior to their conversion,
convertible securities have the same general characteristics as
non-convertible debt securities which provide a stable stream of
income with generally higher yields than those of equity
securities of the same or similar issuers. As with all debt
securities, the market value of convertible securities tends to
decline as interest rates increase and, conversely, to increase
as interest rates decline. While convertible securities
generally offer lower interest or dividend yields than non-
convertible debt securities of similar quality, they do enable
the investor to benefit from increases in the market price of the
underlying common stock. When the market price of the common
stock underlying a convertible security increases, the price of
the convertible security increasingly reflects the value of the
underlying common stock and may rise accordingly. As the market
price of the underlying common stock declines, the convertible
security tends to trade increasingly on a yield basis, and thus
may not depreciate to the same extent as the underlying common
stock. Convertible securities rank senior to common stocks in an
issuer's capital structure. They are consequently of higher
quality and entail less risk than the issuer's common stock,
although the extent to which such risk is reduced depends in
5
<PAGE>
large measure upon the degree to which the convertible security
sells above its value as a fixed income security. The Fund may
invest up to 20% of its net assets in the convertible securities
of companies whose common stocks are eligible for purchase by the
Fund under the investment policies described above.
Rights and Warrants. The Fund may invest up to 5% of
its net assets in rights or warrants which entitle the holder to
purchase equity securities at a specific price for a specific
period of time, but will do so only if the equity securities
themselves are deemed appropriate by the Adviser for inclusion in
the Fund's portfolio. Rights and warrants may be considered more
speculative than certain other types of investments in that they
do not entitle a holder to dividends or voting rights with
respect to the securities which may be purchased nor do they
represent any rights in the assets of the issuing company. Also,
the value of a right or warrant does not necessarily change with
the value of the underlying securities, and a right or warrant
ceases to have value if it is not exercised prior to its
expiration date. The Fund will not invest in warrants if such
warrants valued at the lower of cost or market would exceed 5% of
the value of the Fund's net assets. Included within such amount,
but not to exceed 2% of the Fund's net assets, may be warrants
which are not listed on the New York Stock Exchange or the
American Stock Exchange. Warrants acquired by the Fund in units
or attached to securities may be deemed to be without value.
Foreign Securities. The Fund may invest up to 15% of
the value of its total assets in securities of foreign issuers
whose common stocks are eligible for purchase by the Fund under
the investment policies described above. Foreign securities
investments may be affected by exchange control regulations as
well as by changes in governmental administration, economic or
monetary policies (in the United States and abroad) and changed
circumstances in dealings between nations. Currency exchange
rate movements relative to the U.S. dollar will increase or
reduce the U.S. dollar value of the Fund's net assets and income
attributable to foreign securities. Costs are incurred in
connection with the conversion of currencies held by the Fund.
There may be less publicly available information about foreign
issuers than about domestic issuers, and foreign issuers may not
be subject to accounting, auditing and financial reporting
standards and requirements corresponding to those of domestic
issuers. Securities of some foreign issuers are less liquid and
more volatile than securities of comparable domestic issuers, and
foreign brokerage commissions are generally higher than in the
United States. Foreign securities markets may also be less
liquid, more volatile, and less subject to governmental
supervision than in the United States. Investments in foreign
countries could be affected by other factors not present in the
6
<PAGE>
United States, including expropriation, confiscatory taxation and
potential difficulties in enforcing contractual obligations.
Illiquid Securities. The Fund will not maintain more
than 15% of its net assets in illiquid securities. For this
purpose, illiquid securities include, among others, direct
placements or other securities which are subject to legal or
contractual restrictions on resale or for which there is no
readily available market (e.g., trading in the security is
suspended or, in the case of unlisted securities, market makers
do not exist or will not entertain bids or offers).
Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), and securities which are
otherwise not readily marketable. Securities which have not been
registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale
and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities, and
a mutual fund might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions within seven
days. A mutual fund might also have to register restricted
securities in order to dispose of them, resulting in additional
expense and delay. Adverse market conditions could impede a
public offering of such securities.
In recent years, however, a large institutional market
has developed for certain securities that are not registered
under the Securities Act, including foreign securities.
Institutional investors depend on an efficient institutional
market in which an unregistered security can be more readily
resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on
resale to the general public or to certain institutions may not
be indicative of the liquidity of such investments.
The Fund may invest up to 5% of its net assets (taken at
market value) in restricted securities (excluding Rule 144A
securities) issued under Section 4(2) of the Securities Act,
which exempts from registration "transactions by an issuer not
involving any public offering." Section 4(2) instruments are
restricted in the sense that they can only be resold through the
issuing dealers to institutional investors and in private
transactions. They cannot be resold to the general public
without registration.
7
<PAGE>
Rule 144A under the Securities Act allows a broader
institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of
the Securities Act for resales of certain securities to
"qualified institutional buyers". An insufficient number of
qualified institutional buyers interested in purchasing certain
restricted securities held by the Fund, however, could affect
adversely the marketability of such portfolio securities, and the
Fund might be unable to dispose of such securities promptly or at
reasonable prices. Rule 144A, which became effective in April
1990, has produced enhanced liquidity for many restricted
securities, and market liquidity for such securities may continue
to expand as a result of this rule and the consequent inception
of the PORTAL System, which is an automated system for the
trading, clearance and settlement of unregistered securities of
domestic and foreign issuers sponsored by the National
Association of Securities Dealers, Inc.
The Fund's Adviser, acting under the supervision of the
Board of Directors, will monitor the liquidity of restricted
securities in the Fund's portfolio that are eligible for resale
pursuant to Rule 144A. In reaching liquidity decisions, the
Fund's Adviser will consider, among others, the following
factors: (1) the frequency of trades and quotes for the
security; (2) the number of dealers making quotations to purchase
or sell the security; (3) the number of other potential
purchasers of the security; (4) the number of dealers undertaking
to make a market in the security; (5) the nature of the security
(including its unregistered nature) and the nature of the
marketplace for the security (e.g., the time needed to dispose of
the security, the method of soliciting offers and the mechanics
of the transfer); and (6) any applicable interpretation or
position with respect to such type of securities of the U.S.
Securities and Exchange Commission (the "Commission").
Other Restrictions. In addition to restrictions
otherwise described herein and in the Prospectus, the Fund has
undertaken as a matter of non-fundamental investment policy not
to purchase the securities of any company that has a record of
less than three years of continuous operation (including that of
predecessors) if such purchase at the time thereof would cause
more than 5% of its total assets, taken at current value, to be
invested in the securities of such companies, that it will not
purchase puts, calls, straddles, spreads and any combination
thereof if by reason thereof the value of its aggregate
investment in such classes of securities will exceed 5% of its
total assets, that it will not engage in option transactions in
the over-the-counter market if such options are available on an
exchange, that it will only transact in over-the-counter options
with major broker-dealer and financial institutions whom the
8
<PAGE>
Adviser considers creditworthy, that it will only engage in
transactions in options which are liquid and readily marketable,
i.e., the market will be of sufficient depth and liquidity so as
not to create undue risk, that the aggregate premiums paid on all
options which are held by the Fund at any time will not exceed
20% of the Fund's total net assets, that it will not purchase or
retain the securities of any issuer if each of the Fund's
officers, directors or investment adviser who owns beneficially
more than one-half of one percent of the securities of such
issuer together own beneficially more than five percent of the
securities of such issuer, that any securities transaction
effected through an affiliated broker-dealer will be fair and
reasonable in compliance with Rule 17e-1 under the 1940 Act, and
that it will not purchase illiquid securities if immediately
after such investment more than 10% of the Fund's net assets
(taken at market value) would be so invested. In addition, the
Fund will not invest in real estate partnerships and will not
invest in mineral leases.
General. When business or financial conditions warrant,
the Fund may assume a temporary defensive position and invest in
high-grade short-term fixed-income securities, which may include
U.S. Government securities, or hold its assets in cash.
Other Investment Practices
While the Fund does not anticipate utilizing them on a
regular basis, the Fund may from time to time employ the
following investment practices.
Puts and Calls. The Fund may write exchange-traded call
options on common stocks, for which it will receive a purchase
premium from the buyer, and may purchase and sell exchange-traded
call and put options on common stocks written by others or
combinations thereof. The Fund will not write put options.
Writing, purchasing and selling call options are highly
specialized activities and entail greater than ordinary
investment risks. A call option gives the purchaser of the
option, in exchange for paying the writer of the option a
premium, the right to call upon the writer of the option to
deliver a specified number of shares of a specified stock on or
before a fixed date, at a predetermined price. A put option
gives the buyer of the option, in exchange for paying the writer
of the option a premium, the right to deliver a specified number
of shares of a stock to the writer of the option on or before a
fixed date at a predetermined price.
The writing of a call option, therefore, involves a
potential loss of opportunity to sell securities at a higher
price. In exchange for the premium received, the writer of a
fully collateralized call option assumes the full downside risk
9
<PAGE>
of the securities subject to such option. In addition, the
writer of the call gives up the gain possibility of the stock
protecting the call. Generally, the opportunity for profit from
the writing of options is higher, and consequently the risks are
greater, when the stocks involved are lower priced or volatile,
or both. While an option that has been written is in force, the
maximum profit that may be derived from the optioned stock is the
premium less brokerage commissions and fees. The Fund will not
write a call unless the Fund at all times during the option
period owns either (a) the optioned securities or has an absolute
and immediate right to acquire the securities without additional
cash consideration (or for additional cash consideration held in
a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio or (b) a call
option on the same security and in the same principal amount as
the call written where the exercise price of the call held (i) is
equal to or less than the exercise price of the call written or
(ii) is greater than the exercise price of the call written if
the difference is maintained by the Fund in liquid assets in a
segregated account with its Custodian.
Premiums received by the Fund in connection with writing
call options will vary widely depending primarily on supply and
demand. Commissions, stock transfer taxes and other expenses of
the Fund must be deducted from such premium receipts. Calls
written by the Fund will ordinarily be sold either on a national
securities exchange or through put and call dealers, most, if not
all, of whom are members of a national securities exchange on
which options are traded, and will in such cases be endorsed or
guaranteed by a member of a national securities exchange or
qualified broker-dealer, which may be Donaldson, Lufkin &
Jenrette Securities Corporation, an affiliate of the Adviser.
The endorsing or guaranteeing firm requires that the option
writer (in this case the Fund) maintain a margin account
containing either corresponding stock or other equity as required
by the endorsing or guaranteeing firm.
The Fund will not write a call option if, as a result,
the aggregate of the Fund's portfolio securities subject to
outstanding call options (valued at the lower of the option
prices or market values of such securities) would exceed 15% of
the Fund's total assets.
In buying a call, the Fund would be in a position to
realize a gain if, during the option period, the price of the
shares increased by an amount in excess of the premium paid and
commissions payable on exercise. It would realize a loss if the
price of the security declined or remained the same or did not
increase during the period by more than the amount of the premium
and commissions payable on exercise. By buying a put, the Fund
would be in a position to realize a gain if, during the option
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<PAGE>
period, the price of the shares declined by an amount in excess
of the premium paid and commissions payable on exercise. It
would realize a loss if the price of the security increased or
remained the same or did not decrease during that period by more
than the amount of the premium and commissions payable on
exercise. In addition, the Fund could realize a gain or loss on
such options by selling them.
As noted above, the Fund may also purchase and sell call
and put options written by others or combinations thereof, but
the aggregate cost of all outstanding options purchased and held
by the Fund, including options on market indices as described
below, will at no time exceed 10% of the Fund's total assets. If
an option is not sold and expires without being exercised, the
Fund would suffer a loss in the amount of the premium paid by the
Fund for the option.
Options on Market Indices. The Fund may purchase and
sell exchange-traded index options. An option on a securities
index is similar to an option on a security except that, rather
than the right to take or make delivery of a security at a
specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of
cash if the closing level of the chosen index is greater than (in
the case of a call) or less than (in the case of a put) the
exercise price of the option.
Through the purchase of listed index options, the Fund
could achieve many of the same objectives as through the use of
options on individual securities. Price movements in the Fund's
portfolio securities probably will not correlate perfectly with
movements in the level of the index and, therefore, the Fund
would bear a risk of loss on index options purchased by it if
favorable price movements of the hedged portfolio securities do
not equal or exceed losses on the options or if adverse price
movements of the hedged portfolio securities are greater than
gains realized from the options.
Stock Index Futures. The Fund may purchase and sell
stock index futures contracts. A stock index assigns relative
values to the common stocks comprising the index. A stock index
futures contract is a bilateral agreement pursuant to which two
parties agree to take or make delivery of an amount of liquid
assets equal to a specified dollar amount multiplied by the
difference between the stock index value at the close of the last
trading day of the contract and the price at which the futures
contract is originally struck. No physical delivery of the
underlying stocks in the index is made. The Fund will not
purchase and sell options on stock index futures contracts.
11
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The Fund may not purchase or sell a stock index future
if, immediately thereafter, more than 30% of its total assets
would be hedged by stock index futures. In connection with its
purchase of stock index futures contracts the Fund will deposit
in a segregated account with the Fund's custodian an amount of
liquid assets equal to the market value of the futures contracts
less any amount maintained in a margin account with the Fund's
broker. The Fund may not purchase or sell a stock index future
if, immediately thereafter, the sum of the amount of margin
deposits on the Fund's existing futures positions would exceed 5%
of the market value of the Fund's total assets.
For a more detailed description of stock index futures
contracts, see Appendix A.
General. The successful use of the foregoing investment
practices, which may be used as a hedge against changes in the
values of securities resulting from market conditions, draws upon
the Adviser's special skills and experience with respect to such
instruments and usually depends on the Adviser's ability to
forecast movements of specific securities or stock indices
correctly. Should these securities or indices move in an
unexpected manner, the Fund may not achieve the anticipated
benefits of options and stock index futures contracts or may
realize losses and, thus, be in a worse position than if such
strategies had not been used. In addition, the correlation
between movements in the prices of such instruments and movements
in the prices of securities being hedged or used for cover will
not be perfect and could produce unanticipated losses. The
Fund's ability to dispose of its position in options and stock
index futures will depend on the availability of liquid markets
in these instruments. No assurance can be given that the Fund
will be able to close a particular option or stock index futures
position.
Portfolio Turnover
The Fund's investment policies and practices as
described above (see "Investment Objective" and "How the Fund
Pursues its Objective") are based on the Adviser's assessment of
fundamentals in the context of changing market valuations. They
may therefore involve frequent purchases and sales of shares of a
particular issuer as well as the replacement of securities.
While it is anticipated that the Fund's annual portfolio turnover
rate will not normally exceed 150%, it could, under some
conditions, exceed 150%. A 150% annual turnover rate would
occur, for example, if all of the stocks in the Fund's portfolio
were replaced one and a half times in a period of one year. The
Fund expects that more of its portfolio turnover will be
attributable to increases and decreases in the size of particular
portfolio positions rather than to the complete elimination of a
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<PAGE>
particular issuer's securities from the Fund's portfolio. A
portfolio turnover rate approximating 150% involves
correspondingly greater brokerage commission expenses than would
a lower rate, which expenses must be borne by the Fund and its
shareholders. See "Dividends, Distributions and Taxes."
Certain Fundamental Investment Policies
The following restrictions may not be changed without a
vote of a majority of the Fund's outstanding voting securities.
As a matter of fundamental policy, the Fund may not:
(a) purchase more than 10% of the outstanding
voting securities of any one issuer;
(b) invest 25% or more of the value of its total
assets in the same industry except that this restriction
does not apply to securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities;
(c) borrow money or issue senior securities except
for temporary or emergency purposes in an amount not
exceeding 5% of the value of its total assets at the
time the borrowing is made;
(d) pledge, mortgage, hypothecate or otherwise
encumber any of its assets except in connection with the
writing of call options and except to secure permitted
borrowings;
(e) invest in the securities of any issuer which
has a record of less than three years of continuous
operation (including the operation of any predecessor)
if the investment at the time thereof would cause more
than 10% of the value of the total assets of the Fund to
be invested in the securities of such issuer or issuers;
(f) make loans except through the purchase of debt
obligations in accordance with its investment objective
and policies;
(g) participate on a joint or joint and several
basis in any securities trading account;
(h) invest in companies for the purpose of
exercising control;
(i) write put options;
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(j) purchase the securities of any other
investment company or investment trust, except when such
purchase is part of a merger, consolidation or
acquisition of assets; or
(k)(i) purchase or sell real estate except that it
may purchase and sell securities of companies which deal
in real estate or interests therein, (ii) purchase or
sell commodities or commodity contracts (other than
stock index futures contracts), (iii) invest in
interests in oil, gas or other mineral exploration or
development programs except that it may purchase and
sell securities of companies that deal in oil, gas or
other mineral exploration or development programs,
(iv) make short sales of securities or purchase
securities on margin except for such short-term credits
as may be necessary for the clearance of transactions,
or (v) act as an underwriter of securities except that
the Fund may acquire restricted securities or securities
in private placements under circumstances in which, if
such securities were sold, the Fund might be deemed to
be an underwriter within the meaning of the Securities
Act of 1933, as amended (the "Securities Act").
Application of Percentage Limitations
Except as otherwise indicated, whenever any investment
policy or practice, including any restriction, described in the
Prospectus or under the heading "Description of the Fund," states
a maximum percentage of the Fund's assets which may be invested
in any security or other asset, it is intended that such maximum
percentage limitation be determined immediately after and as a
result of the Fund's acquisition of such securities or other
assets. Accordingly, any later increase or decrease in
percentage beyond the specified limitation resulting from a
change in values or net assets will not be considered a violation
of any such maximum.
_________________________________________________________________
MANAGEMENT OF THE FUND
_________________________________________________________________
Adviser
Alliance Capital Management L.P., a Delaware limited
partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
14
<PAGE>
supervision of the Fund's Board of Directors (see "Management of
the Fund" in the Prospectus).
Alliance is a leading international investment manager
supervising client accounts with assets as of September 30, 1997
of more than $217 billion (of which more than $81 billion
represented the assets of investment companies). The Adviser's
clients are primarily major corporate employee benefit funds,
public employee retirement systems, investment companies,
foundation and endowment funds. As of September 30, 1997, the
Adviser was an investment manager of employee benefit fund assets
for 28 of the FORTUNE 100 companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,500
employees who operated out of domestic offices and the offices of
subsidiaries in Bahrain, Bangalore, Chennai, Istanbul, London,
Madrid, Mumbai, Paris, Singapore, Tokyo and Toronto and affiliate
offices located in Vienna, Warsaw, Hong Kong, Sao Paulo and
Moscow. The 54 registered investment companies comprising more
than 116 separate investment portfolios managed by the Adviser
currently have more than two million shareholders.
Alliance Capital Management Corporation, the sole
general partner of, and the owner of a 1% general partnership
interest in, the Adviser, is an indirect wholly-owned subsidiary
of The Equitable Life Assurance Society of the United States
("Equitable"), one of the largest life insurance companies in the
United States and a wholly-owned subsidiary of The Equitable
Companies Incorporated ("ECI"). ECI is a holding company
controlled by AXA-UAP, a French insurance holding company which
at September 30, 1997, beneficially owned approximately 59% of
the outstanding voting shares of ECI. As of June 30, 1997, ACMC,
Inc. and Equitable Capital Management Corporation, each a wholly-
owned direct or indirect subsidiary of Equitable, together with
Equitable, owned in the aggregate approximately 57% of the issued
and outstanding units representing assignments of beneficial
ownership of limited partnership interests in the Adviser.
AXA-UAP is a holding company for an international group
of insurance and related financial services companies. AXA-UAP's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities
principally in Western Europe, North America and the Asia/Pacific
area. AXA-UAP is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA-UAP, as of
September 30, 1997 more than 25% of the voting power of AXA-UAP
was controlled directly and indirectly by FINAXA, a French
15
<PAGE>
holding company. As of September 30, 1997 more than 25% of the
voting power of FINAXA was controlled directly and indirectly by
four French mutual insurance companies (the "Mutuelles AXA"), one
of which, AXA Assurances I.A.R.D. Mutuelle, itself controlled
directly and indirectly more than 25% of the voting power of
FINAXA. Acting as a group, the Mutuelles AXA control AXA-UAP and
FINAXA.
Under the Advisory Agreement between the Company and the
Adviser (the "Advisory Agreement"), the Adviser furnishes advice
and recommendations with respect to the Fund's portfolio of
securities and investments and provides persons satisfactory to
the Board of Directors to act as officers and employees of the
Company. Such officers and employees may be employees of the
Adviser or its affiliates.
The Adviser is, under the Advisory Agreement,
responsible for certain expenses incurred by the Fund, including,
for example, office facilities and certain administrative
services, and any expenses incurred in promoting the sale of Fund
shares (other than the portion of the promotional expenses borne
by the Fund in accordance with an effective plan pursuant to Rule
12b-1 under the 1940 Act, and the costs of printing Company
prospectuses and other reports to shareholders and fees related
to registration with the Commission and with state regulatory
authorities).
The Fund has, under the Advisory Agreement, assumed the
obligation for payment of all of its other expenses. As to the
obtaining of services other than those specifically provided to
the Fund by the Adviser, the Fund may utilize personnel employed
by the Adviser or by other subsidiaries of Equitable. The Fund
may employ its own personnel or contract for services to be
performed by third parties. In such event, the services will be
provided to the Fund at cost and the payments specifically
approved by the Board of Directors.
For the services rendered by the Adviser under the
Advisory Agreement, the Fund pays the Adviser at an annualized
rate of 1.00% of the average daily value of the Fund's net
assets. The fee is accrued daily and paid monthly.
The Advisory Agreement became effective on November 7,
1997, having been approved by the unanimous vote, cast in person,
of the Directors (including the Directors who are not parties to
the Advisory Agreement or interested persons, as defined by the
1940 Act, of any such party) at a meeting called for that purpose
held on that date, and by the Fund's initial shareholder on
November 3, 1997.
16
<PAGE>
The Advisory Agreement will remain in effect until
November 5, 1999 and continue in effect thereafter only so long
as its continuance is approved annually by a vote of a majority
of the Fund's outstanding voting securities (as defined in the
1940 Act) or by the Board of Directors, including in either case,
approval by a majority of the Directors who are not parties to
the Advisory Agreement or interested persons of any such party as
defined by the Act.
The Advisory Agreement is terminable without penalty by
a vote of a majority of the Fund's outstanding voting securities
or by a vote of a majority of the Directors on 60 days' written
notice, or by the Adviser on 60 days' written notice, and will
automatically terminate in the event of its assignment. The
Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the
Adviser, or of reckless disregard of its obligations thereunder,
the Adviser will not be liable for any action or failure to act
in accordance with its duties thereunder.
Certain other clients of the Adviser have investment
objectives and policies similar to those of the Fund. The Adviser
may, from time to time, make recommendations which result in the
purchase or sale of a particular security by other of its clients
simultaneously with the Fund. If transactions on behalf of more
than one client during the same period increase the demand for
securities being purchased or the supply of securities being
sold, there may be an adverse effect on price or quantity. It is
the policy of the Adviser to allocate advisory recommendations
and the placing of orders in a manner which is deemed equitable
by the Adviser to the accounts involved, including the Fund.
When two or more of the clients of the Adviser (including the
Fund) are purchasing or selling the same security on a given day
from the same broker-dealer, such transactions may be averaged as
to price.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to the following registered investment
companies: ACM Institutional Reserves, Inc., AFD Exchange
Reserves, The Alliance Fund, Inc., Alliance All-Asia Investment
Fund, Inc., Alliance Balanced Shares, Inc., Alliance Bond Fund,
Inc., Alliance Capital Reserves, Alliance Developing Markets
Fund, Inc., Alliance Global Dollar Government Fund, Inc.,
Alliance Global Environment Fund, Inc., Alliance Global Small Cap
Fund, Inc., Alliance Global Strategic Income Trust, Inc.,
Alliance Government Reserves, Alliance Greater China '97 Fund,
Inc., Alliance Growth and Income Fund, Inc., Alliance High Yield
Fund, Inc., Alliance Income Builder Fund, Inc., Alliance
International Fund, Alliance Limited Maturity Government Fund,
Inc., Alliance Money Market Fund, Alliance Mortgage Securities
17
<PAGE>
Income Fund, Inc., Alliance Multi- Market Strategy Trust, Inc.,
Alliance Municipal Income Fund, Inc., Alliance Municipal Income
Fund II, Alliance Municipal Trust, Alliance New Europe Fund,
Inc., Alliance North American Government Income Trust, Inc.,
Alliance Quasar Fund, Inc., Alliance Real Estate Investment Fund,
Inc., Alliance/Regent Sector Opportunity Fund, Inc., Alliance
Short-Term Multi-Market Trust, Inc., Alliance Technology Fund,
Inc., Alliance Utility Income Fund, Inc., Alliance Variable
Products Series Fund, Inc., Alliance World Income Trust, Inc.,
Alliance Worldwide Privatization Fund, Inc., The Alliance
Portfolios, Fiduciary Management Associates and The Hudson River
Trust, all registered open-end investment companies; and to ACM
Government Income Fund, Inc., ACM Government Securities Fund,
Inc., ACM Government Spectrum Fund, Inc., ACM Government
Opportunity Fund, Inc., ACM Managed Income Fund, Inc., ACM
Managed Dollar Income Fund, Inc., ACM Municipal Securities Income
Fund, Inc., Alliance All-Market Advantage Fund, Inc., Alliance
World Dollar Government Fund, Inc., Alliance World Dollar
Government Fund II, Inc., The Austria Fund, Inc., The Korean
Investment Fund, Inc., The Southern Africa Fund, Inc., and The
Spain Fund, Inc., all registered closed-end investment companies.
Directors and Officers
The Directors and principal officers of the Company,
their ages and their primary occupations during the past five
years are set forth below. Each of the Directors and officers
are trustees, directors and officers of other registered
investment companies sponsored by the Adviser. Unless otherwise
specified, the address of each such person is 1345 Avenue of the
Americas, New York, New York 10105.
Directors
JOHN D. CARIFA,* 52, Chairman of the Board of
Directors, is the President, Chief Operating Officer and a
Director of Alliance Capital Management Corporation ("ACMC"),
with which he has been associated since prior to 1992.
RUTH BLOCK, 66, was formerly Executive Vice President
and Chief Insurance Officer of Equitable. She is a Director of
Ecolab Incorporated (specialty chemicals) and Amoco Corporation
(oil and gas). Her address is Box 4653, Stamford, Connecticut,
06903.
____________________
* An "interested person" of the Fund as defined in the 1940
Act.
18
<PAGE>
DAVID H. DIEVLER, 68, was formerly a Senior Vice
President of ACMC, with which he was associated since prior to
1992 through 1994. He is currently an independent consultant.
His address is P.O. Box 167, Spring Lake, New Jersey, 07762.
JOHN H. DOBKIN, 55, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1992.
Previously, he was Director of the National Academy of Design.
His address is 105 West 55th Street, New York, New York 10019.
WILLIAM H. FOULK, JR., 65, is an Investment Advisor and
Independent Consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, since
1986. His address is Suite 100, 2 Greenwich Plaza, Greenwich,
Connecticut 06830.
DR. JAMES M. HESTER, 73, is President of the Harry Frank
Guggenheim Foundation and a Director of Union Carbide
Corporation, with which he has been associated since prior to
1992. He was formerly President of New York University, the New
York Botanical Garden and Rector of the United Nations
University. His address is 45 East 89th Street, New York, New
York 10128.
CLIFFORD L. MICHEL, 57, is a partner of the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1992. He is Chief Executive Officer of Wenonah
Development Company (investment holding company) and a Director
of Placer Dome, Inc. (mining). His address is 80 Pine Street,
New York, New York 10005.
DONALD J. ROBINSON, 62, was formerly a partner of the
law firm of Orrick, Herrington & Sutcliffe since prior to 1992
and is currently of counsel to that firm. His address is 599
Lexington Avenue, 26th Floor, New York, New York 10022.
Officers
JOHN D. CARIFA, President, see biography above.
ALFRED HARRISON, Executive Vice President, 59, is Vice
Chairman of the Board of ACMC, with which he has been associated
since prior to 1992.
ALDEN M. STEWART, Executive Vice President, 51, is an
Executive Vice President of ACMC since July 1993. Previously, he
was associated with ECMC since prior to 1992.
KATHLEEN A. CORBET, Senior Vice President, 37, has been
a Senior Vice President of ACMC since July 1993. Previously, she
held various responsibilities as head of Equitable Capital
19
<PAGE>
Management Corporation's Fixed Income Management Department,
Private Placement Secondary Trading and Fund Management since
prior to 1992.
RANDALL E. HAASE, Senior Vice President, 32, has been a
Vice President of ACMC since July, 1993. Prior thereto he was
associated with ECMC.
DANIEL G. PINE, Senior Vice President, 44, has been
associated with the Adviser since 1996. Previously, he was a
Senior Vice President of Desai Capital Management since prior to
1992.
THOMAS BARDONG, Vice President, 52, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1992.
DAVID KRUTH, Vice President, 34, is a Vice President of
ACMC, with which he has been associated since 1997. Prior
thereto he was a Senior Vice President of the Yarmouth Group.
DANIEL PANKER, Vice President, 58, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1992.
MARK D. GERSTEN, Treasurer and Chief Financial Officer,
47, is a Senior Vice President of Alliance Fund Services, Inc.
with which he has been associated since prior to 1992.
VINCENT S. NOTO, Controller, 33, is a Vice President of
Alliance Fund Services, Inc., with which he has been associated
since prior to 1992.
JOSEPH MANTINEO, Assistant Controller, 38, has been a
Vice President of Alliance Fund Services, Inc. since prior to
1992.
PHYLLIS CLARKE, Assistant Controller, 37, is an
Accounting Manager of Mutual Funds for Alliance Fund Services,
Inc. since prior to 1992.
JUAN J. RODRIGUEZ, Assistant Controller, 40, is an
Assistant Vice President of Alliance Fund Services, Inc. with
which he has been associated since prior to 1992.
EDMUND P. BERGAN, JR., Secretary, 47, is a Senior Vice
President and General Counsel of Alliance Fund Distributors and
Alliance Fund Services, Inc. and Vice President and Assistant
General Counsel of ACMC, with which he has been associated since
prior to 1992.
20
<PAGE>
DOMENICK PUGLIESE, Assistant Secretary, 36, is a Vice
President and Assistant General Counsel of Alliance Fund
Services, Inc., with which he has been associated since May 1995.
Previously, he was Vice President and Counsel of Concord Holding
Corporation since 1994, Vice President and Associate General
Counsel of Prudential Securities since 1992.
The aggregate compensation paid by the Company to each
of the Directors during its fiscal year ending October 31, 1998
(estimating future payments based on existing arrangements), the
aggregate compensation paid to each of the Directors during
calendar year 1996 by all of the funds to which the Adviser
provides investment advisory services (collectively, the
"Alliance Fund Complex") and the total number of registered
investment companies (and separate investment portfolios within
those companies) in the Alliance Fund Complex with respect to
which each of the Directors serves as a director or trustee, are
set forth below. Neither the Fund nor any other fund in the
Alliance Fund Complex provides compensation in the form of
pension or retirement benefits to any of its directors or
trustees. Each of the Directors is a director or trustee of one
or more other registered investment companies in the Alliance
Fund Complex.
Total Number Total Number
of Funds in of Investment
the Alliance Portfolios
Total Complex, within the
Compensation Including the Funds, Including
from the Fund, as to the Fund, as
Aggregate Alliance Fund which the to which the
Compensation Complex, Director is a Director is a
from the Including the Director or Director or
Name of Director Company** Company Trustee Trustee
John D. Carifa $ -0- $ -0- 52 114
Ruth Block $3,000 $157,500 38 76
David H. Dievler $3,000 $182,000 45 79
John H. Dobkin $3,000 $121,250 31 52
William H. Foulk, Jr. $3,000 $144,250 34 70
Dr. James M. Hester $3,000 $148,500 39 73
Clifford L. Michel $3,000 $146,068 39 88
Donald J. Robinson $3,000 $137,250 42 102
As of November 14, 1997, the Directors and officers of
the Company as a group owned less than 1% of the Class I and
Class II shares of the Fund.
_______
**estimated
21
<PAGE>
_________________________________________________________________
EXPENSES OF THE FUND
_________________________________________________________________
Distribution Services Agreement
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributors,
Inc., the Fund's principal underwriter (the "Principal
Underwriter"), to permit the Principal Underwriter to distribute
the Fund's Class I and Class II shares and to permit the Fund to
pay distribution services fees to defray expenses associated with
the distribution of its Class II shares in accordance with a plan
of distribution which is included in the Agreement and which has
been duly adopted and approved in accordance with Rule 12b-1
adopted by the Commission under the 1940 Act (the "Rule 12b-1
Plan").
Distribution services fees are accrued daily, paid
monthly and charged as expenses of the Fund as accrued. Under
the Agreement, the Treasurer of the Fund reports the amounts
expended under the Rule 12b-1 Plan and the purposes for which
such expenditures were made to the Directors for their review on
a quarterly basis. Also, the Agreement provides that the
selection and nomination of Directors who are not "interested
persons" of the Company, as defined in the 1940 Act, are
committed to the discretion of such disinterested Directors then
in office. The Agreement was initially approved by the Directors
at a meeting held on November 7, 1997, and by the Fund's initial
shareholder on November 3, 1997.
The Agreement became effective on November 7, 1997. The
Agreement will continue in effect so long as its continuance is
specifically approved annually by the Directors or by vote of the
holders of a majority of the outstanding voting securities (as
defined in the 1940 Act) of that class, and, in either case, by a
majority of the Directors who are not parties to the Agreement or
interested persons, as defined in the 1940 Act, of any such party
(other than as directors of the Fund) and who have no direct or
indirect financial interest in the operation of the Rule 12b-1
Plan or any agreement related thereto.
The Adviser may from time to time and from its own funds
or such other resources as may be permitted by rules of the
Commission make payments for distribution services to the
Principal Underwriter; the latter may, in turn, pay part or all
of such compensation to brokers or other persons for their
distribution assistance.
22
<PAGE>
All material amendments to the Agreement must be
approved by a vote of the Directors or the holders of the Fund's
outstanding voting securities, voting separately by class, and in
either case, by a majority of the disinterested Directors, cast
in person at a meeting called for the purpose of voting on such
approval; and the Agreement may not be amended in order to
increase materially the costs that the Fund may bear pursuant to
the Agreement without the approval of a majority of the holders
of the outstanding voting shares of the class or classes
affected. The Agreement may be terminated (a) by the Fund
without penalty at any time by a majority vote of the holders of
the outstanding voting securities of the Fund, voting separately
by class, or by a majority vote of the Directors who are not
"interested persons" as defined in the 1940 Act, or (b) by the
Principal Underwriter. To terminate the Agreement, the
terminating party must give the other party 60 days' written
notice; to terminate the Rule 12b-1 Plan only, the Fund need give
no notice to the Principal Underwriter. The Agreement will
terminate automatically in the event of its assignment.
Transfer Agency Agreement
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of each of the Class I and Class II shares of the
Fund, plus reimbursement for its out-of-pocket expenses. The
transfer agency fee with respect to the Class II shares is higher
than the transfer agency fee with respect to the Class I shares.
_________________________________________________________________
PURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in
the Prospectus under the heading "Purchase and Sale of Shares-
- -How To Buy Shares."
General
Class I shares of the Fund may be purchased and held
solely (i) through accounts established under a fee-based program
sponsored and maintained by a registered broker-dealer or other
financial intermediary and approved by the Principal Underwriter,
(ii) through employee benefit plans, including defined
contribution and defined benefit plans ("Employee Plans"), that
have at least $10 million in assets, (iii) by investment advisory
clients of the Adviser or its affiliates, (iv) by (a) officers
and present or former Directors of the Company, (b) present or
former directors and trustees of other investment companies
managed by the Adviser, (c) present or retired full-time
23
<PAGE>
employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates, (d) officers and
directors of ACMC, the Principal Underwriter, Alliance Fund
Services, Inc. and their affiliates, (e) (1) the spouse, sibling,
direct ancestor or direct descendant (collectively "relatives")
of any person listed in (a) through (d), (2) any trust,
individual retirement account or retirement plan account for the
benefit of any person listed in (a) through (d) or a relative of
such person, or (3) the estate of any person listed in (a)
through (d) or a relative of such person, if such shares are
purchased for investment purposes (such shares may not be resold
except to the Fund), (v) by (a) the Adviser, the Principal
Underwriter, Alliance Fund Services, Inc. and their affiliates or
(b) certain employee benefit plans for employees of the Adviser,
the Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates, and (vi) through registered investment advisers or
other financial intermediaries who charge a management,
consulting or other fee for their service and who purchase shares
through a broker or agent approved by the Principal Underwriter,
and clients of such registered investment advisers or financial
intermediaries whose accounts are linked to the master account of
such investment adviser or financial intermediary on the books of
such approved broker or agent.
Class II shares of the Fund may be purchased and held
solely (i) by investors participating in wrap fee or other
similar programs offered by registered broker-dealers or other
financial intermediaries that meet certain requirements
established by the Principal Underwriter, and (ii) Employee Plans
that have at least $10 million in assets.
The shares of the Fund are offered on a continuous basis
at a price equal to their net asset value. The minimum initial
investment in the Company is $2,000,000, which may be invested in
any one or more of the Funds. Investments made through fee-based
or "wrap fee" programs will satisfy the minimum initial
investment requirement if the fee-based or "wrap fee" program, as
a whole, invests at least $2,000,000 in one or more of the Funds.
There is no minimum for subsequent investments. The minimum
initial investment may be waived in the discretion of the
Company.
Investors may purchase shares of the Fund through their
financial representatives. A transaction, service,
administrative or other similar fee may be charged by your
financial representative with respect to the purchase, sale or
exchange of shares made through such financial representative.
Your financial representative may also impose requirements with
respect to the purchase, sale or exchange of shares that are
different from, or in addition to, those imposed by the Fund as
described in the Prospectus and this Statement of Additional
24
<PAGE>
Information, including requirements as to the minimum initial and
subsequent investment amounts.
The Fund may refuse any order for the purchase of
shares. The Fund reserves the right to suspend the sale of its
shares to the public in response to conditions in the securities
markets or for other reasons.
The public offering price of shares of the Fund is their
net asset value. On each Company business day on which a
purchase or redemption order is received by the Fund and trading
in the types of securities in which the Fund invests might
materially affect the value of Fund shares, the per share net
asset value is computed in accordance with the Fund's Articles of
Incorporation and By-Laws as of the next close of regular trading
on the New York Stock Exchange (the "Exchange") (currently 4:00
p.m. Eastern time) by dividing the value of the Fund's total
assets, less its liabilities, by the total number of its shares
then outstanding. A Company business day is any day on which the
Exchange is open for trading.
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined as described below. Orders received
by the Principal Underwriter prior to the close of regular
trading on the Exchange on each day the Exchange is open for
trading are priced at the net asset value computed as of the
close of regular trading on the Exchange on that day. In the
case of orders for the purchase of shares placed through
financial representatives, the applicable public offering price
will be the net asset value as so determined, but only if the
financial representative receives the order prior to the close of
regular trading on the Exchange and transmits it to the Principal
Underwriter prior to 5:00 p.m. Eastern time. The financial
representative is responsible for transmitting such orders by
5:00 p.m. If the financial representative fails to do so, the
investor's right to that day's closing price must be settled
between the investor and the financial representative. If the
financial representative receives the order after the close of
regular trading on the Exchange, the price will be based on the
net asset value determined as of the close of regular trading on
the Exchange on the next day it is open for trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application obtained by calling the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Except with respect to certain omnibus accounts,
telephone purchase orders may not exceed $500,000. Payment for
25
<PAGE>
shares purchased by telephone can be made only by electronic
funds transfer from a bank account maintained by the shareholder
at a bank that is a member of the National Automated Clearing
House Association ("NACHA"). If a shareholder's telephone
purchase request is received before 3:00 p.m. Eastern time on a
Company business day, the order to purchase shares is
automatically placed the following Company business day, and the
applicable public offering price will be the public offering
price determined as of the close of business on such following
business day.
Full and fractional shares are credited to a
shareholder's account in the amount purchased by the shareholder.
As a convenience to the subscriber, and to avoid unnecessary
expense to the Fund, stock certificates representing shares of
the Fund are not issued except upon written request to the Fund
by the shareholder or the shareholder's financial representative.
This facilitates later redemption and relieves the shareholder of
the responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
although such shares remain in the shareholder's account on the
books of the Fund.
In addition to the discount or commission which may be
paid to dealers or agents in connection with the sale of Fund
shares, the Principal Underwriter from time to time may pay
additional cash or other incentives to dealers or agents,
including EQ Financial Consultants, Inc., formerly Equico
Securities, Inc., an affiliate of the Principal Underwriter, in
connection with such sales. Such additional amounts may be
utilized, in whole or in part, to provide additional compensation
to registered representatives who sell shares of the Fund. On
some occasions, cash or other incentives will be conditioned upon
the sale of a specified minimum dollar amount of the shares of
the Fund and/or other Alliance Mutual Funds, as defined below,
during a specific period of time. On some occasions, such cash
or other incentives may take the form of payment for attendance
at seminars, meals, sporting events or theater performances, or
payment for travel, lodging and entertainment incurred in
connection with travel taken by persons associated with a dealer
or agent and their immediate family members to urban or resort
locations within or outside the United States. Such dealer or
agent may elect to receive cash incentives of equivalent amount
in lieu of such payments.
Class I and Class II shares each represent an interest
in the same portfolio of investments of the Fund, have the same
rights and are identical in all respects, except that
(i) Class II has exclusive voting rights with respect to
provisions of the Rule 12b-1 Plan pursuant to which its
distribution services fees are paid and other matters for which
26
<PAGE>
separate class voting is appropriate under applicable law,
provided that, if the Fund submits to a vote of the Class II
shareholders an amendment to the Rule 12b-1 Plan that would
materially increase the amount to be paid thereunder with respect
to the Class II shares, then such amendment will also be
submitted to the Class I shareholders and the Class II and Class
I shareholders will vote separately thereon by class and
(ii) Class I shares are subject to a conversion feature.
The Directors have determined that currently no conflict
of interest exists between Class I and Class II shares. On an
ongoing basis, the Directors, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
Conversion of Class I
Shares to Class II Shares
Class I shares may be held solely through the fee-based
program accounts, employee benefit plans and registered
investment advisory or other financial intermediary relationships
described under "--General," and by investment advisory clients
of, and certain other persons associated with, the Adviser and
its affiliates or the Fund. If (i) a holder of Class I shares
ceases to participate in the fee-based program or plan, or to be
associated with an investment advisor or financial intermediary,
in each case one that satisfies the requirements to purchase
shares set forth under "--General", or (ii) the holder is
otherwise no longer eligible to purchase Class I shares as
described in this Statement of Additional Information (each, a
"Conversion Event"), then all Class I shares held by the
shareholder will convert automatically and without notice to the
shareholder, other than the notice contained in this Statement of
Additional Information, to Class II shares of the Fund during the
calendar month following the month in which the Fund is informed
or otherwise learns of the occurrence of the Conversion Event.
The failure of a shareholder or a fee-based program to satisfy
the minimum investment requirements to purchase Class I shares
will not constitute a Conversion Event. The conversion would
occur on the basis of the relative net asset values of the two
classes and without the imposition of any sales load, fee or
other charge. Class II shares currently bear a .30% distribution
services fee and have a higher expense ratio than Class I shares.
As a result, Class II shares may pay correspondingly lower
dividends and have a lower net asset value than Class I shares.
The conversion of Class I shares to Class II shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class I shares to Class II
shares does not constitute a taxable event under federal income
tax law. The conversion of Class I shares to Class II shares may
27
<PAGE>
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, the Class I
shareholder would be required to redeem his Class I shares, which
would constitute a taxable event under federal income tax law.
_________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in
the Prospectus under the heading "Purchase and Sale of Shares-
- -How to Sell Shares." If you are a shareholder through an
account established under a fee-based program, your fee-based
program may impose requirements with respect to the purchase,
sale or exchange of shares of the Fund that are different from
those described herein. A transaction fee may be charged by your
financial representative with respect to the purchase, sale or
exchange of shares made through such financial representative.
Redemption
Subject to the limitations described below, the
Company's Articles of Incorporation require that the Company
redeem the shares tendered to it, as described below, at a
redemption price equal to their net asset value as next computed
following the receipt of shares tendered for redemption in proper
form. There is no redemption charge. If a shareholder is in
doubt about what documents are required by his or her fee-based
program or employee benefit plan, the shareholder should contact
the shareholder's financial representative.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the Commission determines
that trading thereon is restricted, or for any period during
which an emergency (as determined by the Commission) exists as a
result of which disposal by the Fund of securities owned by it is
not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Commission
may by order permit for the protection of security holders of the
Fund.
Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
28
<PAGE>
portfolio securities at the time of such redemption or
repurchase. Payment received by a shareholder upon redemption or
repurchase of the shareholder's shares, assuming the shares
constitute capital assets in the shareholder's hands, will result
in long-term or short-term capital gains (or loss) depending upon
the shareholder's holding period and basis in respect of the
shares redeemed.
To redeem shares of the Fund for which no stock
certificates have been issued, the registered owner or owners
should forward a letter to the Company containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an institution that is an "eligible guarantor
institution" as defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended.
To redeem shares of the Fund represented by stock
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Company with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
stock certificate surrendered to the Company for redemption must
be signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the stock certificate or certificates or, where
tender is made by mail, separately mailed to the Company. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
Telephone Redemption by Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer once in any 30-day period (except for certain
omnibus accounts), of shares for which no stock certificates have
been issued by telephone at (800) 221-5672 by a shareholder who
has completed the appropriate portion of the Subscription
Application or, in the case of an existing shareholder, an
"Autosell" application obtained from Alliance Fund Services, Inc.
A telephone redemption request may not exceed $100,000 (except
for certain omnibus accounts) and must be made by 4:00 p.m.
Eastern time on a Company business day as defined above.
Proceeds of telephone redemptions will be sent by electronic
funds transfer to a shareholder's designated bank account at a
bank selected by the shareholder that is a member of the NACHA.
Telephone Redemption by Check. Except for certain
omnibus accounts or as noted below, each Fund shareholder is
eligible to request redemption by check, once in any 30-day
period, of shares for which no stock certificates have been
issued by telephone at (800) 221-5672 before 4:00 p.m. Eastern
29
<PAGE>
time on a Company business day in an amount not exceeding
$50,000. Proceeds of such redemptions are remitted by check to
the shareholder's address of record. Telephone redemption by
check is not available with respect to shares (i) for which
certificates have been issued, (ii) held in nominee or "street
name" accounts, (iii) held by a shareholder who has changed his
or her address of record within the preceding 30 calendar days or
(iv) held in any retirement plan account. A shareholder
otherwise eligible for telephone redemption by check may cancel
the privilege by written instruction to Alliance Fund Services,
Inc., or by checking the appropriate box on the Subscription
Application found in the Prospectus.
Telephone Redemptions - General. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information. The
Company reserves the right to suspend or terminate its telephone
redemption service at any time without notice. Neither the
Company nor the Adviser, the Principal Underwriter or Alliance
Fund Services, Inc. will be responsible for the authenticity of
telephone requests for redemptions that the Company reasonably
believes to be genuine. The Company will employ reasonable
procedures in order to verify that telephone requests for
redemptions are genuine, including, among others, recording such
telephone instructions and causing written confirmations of the
resulting transactions to be sent to shareholders. If the
Company did not employ such procedures, it could be liable for
losses arising from unauthorized or fraudulent telephone
instructions. Financial representatives may charge a commission
for handling telephone requests for redemptions.
Repurchase
The Company may repurchase shares through the Principal
Underwriter or selected financial intermediaries. The repurchase
price will be the net asset value next determined after the
Principal Underwriter receives the request, except that requests
placed through selected financial representatives before the
close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary is
responsible for transmitting the request to the Principal
Underwriter by 5:00 p.m. If the financial intermediary fails to
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<PAGE>
do so, the shareholder's right to receive that day's closing
price must be settled between the shareholder and the financial
representative. A shareholder may offer shares of the Fund to
the Principal Underwriter either directly or through the
shareholder's financial representative. Neither the Company nor
the Principal Underwriter charges a fee or commission in
connection with the repurchase of shares. Normally, if shares of
the Fund are offered through a financial intermediary, the
repurchase is settled by the shareholder as an ordinary
transaction with or through the financial representative, who may
charge the shareholder for this service. The repurchase of
shares of the Fund as described above is a voluntary service of
the Fund and the Fund may suspend or terminate this practice at
any time.
General
The Company reserves the right to close out an account
that has remained below $200 for at least 90 days. Shareholders
will receive 60 days' written notice to increase the account
value before the account is closed. In the case of a redemption
or repurchase of shares of the Fund recently purchased by check,
redemption proceeds will not be made available until the Company
is reasonably assured that the check has cleared, normally up to
15 calendar days following the purchase date.
_________________________________________________________________
SHAREHOLDER SERVICES
_________________________________________________________________
The following information supplements that set forth in
the Prospectus under the heading "Purchase and Sale of Shares-
- -Shareholder Services." If you are a shareholder through an
account established under a fee-based program, your fee-based
program may impose requirements with respect to the purchase,
sale or exchange of shares of the Fund that are different from
those described herein. A transaction fee may be charged by your
financial representative with respect to the purchase, sale or
exchange of shares made through such financial representative.
Exchange Privilege
You may exchange your investment in the Fund for shares
of the same class of any other Fund and for Class A shares of any
other Alliance Mutual Fund (as defined below). Exchanges of
shares are made at the net asset value next determined and
without sales or service charges. Exchanges may be made by
telephone or written request. Telephone exchange requests must
be received by Alliance Fund Services, Inc. by 4:00 p.m. Eastern
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<PAGE>
time on a Company business day in order to be effected at that
day's net asset value.
Currently, the Alliance Mutual Funds include:
AFD Exchange Reserves
The Alliance Fund, Inc.
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance/Regent Sector Opportunity Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
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<PAGE>
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Strategic Balanced Fund
-Alliance Short-Term U.S. Government Fund
Please read carefully the portions of the Prospectus
concerning the Fund or the prospectus of the Alliance Mutual
Fund, as applicable, into which you wish to exchange before
submitting the request. Call Alliance Fund Services, Inc. at
(800) 221-5672 to exchange uncertificated shares. Exchanges of
shares as described above in this section are taxable
transactions for federal income tax purposes. The exchange
service may be changed, suspended or terminated on 60 days'
written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus or the prospectus for the Alliance Mutual Fund whose
shares are being acquired, as applicable. An exchange is
effected through the redemption of the shares tendered for
exchange and the purchase of shares being acquired at their
respective net asset values as next determined following receipt
by the Fund or the Alliance Mutual Fund, as applicable, whose
shares are being exchanged of (i) proper instructions and all
necessary supporting documents as described in that fund's
prospectus, or (ii) a telephone request for such exchange in
accordance with the procedures set forth in the following
paragraph. Exchanges involving the redemption of shares recently
purchased by check will be permitted only after the fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
Each Fund shareholder, and the shareholder's financial
representative, are authorized to make telephone requests for
exchanges unless Alliance Fund Services, Inc., receives a written
instruction to the contrary from the shareholder, or the
shareholder declines the privilege by checking the appropriate
box on the Subscription Application found in the Prospectus.
Such telephone requests cannot be accepted with respect to shares
then represented by stock certificates. Shares acquired pursuant
to a telephone request for exchange will be held under the same
account registration as the shares redeemed through the exchange.
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange at (800) 221-5672 on a
Company business day as defined above. Telephone requests for
exchange received before 4:00 p.m. Eastern time on a Company
33
<PAGE>
business day will be processed as of the close of business on
that day. During periods of drastic economic or market
developments, such as the market break of October 1987, it is
possible that shareholders would have difficulty in reaching
Alliance Fund Services, Inc. by telephone (although no such
difficulty was apparent at any time in connection with the 1987
market break). If a shareholder were to experience such
difficulty, the shareholder should issue written instructions to
Alliance Fund Services, Inc. at the address shown on the cover of
this Statement of Additional Information.
None of the Company, the Alliance Mutual Funds, the
Adviser, the Principal Underwriter or Alliance Fund Services,
Inc. will be responsible for the authenticity of telephone
requests for exchanges that the Company reasonably believes to be
genuine. The Company will employ reasonable procedures in order
to verify that telephone requests for exchanges are genuine,
including, among others, recording such telephone instructions
and causing written confirmations of the resulting transactions
to be sent to shareholders. If the Company did not employ such
procedures, it could be liable for losses arising from
unauthorized or fraudulent telephone instructions. Financial
representatives, may charge a commission for handling telephone
requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Fund being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
Retirement Plans
The Fund may be a suitable investment vehicle for part
or all of the assets held in various types of retirement plans,
such as those listed below. The Company has available forms of
such plans pursuant to which investments can be made in the Fund
and other Alliance Mutual Funds. Persons desiring information
concerning these plans should contact Alliance Fund Services,
Inc. at the "For Literature" telephone number on the cover of
this Statement of Additional Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 07096-1520
Employer-Sponsored Qualified Retirement Plans. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including
34
<PAGE>
Section 401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals. The minimum
initial investment requirement may be waived with respect to
certain of these qualified plans.
Simplified Employee Pension Plan ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
IRA established by each eligible employee within prescribed
limits based on employee compensation.
403(b)(7) Retirement Plan. Certain tax-exempt
organizations and public educational institutions may sponsor
retirement plans under which an employee may agree that monies
deducted from his or her compensation (minimum $25 per pay
period) may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable which serves as custodian or trustee
under the retirement plan prototype forms available from the
Fund, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
to Alliance Fund Services, Inc. as compensation for its services
to the retirement plan accounts maintained with the Fund.
Distributions from retirement plans are subject to
certain Code requirements in addition to normal redemption
procedures. For additional information please contact Alliance
Fund Services, Inc.
Statements and Reports
Each shareholder of the Fund receives semi-annual and
annual reports which include a listing of the Fund's investments,
financial statements and, in the case of the annual report, the
report of the Company's independent auditors, Ernst & Young LLP,
as well as a confirmation of each purchase and redemption of
shares by the shareholder. By contacting the shareholder's
broker or Alliance Fund Services, Inc., a shareholder can arrange
for a copy of the shareholder's account statements to be sent to
another person.
35
<PAGE>
_________________________________________________________________
NET ASSET VALUE
_________________________________________________________________
The Fund's per share net asset value is determined once
daily as of the next close of regular trading on the Exchange
(currently 4:00 p.m. Eastern time) following receipt of a
purchase or redemption order by the Company, on each Company
business day on which such an order is received and trading in
the types of securities in which the Fund invests might
materially affect the value of Fund shares and on such other days
as the Directors deem necessary in order to comply with Rule 22c-
1 under the 1940 Act. A Company business day is any day on which
the Exchange is open for trading. The net asset value is the net
worth of the Fund (assets including securities at market value
minus liabilities) divided by the number of Fund shares
outstanding.
The assets belonging to the Class I and Class II shares
are invested together in a single portfolio. The net asset value
of each of the classes will be determined separately by
subtracting the accrued expenses and liabilities allocated to
that class from the assets belonging to that class.
Each security listed on an exchange for which market
quotations are readily available is valued at the closing price
on the exchange on the day of valuation or, if no such closing
price is available, at the mean of the bid and ask price for that
security quoted on that day. Other securities for which market
quotations are readily available will be valued in a like manner.
Options will be valued at such market value or fair value if no
market exists. Futures contracts will be valued in a like manner,
except that open futures contracts sales will be valued using the
closing settlement price or, in the absence of such a price, the
most recent quoted asked price. If there are no quotations
available for the day of valuation, the last available closing
price will be used. Securities and assets for which market
quotations are not readily available (including investments that
are subject to limitations as to their sale) are valued at fair
value as determined in good faith by the Board of Directors.
Short-term debt securities that mature in less than 60
days are valued at amortized cost if their term to maturity from
date of purchase by the Fund was less than 60 days, or by
amortizing their value on the 61st day prior to maturity if their
term to maturity from date of purchase by the Fund was more than
60 days, unless such amortized cost is determined by the Board of
Directors not to represent fair value.
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<PAGE>
For purposes of determining the Fund's net asset value
per share, all assets and liabilities initially expressed in
foreign currencies will be converted into U.S. Dollars at the
mean of the current bid and asked prices of such currency against
the U.S. Dollar last quoted by a major bank that is a regular
participant in the foreign exchange market or on the basis of a
pricing service that takes into account the quotes provided by a
number of such major banks.
_________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_________________________________________________________________
United States Federal Income Taxation of Dividends and
Distributions
General
The Fund intends for each taxable year to qualify as a
"regulated investment company" under the Code. Such
qualification relieves the Fund of federal income tax liability
on that part of its net ordinary income and net realized capital
gains which it timely distributes to its shareholders. Such
qualification does not, of course, involve governmental
supervision of investment practices or policies. Investors
should consult their own counsel for a complete understanding of
the requirements the Fund must meet to qualify to be taxed as a
"regulated investment company."
The information set forth in the Prospectus and the
following discussion relate solely to the significant United
States federal income taxes on dividends and distributions by the
Fund and assumes that the Fund qualifies to be taxed as a
regulated investment company. An investor should consult the
investor's tax counsel with respect to the specific tax
consequences of being a shareholder of the Fund, including the
effect and applicability of federal, state and local tax laws to
the investor's particular situation and the possible effects of
changes therein.
It is the present policy of the Fund to distribute to
shareholders all net investment income annually and to distribute
net realized capital gains, if any, annually. The amount of any
such distributions necessarily depends upon the realization by
the Fund of income and capital gains from investments.
The Fund intends to declare and distribute dividends in
the amounts and at the times necessary to avoid the application
of the 4% federal excise tax imposed on certain undistributed
income of regulated investment companies. The Fund will be
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<PAGE>
required to pay the 4% excise tax to the extent it does not
distribute to its shareholders during any calendar year an amount
equal to the sum of (i) 98% of its ordinary taxable income for
the calendar year, (ii) 98% of its capital gain net income and
foreign currency gains for the twelve months ended October 31 of
such year and (iii) any ordinary income or capital gain net
income from the preceding calendar year that was not distributed
during such year. For this purpose, income or gain retained by
the Fund that is subject to corporate income tax will be
considered to have been distributed by the Fund by year-end. For
federal income and excise tax purposes, dividends declared and
payable to shareholders of record as of a date in October,
November or December but actually paid during the following
January will be taxable to these shareholders for the year
declared, and not for the subsequent calendar year in which the
shareholders actually receive the dividend.
Dividends of the Fund's net ordinary income and
distributions of any of the net realized short-term capital gain
are taxable to shareholders as ordinary income. Dividends paid
by the Fund and received by a corporate shareholder are eligible
for the dividends received deduction to the extent that the
Fund's income is derived from certain dividends received from
domestic corporations, provided the corporate shareholder holds
shares in the Fund for at least 46 days during the 90-day period
beginning 45 days before the date on which the shareholder
becomes entitled to receive the dividend. In determining the
holding period of shares for this purpose, any period during
which a shareholder's risk of loss is offset by means of options,
short sales or similar transactions engaged in by the shareholder
is not counted. In addition, the dividends received deduction
will be disallowed to the extent the investment in shares of the
Fund is financed with indebtedness.
Pursuant to the Taxpayer Relief Act of 1997, two
different tax rates apply to net capital gains--that is, the
excess of net gains from capital assets held for more than one
year over net losses from capital assets held for not more than
one year. One rate (generally 28%) applies to net gains on
capital assets held for more than one year but not more than 18
months ("mid-term gains"), and a second rate (generally 20%)
applies to the balance of such net capital gains ("adjusted net
capital gains"). Except as noted below, distributions of net
capital gains will be treated in the hands of shareholders as
mid-term gains to the extent designated by the Fund as deriving
from net gains from assets held for more than one year but not
more than 18 months, and the balance will be treated as adjusted
net capital gains. Gains derived from assets sold before May 7,
1997 and held for more than 18 months will be treated as mid-term
gains. Gains derived from assets sold after May 6, 1997 and
before July 29, 1997 and held for more than one year will be
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<PAGE>
treated as adjusted net capital gains. Distributions of mid-term
gains and adjusted net capital gains will be taxable to
shareholders as such, regardless of how long a shareholder has
held shares in the Fund. Any dividend or distribution received
by a shareholder on shares of the Fund will have the effect of
reducing the net asset value of such shares by the amount of the
dividend or distribution. Furthermore, a dividend or
distribution made shortly after the purchase of Fund shares by a
shareholder, although in effect a return of capital to the
shareholder, would be taxable to the shareholder as described
above. If a shareholder has held shares in the Fund for six
months or less and during that period has received a distribution
of capital gains, any loss recognized by the shareholder on the
sale of those shares during the six-month period will be treated
as a long-term capital loss to the extent of the distribution.
In determining the holding period of such shares for this
purpose, any period during which a shareholder's risk of loss is
offset by means of options, short sales or similar transactions
by the shareholder is not counted.
Any loss realized by a shareholder on a sale or exchange
of shares of the Fund will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30
days before and ending 30 days after the shares are sold or
exchanged. For this purpose, acquisitions pursuant to the
Dividend Reinvestment Plan would constitute a replacement if made
within that period. If disallowed, the loss will be reflected in
an upward adjustment to the basis of the shares acquired.
Dividends are taxable in the manner discussed regardless
of whether they are paid to a shareholder in cash or are
reinvested in additional shares of the Fund.
It is the present policy of the Fund to distribute to
shareholders all net investment income quarterly and to
distribute net realized capital gains, if any, annually. The
amount of any such distributions must necessarily depend upon the
realization by the Fund of income and capital gains from
investments.
The Fund may be required to withhold federal income tax
at the rate of 31% from all taxable distributions payable to
shareholders who fail to provide the Fund with their correct
taxpayer identification numbers or to make required
certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Corporate
shareholders and certain other shareholders specified in the Code
are exempt from such backup withholding. Backup withholding is
not an additional tax; any amounts so withheld may be credited
against a shareholder's federal income tax liability or refunded.
39
<PAGE>
United States Federal Income Taxation of the Fund
The following discussion relates to certain significant
United States federal income tax consequences to the Fund with
respect to the determination of its "investment company taxable
income" each year. This discussion assumes that the Fund will be
taxed as a regulated investment company for each of its taxable
years.
Options, Futures Contracts and Warrants. Regulated
futures contracts and certain listed options are considered
"section 1256 contracts" for federal income tax purposes.
Section 1256 contracts held by the Fund at the end of a taxable
year will be "marked to market" and treated for federal income
tax purposes as though sold for fair market value on the last
business day of that taxable year. Gain or loss realized by the
Fund on section 1256 contracts generally will be considered 60%
long-term and 40% short-term capital gain or loss. The Fund can
elect to exempt its section 1256 contracts which are part of a
"mixed straddle" (as described below) from the application of
section 1256.
With respect to put and call equity options, gain or
loss realized by the Fund upon the lapse or sale of such options
held by the Fund will be either long-term or short-term capital
gain or loss depending upon the Fund's holding period with
respect to such option. However, gain or loss realized upon the
lapse or closing out of such options that are written by the Fund
will be treated as short-term capital gain or loss. In general,
if the Fund exercises an option, or if an option that the Fund
has written is exercised, gain or loss on the option will not be
separately recognized but the premium received or paid will be
included in the calculation of gain or loss upon disposition of
the property underlying the option. Warrants which are invested
in by the Fund will generally be treated in the same manner for
federal income tax purposes as options held by the Fund.
Tax Straddles. Any option, futures contract or other
position entered into or held by the Fund in conjunction with any
other position held by the Fund may constitute a "straddle" for
federal income tax purposes. A straddle of which at least one,
but not all, of the positions involved are section 1256 contracts
may constitute a "mixed straddle." In general, straddles are
subject to certain rules that may affect the character and timing
of the Fund's gains and losses with respect to straddle positions
by requiring, among other things, that (i) loss realized on
disposition of one position of a straddle not be recognized to
the extent that the Fund has unrealized gains with respect to the
other position in the straddle; (ii) the Fund's holding period in
straddle positions be suspended while the straddle exists
(possibly resulting in gain being treated as short-term capital
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<PAGE>
gain rather than long-term capital gain); (iii) losses recognized
with respect to certain straddle positions which are part of a
mixed straddle and which are non-section 1256 positions be
treated as 60% long-term and 40% short-term capital loss;
(iv) losses recognized with respect to certain straddle positions
which would otherwise constitute short-term capital losses be
treated as long-term capital losses; and (v) the deduction of
interest and carrying charges attributable to certain straddle
positions may be deferred. Various elections are available to
the Fund which may mitigate the effects of the straddle rules,
particularly with respect to mixed straddles. In general, the
straddle rules described above do not apply to any straddles held
by the Fund all of the offsetting positions of which consist of
section 1256 contracts.
Taxation of Foreign Stockholders
The foregoing discussion relates only to United States
federal income tax law as it affects shareholders who are United
States citizens or residents or United States corporations. The
effects of federal income tax law on shareholders who are non-
resident alien individuals or foreign corporations may be
substantially different. Foreign investors should therefore
consult their counsel for further information as to the United
States tax consequences of investing in the Fund.
_________________________________________________________________
PORTFOLIO TRANSACTIONS
_________________________________________________________________
Subject to the general supervision of the Board of
Directors, the Adviser is responsible for the investment
decisions and the placing of orders for portfolio transactions
for the Fund. The Adviser determines the broker to be used in
each specific transaction with the objective of negotiating a
combination of the most favorable commission and the best price
obtainable on each transaction (generally defined as best
execution). When consistent with the objective of obtaining best
execution, brokerage may be directed to persons or firms
supplying investment information to the Adviser. There may be
occasions where a transaction cost charged by a broker may be
greater than that which another broker would charge if the Fund
determines in good faith that the amount of such transaction cost
is reasonable in relation to the value of the brokerage, research
and statistical services provided by the executing broker.
Neither the Company nor the Adviser has entered into
agreements or understandings with any brokers regarding the
placement of securities transactions because of research services
brokers provide. To the extent that such persons or firms supply
41
<PAGE>
investment information to the Adviser for use in rendering
investment advice to the Fund, such information may be supplied
at no cost to the Adviser and, therefore, may have the effect of
reducing the expenses of the Adviser in rendering advice to the
Fund. While it is impossible to place an actual dollar value on
such investment information, its receipt by the Adviser probably
does not reduce the overall expenses of the Adviser to any
material extent.
The investment information provided to the Adviser is of
the type described in Section 28(e)(3) of the Securities Exchange
Act of 1934 and is designed to augment the Adviser's own internal
research and investment strategy capabilities. Research services
furnished by brokers through which the Fund effects securities
transactions are used by the Adviser in carrying out its
investment responsibilities with respect to all its client
accounts.
The Fund may deal in some instances in securities which
are not listed on a national stock exchange but are traded in the
over-the-counter market. The Fund may also purchase listed
securities through the third market, i.e., from a dealer which is
not a member of the exchange on which a security is listed.
Where transactions are executed in the over-the-counter market or
third market, the Fund will seek to deal with the primary market
makers; but when necessary in order to obtain the best price and
execution, it will utilize the services of others. In all cases,
the Fund will attempt to negotiate best execution.
The extent to which commissions that will be charged by
broker-dealers selected by the Fund may reflect an element of
value for research cannot at present be determined. To the
extent that research services of value are provided by broker-
dealers with or through whom the Fund places portfolio
transactions, the Adviser may be relieved of expenses which it
might otherwise bear. Research services furnished by broker-
dealers could be useful and of value to the Adviser in servicing
its other clients as well as the Fund; but, on the other hand,
certain research services obtained by the Adviser as a result of
the placement of portfolio brokerage of other clients could be
useful and of value to it in serving the Fund. Consistent with
the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best execution, the Fund
may consider sales of shares of the Fund or other investment
companies managed by the Adviser as a factor in the selection of
brokers to execute portfolio transactions for the Fund.
The Fund may from time to time place orders for the
purchase or sale of securities (including listed call options)
with Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"),
an affiliate of the Adviser, and with brokers which may have
42
<PAGE>
their transactions cleared or settled, or both, by the Pershing
Division of DLJ, for which DLJ may receive a portion of the
brokerage commission. In such instances, the placement of orders
with such brokers would be consistent with the Fund's objective
of obtaining best execution and would not be dependent upon the
fact that DLJ is an affiliate of the Adviser. With respect to
orders placed with DLJ for execution on a national securities
exchange, commissions received must conform to Section
17(e)(2)(A) of the 1940 Act and Rule 17e-1 thereunder, which
permit an affiliated person of a registered investment company
(such as the Company), or any affiliated person of such person,
to receive a brokerage commission from such registered investment
company, provided that such commission is reasonable and fair
compared to the commissions received by other brokers in
connection with comparable transactions involving similar
securities during a comparable period of time.
_________________________________________________________________
GENERAL INFORMATION
_________________________________________________________________
Capitalization
The Company is a Maryland corporation organized on
October 3, 1997. The authorized capital stock of the Company
consists of 18,000,000,000 shares, of which 3,000,000,000 shares
are Class I shares of the Fund and 3,000,000,000 shares are Class
II shares of the Fund, each having $.001 par value. The balance
of the shares of the Company are Class I and Class II shares of
the Company's other two portfolios.
All shares of the Fund, when issued, are fully paid and
non-assessable. The Directors are authorized to reclassify and
issue any unissued shares to any number of additional series and
classes without shareholder approval. Accordingly, the Directors
in the future, for reasons such as the desire to establish one or
more additional portfolios with different investment objectives,
policies or restrictions, may create additional classes or series
of shares. Any issuance of shares of another class or series
would be governed by the 1940 Act and the law of the State of
Maryland. If shares of another series were issued in connection
with the creation of a new portfolio, each share of each
portfolio would normally be entitled to one vote for all
purposes. Generally, shares of all portfolios would vote as a
single series on matters, such as the election of Directors, that
affected both portfolios in substantially the same manner. As to
matters affecting portfolios differently, such as approval of the
Advisory Agreement and changes in investment policy, shares of
each portfolio would vote as a separate series. Procedures for
calling a shareholders' meeting for the removal of Directors of
43
<PAGE>
the Fund, similar to those set forth in Section 16(c) of the 1940
Act, are available to shareholders of the Fund. The rights of
the holders of shares of a series may not be modified except by
the vote of a majority of the outstanding shares of such series.
Custodian
State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts, will act as the Fund's custodian
for the assets of the Fund but plays no part in decisions as to
the purchase or sale of portfolio securities. Subject to the
supervision of the Directors, State Street Bank and Trust Company
may enter into sub-custodial agreements for the holding of the
Fund's foreign securities.
Principal Underwriter
Alliance Fund Distributors, Inc., 1345 Avenue of the
Americas, New York, New York 10105, serves as the Fund's
Principal Underwriter and as such may solicit orders from the
public to purchase shares of the Fund. Under the Distribution
Services Agreement between the Fund and the Principal
Underwriter, the Fund has agreed to indemnify the Principal
Underwriter, in the absence of its willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations
thereunder, against certain civil liabilities, including
liabilities under the Securities Act.
Counsel
Legal matters in connection with the issuance of the
Common Stock offered hereby are passed upon by Seward & Kissel,
New York, New York. Seward & Kissel has relied upon the opinion
of Venable, Baetjer and Howard, LLP, Baltimore, Maryland, for
matters relating to Maryland law.
Independent Auditors
Ernst & Young LLP, New York, New York, have been
appointed as independent auditors for the Company.
Performance Information
From time to time the Fund advertises its "total
return." Computed separately for each class, the Fund's "total
return" is its average annual compounded total return for its
most recently completed one, five and ten-year periods (or the
period since the Fund's inception). The Fund's total return for
such a period is computed by finding, through the use of a
formula prescribed by the Commission, the average annual
compounded rate of return over the period that would equate an
44
<PAGE>
assumed initial amount invested to the value of such investment
at the end of the period. For purposes of computing total
return, income dividends and capital gains distributions paid on
shares of the Fund are assumed to have been reinvested in Fund
shares when paid.
The Fund's total return is computed separately for Class
I and Class II shares. The Fund's total return is not fixed and
will fluctuate in response to prevailing market conditions or as
a function of the type and quality of the securities in the
Fund's portfolio and the Fund's expenses. Total return
information is useful in reviewing the Fund's performance, but
such information may not provide a basis for comparison with bank
deposits or other investments which pay a fixed yield for a
stated period of time. An investor's principal invested in the
Fund is not fixed and will fluctuate in response to prevailing
market conditions.
Advertisements quoting performance rankings of the Fund
as measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc. and
Morningstar, Inc., and advertisements presenting the historical
record of payments of income dividends by the Fund may also from
time to time be sent to investors or placed in newspapers,
magazines such as Barrons, Business Week, Changing Times, Forbes,
Investor's Daily, Money Magazine, The New York Times and The Wall
Street Journal or other media on behalf of the Fund.
Additional Information
Any shareholder inquiries may be directed to the
shareholder's broker or to Alliance Fund Services, Inc. at the
address or telephone number shown on the front cover of this
Statement of Additional Information. This Statement of
Additional Information does not contain all the information set
forth in the Registration Statement filed by the Fund with the
Commission. Copies of the Registration Statement may be obtained
at a reasonable charge from the Commission or may be examined,
without charge, at the offices of the Commission in Washington,
D.C.
45
<PAGE>
Alliance Institutional Funds, Inc.
Statement of Assets and Liabilities
November 12, 1997
Real Estate
Premier Growth Quasar Investment
Institutional Institutional Institutional
Fund Fund Fund
ASSETS
Cash............................ $33,330 $33,330 $33,340
Deferred organization expenses
(Note A) ....................... 73,098 73,098 73,099
________ _______ _______
Total assets.................... 106,428 106,428 106,439
________ _______ _______
LIABILITIES
Deferred organization expenses
payable (Note A)................ $73,098 $73,098 $73,099
________ _______ _______
NET ASSETS
Class I Shares
Net Assets...................... $33,000 $33,000 $33,000
======= ======= =======
Shares of beneficial interest
outstanding..................... 3,300 3,300 3,300
======= ======= =======
Class II Shares
Net Assets $330 $330 $340
======= ======= =======
Shares of beneficial interest
outstanding..................... 33 33 34
======= ======= =======
CALCULATION OF MAXIMUM OFFERING
PRICE
Class I Shares
Net asset value, offering and
redemption price per share...... $10.00 $10.00 $10.00
======= ======= =======
46
<PAGE>
Class II Shares
Net asset value, offering and
redemption price per share...... $10.00 $10.00 $10.00
======= ======= =======
See Notes to the Statement of Assets and Liabilities
47
<PAGE>
Alliance Institutional Funds, Inc.
Notes to the Statement of Assets and Liabilities
November 12, 1997
Note A-Organization
Alliance Institutional Funds, Inc. (the "Company") was
organized as a Maryland corporation on October 3, 1997 and
is registered under the Investment Company Act of 1940 as an
open-end series investment company. The Company offers
three separately managed pools of assets which have
differing investment objectives and policies. The Company
currently issues shares of the Alliance Premier Growth
Institutional Fund, the Alliance Quasar Institutional Fund,
and the Alliance Real Estate Investment Institutional Fund
(the "Funds"). The Company has had no operations other than
the sale to Alliance Capital Management L.P. (the "Adviser")
of 3,300 shares of Class I common stock of the Alliance
Premier Growth Institutional Fund for the amount of $33,000,
3,300 shares of Class I common stock of the Alliance Quasar
Institutional Fund for the amount of $33,000, 3,300 shares
of Class I common stock of the Alliance Real Estate
Investment Institutional Fund for the amount of $33,000, 33
shares of Class II common stock of the Alliance Premier
Growth Institutional Fund for the amount of $330, 33 shares
of Class II common stock of the Alliance Quasar
Institutional Fund for the amount of $330, and 34 shares of
Class II common stock of the Alliance Real Estate Investment
Institutional Fund for the amount of $340, in each case on
November 12, 1997. Sales are made without a sales charge,
at each Funds' net asset value per share. Costs incurred
and to be incurred in connection with the organization and
initial registration of the Company will be paid initially
by the Adviser. The Company will reimburse the Adviser for
such costs, which will be deferred and amortized by the
Company over the period of benefit, not to exceed 60 months
from the date the Company commences investment operations.
If any of the initial shares of the Company are redeemed by
a holder thereof during such amortization period, the
proceeds will be reduced by the unamortized organization
expenses in the same ratio as the number of initial shares
being redeemed bears to the number of initial shares
outstanding at the time of redemption.
Note B-Investment Management, Transfer Agency and
Distribution Services Agreements
Under the terms of an investment advisory agreement, each of
the Funds will pay the Adviser an investment advisory fee
based on aggregate average daily net assets at the following
48
<PAGE>
annual rates: Alliance Premier Growth Institutional Fund,
.90%; Alliance Quasar Institutional Fund, 1.00%; and
Alliance Real Estate Investment Institutional Fund, .90%.
Such fee will be accrued daily and paid monthly.
Each of the Funds has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributors,
Inc., ("AFD"), a wholly-owned subsidiary of the Adviser. The
Agreement provides that with respect to Class II shares,
each of the Funds will pay AFD a distribution fee of .30% of
each Funds' aggregate average daily net assets. Such fee
will be accrued daily and paid monthly. AFD will use
amounts payable under the Agreement in their entirety for
distribution assistance and promotional activities. The
Agreement also provides that the Adviser may use its own
resources to finance the distribution of the Company's
shares. There is no distribution fee with respect to Class I
shares.
The Company will compensate Alliance Fund Services, Inc. (a
wholly-owned subsidiary of the Adviser) for performing
transfer agency-related services for the Company.
49
<PAGE>
Report of Independent Auditors
Shareholder and Board of Directors
Alliance Institutional Funds, Inc.
We have audited the accompanying statement of assets and
liabilities of Alliance Institutional Funds, Inc.
(comprising, respectively, Premier Growth Institutional
Fund, Quasar Institutional Fund, and Real Estate Investment
Institutional Fund) as of November 12, 1997. This statement
of assets and liabilities is the responsibility of the
Fund's management. Our responsibility is to express an
opinion on this statement of assets and liabilities based on
our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether this statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the statement of assets and liabilities. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall statement of assets and liabilities
presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities
referred to above presents fairly, in all material respects,
the financial position of Alliance Institutional Funds, Inc.
at November 12, 1997, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
New York, New York
November 13, 1997
<PAGE>
_________________________________________________________________
APPENDIX A
_________________________________________________________________
Stock Index Futures Characteristics. Currently, stock
index futures contracts can be purchased or sold with respect to
the Standard & Poor's 500 Stock Index on the Chicago Mercantile
Exchange, the New York Stock Exchange Composite Index on the New
York Futures Exchange and the Value Line Stock Index on the
Kansas City Board of Trade. The Adviser does not believe that
differences in composition of the three indices will create any
differences in the price movements of the stock index futures
contracts in relation to the movements in such indices. However,
such differences in the indices may result in differences in
correlation of the futures contracts with movements in the value
of the securities being hedged. The Fund reserves the right to
purchase or sell stock index futures contracts that may be
created in the future. Certain exchanges and Boards of Trade
have established daily limits on the amount that the price of a
stock index futures contract may vary, either up or down, from
the previous day's settlement price, which limitations may
restrict the Fund's ability to purchase or sell certain stock
index futures contracts on a particular day.
Unlike the purchase or sale of a specific security by
the Fund, no price is paid or received by the Fund upon the
purchase or sale of a futures contract. Initially, the Fund will
be required to deposit with the broker through which such
transaction is effected or in a segregated account with the
Fund's Custodian an amount of cash, U.S. Government securities or
other liquid high-quality debt securities equal to the market
value of the stock index futures contract less any amounts
maintained in a margin account with the Fund's broker. This
amount is known as initial margin. The nature of initial margin
in futures transactions is different from that of margin in
security transactions in that futures contract margin does not
involve the borrowing of funds to finance transactions. Rather,
the initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual
obligations have been satisfied. Additional payments of cash,
Government securities or other liquid high-quality debt
securities, called variation margin, to and from the broker may
be made on a daily basis as the price of the underlying stock
index fluctuates, a process known as marking to the market. For
example, when the Fund has purchased a stock index futures
contract and the price of the futures contract has risen in
response to a rise in the underlying stock index, that position
will have increased in value and the Fund will receive from the
A-1
<PAGE>
broker a variation margin payment equal to that increase in
value. Conversely, where the Fund has purchased a stock index
futures contract and the price of the futures contract has
declined in response to a decrease in the underlying stock index,
the position would be less valuable and the Fund would be
required to make a variation margin payment to the broker. At
any time prior to expiration of the futures contract, the Adviser
may elect to close the position by taking an opposite position
which will operate to terminate the Fund's position in the
futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released
to the Fund, and the Fund realizes a loss or gain.
Risks of Transactions in Stock Index Futures. There are
several risks in connection with the use of stock index futures
by the Fund as a hedging device. One risk arises because of the
imperfect correlation between movements in the price of stock
index futures and movements in the price of the securities which
are the subject of the hedge. The price of a stock index futures
may move more than or less than the price of the securities being
hedged. If the price of the stock index futures moves less than
the price of the securities which are the subject of the hedge,
the hedge will not be fully effective, but, if the price of the
securities being hedged has moved in an unfavorable direction,
the Fund would be in a better position than if it had not hedged
at all. If the price of the securities being hedged has moved in
a favorable direction, this advantage will be partially offset by
the loss on the index future. If the price of the future moves
more than the price of the stock, the Fund will experience either
a loss or gain on the future which will not be completely offset
by movements in the price of the securities which are the subject
of the hedge. To compensate for the imperfect correlation of
movements in the price of securities being hedged and movements
in the price of the stock index futures, the Fund may buy or sell
stock index futures contracts in a greater dollar amount than the
dollar amount of securities being hedged if the volatility over a
particular time period of the prices of such securities has been
greater than the volatility over such time period for the index,
or if otherwise deemed to be appropriate by the Adviser.
Conversely, the Fund may buy or sell fewer stock index futures
contracts if the volatility over a particular time period of the
prices of the securities being hedged is less than the volatility
over such time period of the stock index, or if otherwise deemed
to be appropriate by the Adviser. It is also possible that where
the Fund has sold futures to hedge its portfolio against a
decline in the market, the market may advance and the value of
securities held in the Fund may decline. If this occurs, the
Fund would lose money on the futures contract and also experience
a decline in value in its portfolio securities. However, over
time the value of the Fund's portfolio should tend to move in the
same direction as the market indices upon which the futures
A-2
<PAGE>
contracts are based, although there may be deviations arising
from differences between the composition of the Fund and the
stocks comprising the index.
Where stock index futures contracts are purchased to
hedge against a possible increase in the price of stocks before
the Fund is able to invest its cash (or cash equivalents) in
stocks (or options) in an orderly fashion, it is possible that
the market may decline instead. If the Fund then concludes not
to invest in stocks or options at that time because of concern as
to a possible further market decline or for other reasons, the
Fund will realize a loss on the futures contract that is not
offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an
imperfect correlation, or no correlation at all, between
movements in stock index futures and the portion of the portfolio
being hedged, the price of stock index futures may not correlate
perfectly with movement in the stock index due to market
distortions. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through off-
setting transactions which could distort the normal relationship
between the index and futures markets. Secondly, from the point
of view of speculators, the deposit requirements in the futures
market are less onerous than margin requirements in the
securities market. Therefore, increased participation by
speculators in the futures market may also cause temporary price
distortions. Due to the possibility of price distortions in the
futures market, and because of the imperfect correlation between
the movements in the stock index and movements in the price of
stock index futures, a correct forecast of general market trends
by the Adviser may still not result in a successful hedging
transaction over a short time frame.
Positions in stock index futures contracts may be closed
out only on an exchange or board of trade which provides a
secondary market for such futures. Although the Fund intends to
purchase or sell futures contracts only on exchanges or boards of
trade where there appear to be active secondary markets, there is
no assurance that a liquid secondary market on any exchange or
board of trade will exist for any particular contract or at any
particular time. In that event, it may not be possible to close
a futures investment position, and in the event of adverse price
movements, the Fund would continue to be required to make daily
cash payments of variation margin. However, in the event futures
contracts have been used to hedge portfolio securities, such
securities will not be sold until the futures contract can be
terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses
on the futures contract. However, as described above, there is no
guarantee that the price of securities will in fact correlate
A-3
<PAGE>
with price movements in futures contract and thus provide an
offset on the futures contract.
The Fund's Adviser intends to purchase and sell futures
contracts on the stock index for which it can obtain the best
price with due consideration to liquidity.
Successful use of stock index futures by the Fund is
also subject to the Adviser's ability to predict correctly
movements in the direction of the market. For example, if the
Fund has hedged against the possibility of a decline in the
market adversely affecting stocks held in its portfolio and stock
prices increase instead, the Fund will lose part or all of the
benefit of the increased value of its stock which it has hedged
because it will have offsetting losses in its futures positions.
In addition, in such situations, if the Fund has insufficient
cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will
not necessarily be, at increased prices which reflect the rising
market. The Fund may have to sell securities at a time when it
may be disadvantageous to do so.
A-4
<PAGE>
(LOGO) ALLIANCE INSTITUTIONAL FUNDS, INC.
- ALLIANCE QUASAR
INSTITUTIONAL FUND
____________________________________________________________
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
_______________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
November 14, 1997
_______________________________________________________________
This Statement of Additional Information is not a
prospectus but supplements and should be read in conjunction with
the current Prospectus (the "Prospectus") for Alliance
Institutional Funds, Inc. (the "Company"). Copies of the
Prospectus may be obtained by contacting Alliance Fund Services,
Inc. at the address or the "For Literature" telephone number
shown above.
TABLE OF CONTENTS
Page
DESCRIPTION OF THE FUND..................................
MANAGEMENT OF THE FUND...................................
EXPENSES OF THE FUND.....................................
PURCHASE OF SHARES.......................................
REDEMPTION AND REPURCHASE OF SHARES......................
SHAREHOLDER SERVICES.....................................
NET ASSET VALUE..........................................
DIVIDENDS, DISTRIBUTIONS AND TAXES.......................
BROKERAGE AND PORTFOLIO TRANSACTIONS.....................
GENERAL INFORMATION......................................
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL
STATEMENTS.............................................
____________________
(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
_______________________________________________________________
DESCRIPTION OF THE FUND
_______________________________________________________________
The Company is an open-end management investment company
whose shares are offered in separate series referred to as
"Funds." Each Fund is a separate pool of assets constituting, in
effect, a separate fund with its own investment objective and
policies. A shareholder in a Fund will be entitled to his or her
pro-rata share of all dividends and distributions arising from
that Fund's assets and, upon redeeming shares of that Fund, the
shareholder will receive the then current net asset value of the
applicable class of shares of that Fund. (See "Purchase of
Shares" and "Redemption and Repurchase of Shares," in the
Prospectus.) The Company is empowered to establish, without
shareholder approval, additional Funds which may have different
investment objectives.
The Company currently has three portfolios: Alliance
Quasar Institutional Fund (the "Fund"), which is described in
this Statement of Additional Information, and Alliance Premier
Growth Institutional Fund and Alliance Real Estate Investment
Institutional Fund which are each described in a separate
Statement of Additional Information, copies of which can be
obtained by contacting Alliance Fund Services, Inc. at the
address or the "For Literature" telephone number shown on the
cover of this Statement of Additional Information.
Except as otherwise indicated, the investment policies
of the Fund are not "fundamental policies" within the meaning of
the Investment Company Act of 1940, as amended (the "1940 Act"),
and may, therefore, be changed by the Company's Board of
Directors (the "Board of Directors" or the "Directors") without a
shareholder vote. However, the Fund will not change its
investment policies without contemporaneous written notice to its
shareholders. The Fund's investment objective may not be changed
without shareholder approval. There can be, of course, no
assurance that the Fund will achieve its investment objective.
Investment Objective
The investment objective of the Fund is growth of
capital by pursuing aggressive investment policies. Investments
will be made based upon their potential for capital appreciation.
Therefore, current income will be incidental to the objective of
capital growth. Because of the market risks inherent in any
investment, the selection of securities on the basis of their
appreciation possibilities cannot ensure against possible loss in
value. Moreover, to the extent the Fund seeks to achieve its
objective through the more aggressive investment policies
2
<PAGE>
described below, risk of loss increases. The Fund is therefore
not intended for investors whose principal objective is assured
income or preservation of capital.
How The Fund Pursues Its Objective
Within this basic framework, the policy of the Fund is
to invest in any companies and industries and in any types of
securities which are believed to offer possibilities for capital
appreciation. Investments may be made in well-known and
established companies as well as in new and unseasoned companies.
Critical factors considered in the selection of securities
include the economic and political outlook, the values of
individual securities relative to other investment alternatives,
trends in the determinants of corporate profits, and management
capability and practices.
It is the policy of the Fund to invest principally in
equity securities (common stocks, securities convertible into
common stocks or rights or warrants to subscribe for or purchase
common stocks); however, it may also invest to a limited degree
in non-convertible bonds and preferred stocks when, in the
judgment of Alliance Capital Management L.P., the Fund's Adviser
(the "Adviser"), such investments are warranted to achieve the
Fund's investment objective. When business or financial
conditions warrant, a more defensive position may be assumed and
the Fund may invest in short-term fixed-income securities, in
investment grade debt securities, in preferred stocks or may hold
its assets in cash.
The Fund may invest in both listed and unlisted domestic
and foreign securities, in restricted securities, and in other
assets having no ready market, but not more than 10% of the
Fund's total assets may be invested in all such restricted or not
readily marketable assets at any one time. Restricted securities
may be sold only in privately negotiated transactions or in a
public offering with respect to which a registration statement is
in effect under Rule 144 or 144A promulgated under the Securities
Act of 1933, as amended (the "Securities Act"). Where
registration is required, the Fund may be obligated to pay all or
part of the registration expense, and a considerable period may
elapse between the time of the decision to sell and the time the
Fund may be permitted to sell a security under an effective
registration statement. If during such a period adverse market
conditions were to develop, the Fund might obtain a less
favorable price than that which prevailed when it decided to
sell. Restricted securities and other not readily marketable
assets will be valued in such manner as the Board of Directors in
good faith deems appropriate to reflect their fair market value.
3
<PAGE>
The Fund intends to invest in special situations from
time to time. A special situation arises when, in the opinion of
the Fund's management, the securities of a particular company
will, within a reasonably estimable period of time, be accorded
market recognition at an appreciated value solely by reason of a
development particularly or uniquely applicable to that company
and regardless of general business conditions or movements of the
market as a whole. Developments creating special situations
might include, among others, the following: liquidations,
reorganizations, recapitalizations or mergers, material
litigation, technological breakthroughs and new management or
management policies. Although large and well-known companies may
be involved, special situations often involve much greater risk
than is inherent in ordinary investment securities. The Fund
will not, however, purchase securities of any company with a
record of less than three years continuous operation (including
that of predecessors) if such purchase would cause the Fund's
investments in such companies, taken at cost, to exceed 25% of
the value of the Fund's total assets.
Additional Investment Policies And Practices
The following additional investment policies and
practices, including restrictions, supplement those set forth
above and in the Prospectus.
General. In seeking to attain its investment objective
of growth of capital, the Fund will supplement customary
investment practices by engaging in a broad range of investment
techniques including short sales "against the box," writing call
options, purchases and sales of put and call options written by
others and investing in special situations. These techniques are
speculative, may entail greater risk, may be considered of a more
short-term nature, and to the extent used, may result in greater
turnover of the Fund's portfolio and a greater expense than is
customary for most investment companies. Consequently, the Fund
is not a complete investment program and is not a suitable
investment for those who cannot afford to take such risks or
whose objective is income or preservation of capital. No
assurance can be given that the Fund will achieve its investment
objective. However, by buying shares in the Fund an investor may
receive advantages he would not readily obtain as an individual,
including professional management and continuous supervision of
investments. The Fund will be subject to the overall limitation
(in addition to the specific restrictions referred to below) that
the aggregate value of all restricted and not readily marketable
securities of the Fund, and of all cash and securities covering
outstanding call options written or guaranteed by the Fund, shall
at no time exceed 15% of the value of the total assets of the
Fund.
4
<PAGE>
There is also no assurance that the Fund will at any
particular time engage in all or any of the investment activities
in which it is authorized to engage. In the opinion of the
Fund's management, however, the power to engage in such
activities provides an opportunity which is deemed to be
desirable in order to achieve the Fund's investment objective.
Short Sales. The Fund may only make short sales of
securities "against the box." A short sale is effected by
selling a security which the Fund does not own, or if the Fund
does own such security, it is not to be delivered upon
consummation of the sale. A short sale is "against the box" to
the extent that the Fund contemporaneously owns or has the right
to obtain securities identical to those sold short without
payment. Short sales may be used by the Fund to defer the
realization of gain or loss for federal income tax purposes on
securities then owned by the Fund. Gains or losses will be short-
or long-term for federal income tax purposes depending upon the
length of the period the securities are held by the Fund before
closing out the short sales by delivery to the lender. The Fund
may, in certain instances, realize short-term gain on short sales
"against the box" by covering the short position through a
subsequent purchase. Not more than 15% of the value of the
Fund's net assets will be in deposits on short sales "against the
box". Pursuant to the Taxpayer Relief Act of 1997, if the Fund
has unrealized gain with respect to a security and enters into a
short sale with respect to such security, the Fund generally will
be deemed to have sold the appreciated security and thus will
recognize gain for tax purposes.
Puts and Calls. The Fund may write call options and may
purchase and sell put and call options written by others,
combinations thereof, or similar options. The Fund may not write
put options. A put option gives the buyer of such option, upon
payment of a premium, the right to deliver a specified number of
shares of a stock to the writer of the option on or before a
fixed date at a predetermined price. A call option gives the
purchaser of the option, upon payment of a premium, the right to
call upon the writer to deliver a specified number of shares of a
specified stock on or before a fixed date, at a predetermined
price, usually the market price at the time the contract is
negotiated. When calls written by the Fund are exercised, the
Fund will be obligated to sell stocks below the current market
price.
The writing of call options will, therefore, involve a
potential loss of opportunity to sell securities at higher
prices. In exchange for the premium received, the writer of a
fully collateralized call option assumes the full downside risk
of the securities subject to such option. In addition, the
writer of the call gives up the gain possibility of the stock
5
<PAGE>
protecting the call. Generally, the opportunity for profit from
the writing of options is higher, and consequently the risks are
greater when the stocks involved are lower priced or volatile, or
both. While an option that has been written is in force, the
maximum profit that may be derived from the optioned stock is the
premium less brokerage commissions and fees. (For a discussion
regarding certain tax consequences of the writing of call options
by the Fund, see "Dividends, Distributions and Taxes".)
Writing, purchasing and selling call options are highly
specialized activities and entail greater than ordinary
investment risks. It is the Fund's policy not to write a call
option if the premium to be received by the Fund in connection
with such option would not produce an annualized return of at
least 15% of the then market value of the securities subject to
option. Commissions, stock transfer taxes and other expenses of
the Fund must be deducted from such premium receipts. Option
premiums vary widely depending primarily on supply and demand.
Calls written by the Fund will ordinarily be sold either on a
national securities exchange or through put and call dealers,
most, if not all, of whom are members of a national securities
exchange on which options are traded, and will in such cases be
endorsed or guaranteed by a member of a national securities
exchange or qualified broker-dealer, which may be Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ"), an affiliate of
the Adviser. The endorsing or guaranteeing firm requires that
the option writer (in this case the Fund) maintain a margin
account containing either corresponding stock or other equity as
required by the endorsing or guaranteeing firm. A call written
by the Fund will not be sold unless the Fund at all times during
the option period owns either (a) the optioned securities, or
securities convertible into or carrying rights to acquire the
optioned securities or (b) an offsetting call option on the same
securities.
The Fund will not sell a call option written or
guaranteed by it if, as a result of such sale, the aggregate of
the Fund's portfolio securities subject to outstanding call
options (valued at the lower of the option price or market value
of such securities) would exceed 15% of the Fund's total assets.
The Fund will not sell any call option if such sale would result
in more than 10% of the Fund's assets being committed to call
options written by the Fund, which, at the time of sale by the
Fund, have a remaining term of more than 100 days. The aggregate
cost of all outstanding options purchased and held by the Fund
shall at no time exceed 10% of the Fund's total assets.
In buying a call, the Fund would be in a position to
realize a gain if, during the option period, the price of the
shares increased by an amount in excess of the premium paid and
commissions payable on exercise. It would realize a loss if the
6
<PAGE>
price of the security declined or remained the same or did not
increase during the period by more than the amount of the premium
and commissions payable on exercise. By buying a put, the Fund
would be in a position to realize a gain if, during the option
period, the price of the shares declined by an amount in excess
of the premium paid and commissions payable on exercise. It
would realize a loss if the price of the security increased or
remained the same or did not decrease during that period by more
than the amount of the premium and commissions payable on
exercise. In addition, the Fund could realize a gain or loss on
such options by selling them.
As noted above, the Fund may purchase and sell put and
call options written by others, combinations thereof, or similar
options. There are markets for put and call options written by
others and the Fund may from time to time sell or purchase such
options in such markets. If an option is not so sold and is
permitted to expire without being exercised, its premium would be
lost by the Fund.
Portfolio Turnover
Generally, the Fund's policy with respect to portfolio
turnover is to purchase securities with a view to holding them
for periods of time sufficient to assure long-term capital gains
treatment upon their sale and not for trading purposes. However,
it is also the Fund's policy to sell any security whenever, in
the judgment of the Adviser, its appreciation possibilities have
been substantially realized or the business or market prospects
for such security have deteriorated, irrespective of the length
of time that such security has been held. This policy may result
in the Fund realizing short-term capital gains or losses on the
sale of certain securities. See "Dividends, Distributions and
Taxes". It is anticipated that the Fund's rate of portfolio
turnover will not exceed 150% during the current fiscal year. A
150% annual turnover rate would occur, for example, if all the
stocks in the Fund's portfolio were replaced one and a half times
within a period of one year. A portfolio turnover rate
approximating 150% involves correspondingly greater brokerage
commission expenses than would a lower rate, which expenses must
be borne by the Fund and its shareholders.
Other Restrictions
In addition to the investment restrictions described
below, the Fund has undertaken as a matter of non-fundamental
policy that it (i) will not invest more than 10% of its total
assets in the securities of any one issuer; (ii) will not invest
more than 5% of its total assets in securities of issuers which
have been in operation for less than three years, including the
operations of any predecessors, and any equity securities of
7
<PAGE>
issuers which are not readily marketable; (iii) will not invest
more than 5% of its total assets in puts, calls, straddles,
spreads or any combination thereof nor more than 2% of its net
assets in puts or calls written by others; (iv) will not invest
more than 5% of its net assets in warrants nor more than 2% of
its net assets in unlisted warrants; (v) will not invest in real
estate (including limited partnership interests), excluding
readily marketable securities or participations or other direct
interests in oil, gas or other mineral leases, exploration or
development programs; and (vi) will not purchase or retain the
securities of any issuer if those officers and directors of the
Company or its Adviser owning individually more than 1/2 of 1% of
such issuer together own more than 5% of the securities of such
issuer.
Fundamental Investment Policies
In addition to the investment objective and policies
described above, the Fund has adopted certain fundamental
investment policies which may not be changed without approval by
the vote of a majority of the Fund's outstanding voting
securities which means the vote of (1) 67% or more of the shares
represented at a meeting at which more than 50% of the
outstanding shares of the Fund are represented or (2) more than
50% of the outstanding shares of the Fund, whichever is less.
Briefly, these policies provide that the Fund may not:
(i) purchase the securities of any one issuer, other
than the U.S. Government or any of its agencies
or instrumentalities, if immediately after such
purchase more than 5% of the value of its total
assets would be invested in such issuer or the
Fund would own more than 10% of the outstanding
voting securities of such issuer, except that up
to 25% of the value of the Fund's total assets
may be invested without regard to such 5% and 10%
limitations;
(ii) invest more than 25% of the value of its total
assets in any particular industry;
(iii) borrow money except for temporary or emergency
purposes in an amount not exceeding 5% of its
total assets at the time the borrowing is made;
(iv) invest more than 10% of its assets in restricted
securities;
(v) purchase or sell real estate;
8
<PAGE>
(vi) participate on a joint or joint and several basis
in any securities trading account;
(vii) invest in companies for the purpose of exercising
control;
(viii) purchase or sell commodities or commodity
contracts;
(ix) write put options;
(x) except as permitted in connection with short
sales of securities "against the box" described
under the heading "Short Sales" above, make short
sales of securities;
(xi) make loans of its funds or assets to any other
person, which shall not be considered as
including the purchase of a portion of an issue
of publicly distributed bonds, debentures, or
other securities, whether or not the purchase was
made upon the original issuance of the
securities; except that the Fund may not purchase
non-publicly distributed securities subject to
the limitations applicable to restricted
securities;
(xii) except as permitted in connection with short
sales of securities or writing of call options,
described under the headings "--Short Sales" and
"--Puts and Calls" above, pledge, mortgage or
hypothecate any of its assets;
(xiii) except as permitted in connection with short
sales of securities "against the box" described
under the heading "Additional Investment Policies
and Practices" above, make short sales of
securities; and
(xiv) purchase securities on margin, but it may obtain
such short-term credits as may be necessary for
the clearance of purchases and sales of
securities.
Application of Percentage Limitations
Except as otherwise indicated, whenever any investment
policy or practice, including any restriction, described in the
Prospectus or under the heading "Description of the Fund," states
a maximum percentage of the Fund's assets which may be invested
in any security or other asset, it is intended that such maximum
9
<PAGE>
percentage limitation be determined immediately after and as a
result of the Fund's acquisition of such securities or other
assets. Accordingly, any later increase or decrease in
percentage beyond the specified limitation resulting from a
change in values or net assets will not be considered a violation
of any such maximum.
_______________________________________________________________
MANAGEMENT OF THE FUND
_______________________________________________________________
Adviser
Alliance Capital Management L.P., a Delaware limited
partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision of the Fund's Board of Directors (see "Management of
the Fund" in the Prospectus).
Alliance is a leading international investment manager
supervising client accounts with assets as of September 30, 1997
of more than $217 billion (of which more than $81 billion
represented the assets of investment companies). The Adviser's
clients are primarily major corporate employee benefit funds,
public employee retirement systems, investment companies,
foundation and endowment funds. As of September 30, 1997, the
Adviser was an investment manager of employee benefit fund assets
for 28 of the FORTUNE 100 companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,500
employees who operated out of domestic offices and the offices of
subsidiaries in Bahrain, Bangalore, Chennai, Istanbul, London,
Madrid, Mumbai, Paris, Singapore, Tokyo and Toronto and affiliate
offices located in Vienna, Warsaw, Hong Kong, Sao Paulo and
Moscow. The 54 registered investment companies comprising more
than 116 separate investment portfolios managed by the Adviser
currently have more than two million shareholders.
Alliance Capital Management Corporation, the sole
general partner of, and the owner of a 1% general partnership
interest in, the Adviser, is an indirect wholly-owned subsidiary
of The Equitable Life Assurance Society of the United States
("Equitable"), one of the largest life insurance companies in the
United States and a wholly-owned subsidiary of The Equitable
Companies Incorporated ("ECI"). ECI is a holding company
controlled by AXA-UAP, a French insurance holding company which
at September 30, 1997, beneficially owned approximately 59% of
the outstanding voting shares of ECI. As of June 30, 1997, ACMC,
10
<PAGE>
Inc. and Equitable Capital Management Corporation, each a wholly-
owned direct or indirect subsidiary of Equitable, together with
Equitable, owned in the aggregate approximately 57% of the issued
and outstanding units representing assignments of beneficial
ownership of limited partnership interests in the Adviser.
AXA-UAP is a holding company for an international group
of insurance and related financial services companies. AXA-UAP's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities
principally in Western Europe, North America and the Asia/Pacific
area. AXA-UAP is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA-UAP, as of
September 30, 1997 more than 25% of the voting power of AXA-UAP
was controlled directly and indirectly by FINAXA, a French
holding company. As of September 30, 1997 more than 25% of the
voting power of FINAXA was controlled directly and indirectly by
four French mutual insurance companies (the "Mutuelles AXA"), one
of which, AXA Assurances I.A.R.D. Mutuelle, itself controlled
directly and indirectly more than 25% of the voting power of
FINAXA. Acting as a group, the Mutuelles AXA control AXA-UAP and
FINAXA.
Under the Advisory Agreement between the Company and the
Adviser (the "Advisory Agreement"), the Adviser furnishes advice
and recommendations with respect to the Fund's portfolio of
securities and investments and provides persons satisfactory to
the Board of Directors to act as officers and employees of the
Company. Such officers and employees may be employees of the
Adviser or its affiliates.
The Adviser is, under the Advisory Agreement,
responsible for certain expenses incurred by the Fund, including,
for example, office facilities and certain administrative
services, and any expenses incurred in promoting the sale of Fund
shares (other than the portion of the promotional expenses borne
by the Fund in accordance with an effective plan pursuant to Rule
12b-1 under the 1940 Act, and the costs of printing Company
prospectuses and other reports to shareholders and fees related
to registration with the Securities and Exchange Commission (the
"Commission") and with state regulatory authorities).
The Fund has, under the Advisory Agreement, assumed the
obligation for payment of all of its other expenses. As to the
obtaining of services other than those specifically provided to
11
<PAGE>
the Fund by the Adviser, the Fund may utilize personnel employed
by the Adviser or by other subsidiaries of Equitable. The Fund
may employ its own personnel or contract for services to be
performed by third parties. In such event, the services will be
provided to the Fund at cost and the payments specifically
approved by the Board of Directors.
For the services rendered by the Adviser under the
Advisory Agreement, the Fund pays the Adviser at an annualized
rate of 1.00% of the average daily value of the Fund's net
assets. The fee is accrued daily and paid monthly.
The Advisory Agreement became effective on November 7,
1997, having been approved by the unanimous vote, cast in person,
of the Directors (including the Directors who are not parties to
the Advisory Agreement or interested persons, as defined by the
1940 Act, of any such party) at a meeting called for that purpose
held on that date, and by the Fund's initial shareholder on
November 3, 1997.
The Advisory Agreement will remain in effect until
November 5, 1999 and continue in effect thereafter only so long
as its continuance is approved annually by a vote of a majority
of the Fund's outstanding voting securities (as defined in the
1940 Act) or by the Board of Directors, including in either case,
approval by a majority of the Directors who are not parties to
the Advisory Agreement or interested persons of any such party as
defined by the 1940 Act.
The Advisory Agreement is terminable without penalty by
a vote of a majority of the Fund's outstanding voting securities
or by a vote of a majority of the Directors on 60 days' written
notice, or by the Adviser on 60 days' written notice, and will
automatically terminate in the event of its assignment. The
Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the
Adviser, or of reckless disregard of its obligations thereunder,
the Adviser will not be liable for any action or failure to act
in accordance with its duties thereunder.
Certain other clients of the Adviser have investment
objectives and policies similar to those of the Fund. The Adviser
may, from time to time, make recommendations which result in the
purchase or sale of a particular security by other of its clients
simultaneously with the Fund. If transactions on behalf of more
than one client during the same period increase the demand for
securities being purchased or the supply of securities being
sold, there may be an adverse effect on price or quantity. It is
the policy of the Adviser to allocate advisory recommendations
and the placing of orders in a manner which is deemed equitable
by the Adviser to the accounts involved, including the Fund.
12
<PAGE>
When two or more of the clients of the Adviser (including the
Fund) are purchasing or selling the same security on a given day
from the same broker-dealer, such transactions may be averaged as
to price.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to the following registered investment
companies: ACM Institutional Reserves, Inc., AFD Exchange
Reserves, The Alliance Fund, Inc., Alliance All-Asia Investment
Fund, Inc., Alliance Balanced Shares, Inc., Alliance Bond Fund,
Inc., Alliance Capital Reserves, Alliance Developing Markets
Fund, Inc., Alliance Global Dollar Government Fund, Inc.,
Alliance Global Environment Fund, Inc., Alliance Global Small Cap
Fund, Inc., Alliance Global Strategic Income Trust, Inc.,
Alliance Government Reserves, Alliance Greater China '97 Fund,
Inc., Alliance Growth and Income Fund, Inc., Alliance High Yield
Fund, Inc., Alliance Income Builder Fund, Inc., Alliance
International Fund, Alliance Limited Maturity Government Fund,
Inc., Alliance Money Market Fund, Alliance Mortgage Securities
Income Fund, Inc., Alliance Multi-Market Strategy Trust, Inc.,
Alliance Municipal Income Fund, Inc., Alliance Municipal Income
Fund II, Alliance Municipal Trust, Alliance New Europe Fund,
Inc., Alliance North American Government Income Trust, Inc.,
Alliance Quasar Fund, Inc., Alliance Real Estate Investment Fund,
Inc., Alliance/Regent Sector Opportunity Fund, Inc., Alliance
Short-Term Multi-Market Trust, Inc., Alliance Technology Fund,
Inc., Alliance Utility Income Fund, Inc., Alliance Variable
Products Series Fund, Inc., Alliance World Income Trust, Inc.,
Alliance Worldwide Privatization Fund, Inc., The Alliance
Portfolios, Fiduciary Management Associates and The Hudson River
Trust, all registered open-end investment companies; and to ACM
Government Income Fund, Inc., ACM Government Securities Fund,
Inc., ACM Government Spectrum Fund, Inc., ACM Government
Opportunity Fund, Inc., ACM Managed Income Fund, Inc., ACM
Managed Dollar Income Fund, Inc., ACM Municipal Securities Income
Fund, Inc., Alliance All-Market Advantage Fund, Inc., Alliance
World Dollar Government Fund, Inc., Alliance World Dollar
Government Fund II, Inc., The Austria Fund, Inc., The Korean
Investment Fund, Inc., The Southern Africa Fund, Inc., and The
Spain Fund, Inc., all registered closed-end investment companies.
Directors and Officers
The Directors and principal officers of the Company,
their ages and their primary occupations during the past five
years are set forth below. Each of the Directors and officers
are trustees, directors and officers of other registered
investment companies sponsored by the Adviser. Unless otherwise
specified, the address of each such person is 1345 Avenue of the
Americas, New York, New York 10105.
13
<PAGE>
Directors
JOHN D. CARIFA,** 52, Chairman of the Board of
Directors, is the President, Chief Operating Officer and a
Director of Alliance Capital Management Corporation ("ACMC"),
with which he has been associated since prior to 1992.
RUTH BLOCK, 66, was formerly Executive Vice President
and Chief Insurance Officer of Equitable. She is a Director of
Ecolab Incorporated (specialty chemicals) and Amoco Corporation
(oil and gas). Her address is Box 4653, Stamford, Connecticut,
06903.
DAVID H. DIEVLER, 68, was formerly a Senior Vice
President of ACMC, with which he was associated since prior to
1992 through 1994. He is currently an independent consultant.
His address is P.O. Box 167, Spring Lake, New Jersey, 07762.
JOHN H. DOBKIN, 55, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1992.
Previously, he was Director of the National Academy of Design.
His address is 105 West 55th Street, New York, New York 10019.
WILLIAM H. FOULK, JR., 65, is an Investment Advisor and
Independent Consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, since
1986. His address is Suite 100, 2 Greenwich Plaza, Greenwich,
Connecticut 06830.
DR. JAMES M. HESTER, 73, is President of the Harry Frank
Guggenheim Foundation and a Director of Union Carbide
Corporation, with which he has been associated since prior to
1992. He was formerly President of New York University, the New
York Botanical Garden and Rector of the United Nations
University. His address is 45 East 89th Street, New York, New
York 10128.
CLIFFORD L. MICHEL, 57, is a partner of the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1992. He is Chief Executive Officer of Wenonah
Development Company (investment holding company) and a Director
of Placer Dome, Inc. (mining). His address is 80 Pine Street,
New York, New York 10005.
DONALD J. ROBINSON, 62, was formerly a partner of the
law firm of Orrick, Herrington & Sutcliffe since prior to 1992
____________________
** An "interested person" of the Fund as defined in the 1940
Act.
14
<PAGE>
and is currently of counsel to that firm. His address is 599
Lexington Avenue, 26th Floor, New York, New York 10022.
Officers
JOHN D. CARIFA, President, see biography above.
ALFRED HARRISON, Executive Vice President, 59, is Vice
Chairman of the Board of ACMC, with which he has been associated
since prior to 1992.
ALDEN M. STEWART, Executive Vice President, 51, is an
Executive Vice President of ACMC since July 1993. Previously, he
was associated with ECMC since prior to 1992.
KATHLEEN A. CORBET, Senior Vice President, 37, has been
a Senior Vice President of ACMC since July 1993. Previously, she
held various responsibilities as head of Equitable Capital
Management Corporation's Fixed Income Management Department,
Private Placement Secondary Trading and Fund Management since
prior to 1992.
RANDALL E. HAASE, Senior Vice President, 32, has been a
Vice President of ACMC since July, 1993. Prior thereto he was
associated with ECMC.
DANIEL G. PINE, Senior Vice President, 44, has been
associated with the Adviser since 1996. Previously, he was a
Senior Vice President of Desai Capital Management since prior to
1992.
THOMAS BARDONG, Vice President, 52, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1992.
DAVID KRUTH, Vice President, 34, is a Vice President of
ACMC, with which he has been associated since 1997. Prior
thereto he was a Senior Vice President of the Yarmouth Group.
DANIEL PANKER, Vice President, 58, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1992.
MARK D. GERSTEN, Treasurer and Chief Financial Officer,
47, is a Senior Vice President of Alliance Fund Services, Inc.
with which he has been associated since prior to 1992.
VINCENT S. NOTO, Controller, 33, is a Vice President of
Alliance Fund Services, Inc., with which he has been associated
since prior to 1992.
15
<PAGE>
JOSEPH MANTINEO, Assistant Controller, 38, has been a
Vice President of Alliance Fund Services, Inc. since prior to
1992.
PHYLLIS CLARKE, Assistant Controller, 37, is an
Accounting Manager of Mutual Funds for Alliance Fund Services,
Inc. since prior to 1992.
JUAN J. RODRIGUEZ, Assistant Controller, 40, is an
Assistant Vice President of Alliance Fund Services, Inc. with
which he has been associated since prior to 1992.
EDMUND P. BERGAN, JR., Secretary, 47, is a Senior Vice
President and General Counsel of Alliance Fund Distributors and
Alliance Fund Services, Inc. and Vice President and Assistant
General Counsel of ACMC, with which he has been associated since
prior to 1992.
DOMENICK PUGLIESE, Assistant Secretary, 36, is a Vice
President and Assistant General Counsel of Alliance Fund
Services, Inc., with which he has been associated since May 1995.
Previously, he was Vice President and Counsel of Concord Holding
Corporation since 1994, Vice President and Associate General
Counsel of Prudential Securities since 1992.
The aggregate compensation paid by the Company to each
of the Directors during its fiscal year ending October 31, 1998
(estimating future payments based on existing arrangements), the
aggregate compensation paid to each of the Directors during
calendar year 1996 by all of the funds to which the Adviser
provides investment advisory services (collectively, the
"Alliance Fund Complex") and the total number of registered
investment companies (and separate investment portfolios within
those companies) in the Alliance Fund Complex with respect to
which each of the Directors serves as a director or trustee, are
set forth below. Neither the Fund nor any other fund in the
Alliance Fund Complex provides compensation in the form of
pension or retirement benefits to any of its directors or
trustees. Each of the Directors is a director or trustee of one
or more other registered investment companies in the Alliance
Fund Complex.
16
<PAGE>
Total Number Total Number
of Funds in of Investment
the Alliance Portfolios
Total Complex, within the
Compensation Including the Funds, Including
from the Fund, as to the Fund, as
Aggregate Alliance Fund which the to which the
Compensation Complex, Director is a Director is a
from the Including the Director or Director or
Name of Director Company** Company Trustee Trustee
John D. Carifa $ -0- $ -0- 52 114
Ruth Block $3,000 $157,500 38 76
David H. Dievler $3,000 $182,000 45 79
John H. Dobkin $3,000 $121,250 31 52
William H. Foulk, Jr. $3,000 $144,250 34 70
Dr. James M. Hester $3,000 $148,500 39 73
Clifford L. Michel $3,000 $146,068 39 88
Donald J. Robinson $3,000 $137,250 42 102
As of November 14, 1997, the Directors and officers of
the Company as a group owned less than 1% of the Class I and
Class II shares of the Fund.
_______
**estimated
_________________________________________________________________
EXPENSES OF THE FUND
_________________________________________________________________
Distribution Services Agreement
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributors,
Inc., the Fund's principal underwriter (the "Principal
Underwriter"), to permit the Principal Underwriter to distribute
the Fund's Class I and Class II shares and to permit the Fund to
pay distribution services fees to defray expenses associated with
the distribution of its Class II shares in accordance with a plan
of distribution which is included in the Agreement and which has
been duly adopted and approved in accordance with Rule 12b-1
adopted by the Commission under the 1940 Act (the "Rule 12b-1
Plan").
Distribution services fees are accrued daily, paid
monthly and charged as expenses of the Fund as accrued. Under
the Agreement, the Treasurer of the Fund reports the amounts
17
<PAGE>
expended under the Rule 12b-1 Plan and the purposes for which
such expenditures were made to the Directors for their review on
a quarterly basis. Also, the Agreement provides that the
selection and nomination of Directors who are not "interested
persons" of the Company, as defined in the 1940 Act, are
committed to the discretion of such disinterested Directors then
in office. The Agreement was initially approved by the Directors
at a meeting held on November 7, 1997, and by the Fund's initial
shareholder on November 3, 1997.
The Agreement became effective on November 7, 1997. The
Agreement will continue in effect so long as its continuance is
specifically approved annually by the Directors or by vote of the
holders of a majority of the outstanding voting securities (as
defined in the 1940 Act) of that class, and, in either case, by a
majority of the Directors who are not parties to the Agreement or
interested persons, as defined in the 1940 Act, of any such party
(other than as directors of the Fund) and who have no direct or
indirect financial interest in the operation of the Rule 12b-1
Plan or any agreement related thereto.
The Adviser may from time to time and from its own funds
or such other resources as may be permitted by rules of the
Commission make payments for distribution services to the
Principal Underwriter; the latter may, in turn, pay part or all
of such compensation to brokers or other persons for their
distribution assistance.
All material amendments to the Agreement must be
approved by a vote of the Directors or the holders of the Fund's
outstanding voting securities, voting separately by class, and in
either case, by a majority of the disinterested Directors, cast
in person at a meeting called for the purpose of voting on such
approval; and the Agreement may not be amended in order to
increase materially the costs that the Fund may bear pursuant to
the Agreement without the approval of a majority of the holders
of the outstanding voting shares of the class or classes
affected. The Agreement may be terminated (a) by the Fund
without penalty at any time by a majority vote of the holders of
the outstanding voting securities of the Fund, voting separately
by class, or by a majority vote of the Directors who are not
"interested persons" as defined in the 1940 Act, or (b) by the
Principal Underwriter. To terminate the Agreement, the
terminating party must give the other party 60 days' written
notice; to terminate the Rule 12b-1 Plan only, the Fund need give
no notice to the Principal Underwriter. The Agreement will
terminate automatically in the event of its assignment.
18
<PAGE>
Transfer Agency Agreement
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of each of the Class I and Class II shares of the
Fund, plus reimbursement for its out-of-pocket expenses. The
transfer agency fee with respect to the Class II shares is higher
than the transfer agency fee with respect to the Class I shares.
_________________________________________________________________
PURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in
the Prospectus under the heading "Purchase and Sale of Shares-
- -How To Buy Shares."
General
Class I shares of the Fund may be purchased and held
solely (i) through accounts established under a fee-based program
sponsored and maintained by a registered broker-dealer or other
financial intermediary and approved by the Principal Underwriter,
(ii) through employee benefit plans, including defined
contribution and defined benefit plans ("Employee Plans"), that
have at least $10 million in assets, (iii) by investment advisory
clients of the Adviser or its affiliates, (iv) by (a) officers
and present or former Directors of the Company, (b) present or
former directors and trustees of other investment companies
managed by the Adviser, (c) present or retired full-time
employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates, (d) officers and
directors of ACMC, the Principal Underwriter, Alliance Fund
Services, Inc. and their affiliates, (e) (1) the spouse, sibling,
direct ancestor or direct descendant (collectively "relatives")
of any person listed in (a) through (d), (2) any trust,
individual retirement account or retirement plan account for the
benefit of any person listed in (a) through (d) or a relative of
such person, or (3) the estate of any person listed in (a)
through (d) or a relative of such person, if such shares are
purchased for investment purposes (such shares may not be resold
except to the Fund), (v) by (a) the Adviser, the Principal
Underwriter, Alliance Fund Services, Inc. and their affiliates or
(b) certain employee benefit plans for employees of the Adviser,
the Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates, and (vi) through registered investment advisers or
other financial intermediaries who charge a management,
consulting or other fee for their service and who purchase shares
through a broker or agent approved by the Principal Underwriter,
and clients of such registered investment advisers or financial
19
<PAGE>
intermediaries whose accounts are linked to the master account of
such investment adviser or financial intermediary on the books of
such approved broker or agent.
Class II shares of the Fund may be purchased and held
solely (i) by investors participating in wrap-fee or other
similar programs offered by registered broker-dealers or other
financial intermediaries that meet certain requirements
established by the Principal Underwriter, and (ii) Employee Plans
that have at least $10 million in assets.
The shares of the Fund are offered on a continuous basis
at a price equal to their net asset value. The minimum initial
investment in the Company is $2,000,000, which may be invested in
any one or more of the Funds. Investments made through fee-based
or "wrap fee" programs will satisfy the minimum initial
investment requirement if the fee-based or "wrap fee" program, as
a whole, invests at least $2,000,000 in one or more of the Funds.
There is no minimum for subsequent investments. The minimum
initial investment may be waived in the discretion of the
Company.
Investors may purchase shares of the Fund through their
financial representatives. A transaction, service,
administrative or other similar fee may be charged by your
financial representative with respect to the purchase, sale or
exchange of shares made through such financial representative.
Your financial representative may also impose requirements with
respect to the purchase, sale or exchange of shares that are
different from, or in addition to, those imposed by the Fund as
described in the Prospectus and this Statement of Additional
Information, including requirements as to the minimum initial and
subsequent investment amounts.
The Fund may refuse any order for the purchase of
shares. The Fund reserves the right to suspend the sale of its
shares to the public in response to conditions in the securities
markets or for other reasons.
The public offering price of shares of the Fund is their
net asset value. On each Company business day on which a
purchase or redemption order is received by the Fund and trading
in the types of securities in which the Fund invests might
materially affect the value of Fund shares, the per share net
asset value is computed in accordance with the Fund's Articles of
Incorporation and By-Laws as of the next close of regular trading
on the New York Stock Exchange (the "Exchange") (currently 4:00
p.m. Eastern time) by dividing the value of the Fund's total
assets, less its liabilities, by the total number of its shares
then outstanding. A Company business day is any day on which the
Exchange is open for trading.
20
<PAGE>
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined as described below. Orders received
by the Principal Underwriter prior to the close of regular
trading on the Exchange on each day the Exchange is open for
trading are priced at the net asset value computed as of the
close of regular trading on the Exchange on that day. In the
case of orders for the purchase of shares placed through
financial representatives, the applicable public offering price
will be the net asset value as so determined, but only if the
financial representative receives the order prior to the close of
regular trading on the Exchange and transmits it to the Principal
Underwriter prior to 5:00 p.m. Eastern time. The financial
representative is responsible for transmitting such orders by
5:00 p.m. If the financial representative fails to do so, the
investor's right to that day's closing price must be settled
between the investor and the financial representative. If the
financial representative receives the order after the close of
regular trading on the Exchange, the price will be based on the
net asset value determined as of the close of regular trading on
the Exchange on the next day it is open for trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application obtained by calling the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Except with respect to certain omnibus accounts,
telephone purchase orders may not exceed $500,000. Payment for
shares purchased by telephone can be made only by electronic
funds transfer from a bank account maintained by the shareholder
at a bank that is a member of the National Automated Clearing
House Association ("NACHA"). If a shareholder's telephone
purchase request is received before 3:00 p.m. Eastern time on a
Company business day, the order to purchase shares is
automatically placed the following Company business day, and the
applicable public offering price will be the public offering
price determined as of the close of business on such following
business day.
Full and fractional shares are credited to a
shareholder's account in the amount purchased by the shareholder.
As a convenience to the subscriber, and to avoid unnecessary
expense to the Fund, stock certificates representing shares of
the Fund are not issued except upon written request to the Fund
by the shareholder or the shareholder's financial representative.
This facilitates later redemption and relieves the shareholder of
the responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
21
<PAGE>
although such shares remain in the shareholder's account on the
books of the Fund.
In addition to the discount or commission which may be
paid to dealers or agents in connection with the sale of Fund
shares, the Principal Underwriter from time to time may pay
additional cash or other incentives to dealers or agents,
including EQ Financial Consultants, Inc., formerly Equico
Securities, Inc., an affiliate of the Principal Underwriter, in
connection with such sales. Such additional amounts may be
utilized, in whole or in part, to provide additional compensation
to registered representatives who sell shares of the Fund. On
some occasions, cash or other incentives will be conditioned upon
the sale of a specified minimum dollar amount of the shares of
the Fund and/or other Alliance Mutual Funds, as defined below,
during a specific period of time. On some occasions, such cash
or other incentives may take the form of payment for attendance
at seminars, meals, sporting events or theater performances, or
payment for travel, lodging and entertainment incurred in
connection with travel taken by persons associated with a dealer
or agent and their immediate family members to urban or resort
locations within or outside the United States. Such dealer or
agent may elect to receive cash incentives of equivalent amount
in lieu of such payments.
Class I and Class II shares each represent an interest
in the same portfolio of investments of the Fund, have the same
rights and are identical in all respects, except that
(i) Class II has exclusive voting rights with respect to
provisions of the Rule 12b-1 Plan pursuant to which its
distribution services fees are paid and other matters for which
separate class voting is appropriate under applicable law,
provided that, if the Fund submits to a vote of the Class II
shareholders an amendment to the Rule 12b-1 Plan that would
materially increase the amount to be paid thereunder with respect
to the Class II shares, then such amendment will also be
submitted to the Class I shareholders and the Class II and Class
I shareholders will vote separately thereon by class and
(ii) Class I shares are subject to a conversion feature.
The Directors have determined that currently no conflict
of interest exists between Class I and Class II shares. On an
ongoing basis, the Directors, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
22
<PAGE>
Conversion of Class I
Shares to Class II Shares
Class I shares may be held solely through the fee-based
program accounts, employee benefit plans and registered
investment advisory or other financial intermediary relationships
described under "--General," and by investment advisory clients
of, and certain other persons associated with, the Adviser and
its affiliates or the Fund. If (i) a holder of Class I shares
ceases to participate in the fee-based program or plan, or to be
associated with an investment advisor or financial intermediary,
in each case one that satisfies the requirements to purchase
shares set forth under "--General", or (ii) the holder is
otherwise no longer eligible to purchase Class I shares as
described in this Statement of Additional Information (each, a
"Conversion Event"), then all Class I shares held by the
shareholder will convert automatically and without notice to the
shareholder, other than the notice contained in this Statement of
Additional Information, to Class II shares of the Fund during the
calendar month following the month in which the Fund is informed
or otherwise learns of the occurrence of the Conversion Event.
The failure of a shareholder or a fee-based program to satisfy
the minimum investment requirements to purchase Class I shares
will not constitute a Conversion Event. The conversion would
occur on the basis of the relative net asset values of the two
classes and without the imposition of any sales load, fee or
other charge. Class II shares currently bear a .30% distribution
services fee and have a higher expense ratio than Class I shares.
As a result, Class II shares may pay correspondingly lower
dividends and have a lower net asset value than Class I shares.
The conversion of Class I shares to Class II shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class I shares to Class II
shares does not constitute a taxable event under federal income
tax law. The conversion of Class I shares to Class II shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, the Class I
shareholder would be required to redeem his Class I shares, which
would constitute a taxable event under federal income tax law.
_________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in
the Prospectus under the heading "Purchase and Sale of Shares-
- -How to Sell Shares." If you are a shareholder through an
account established under a fee-based program, your fee-based
program may impose requirements with respect to the purchase,
23
<PAGE>
sale or exchange of shares of the Fund that are different from
those described herein. A transaction fee may be charged by your
financial representative with respect to the purchase, sale or
exchange of shares made through such financial representative.
Redemption
Subject to the limitations described below, the
Company's Articles of Incorporation require that the Company
redeem the shares tendered to it, as described below, at a
redemption price equal to their net asset value as next computed
following the receipt of shares tendered for redemption in proper
form. There is no redemption charge. If a shareholder is in
doubt about what documents are required by his or her fee-based
program or employee benefit plan, the shareholder should contact
the shareholder's financial representative.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the Commission determines
that trading thereon is restricted, or for any period during
which an emergency (as determined by the Commission) exists as a
result of which disposal by the Fund of securities owned by it is
not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Commission
may by order permit for the protection of security holders of the
Fund.
Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
repurchase. Payment received by a shareholder upon redemption or
repurchase of the shareholder's shares, assuming the shares
constitute capital assets in the shareholder's hands, will result
in long-term or short-term capital gains (or loss) depending upon
the shareholder's holding period and basis in respect of the
shares redeemed.
To redeem shares of the Fund for which no stock
certificates have been issued, the registered owner or owners
should forward a letter to the Company containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an institution that is an "eligible guarantor
institution" as defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended.
24
<PAGE>
To redeem shares of the Fund represented by stock
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Company with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
stock certificate surrendered to the Company for redemption must
be signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the stock certificate or certificates or, where
tender is made by mail, separately mailed to the Company. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
Telephone Redemption by Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer once in any 30-day period (except for certain
omnibus accounts), of shares for which no stock certificates have
been issued by telephone at (800) 221-5672 by a shareholder who
has completed the appropriate portion of the Subscription
Application or, in the case of an existing shareholder, an
"Autosell" application obtained from Alliance Fund Services, Inc.
A telephone redemption request may not exceed $100,000 (except
for certain omnibus accounts) and must be made by 4:00 p.m.
Eastern time on a Company business day as defined above.
Proceeds of telephone redemptions will be sent by electronic
funds transfer to a shareholder's designated bank account at a
bank selected by the shareholder that is a member of the NACHA.
Telephone Redemption by Check. Except for certain
omnibus accounts or as noted below, each Fund shareholder is
eligible to request redemption by check, once in any 30-day
period, of shares for which no stock certificates have been
issued by telephone at (800) 221-5672 before 4:00 p.m. Eastern
time on a Company business day in an amount not exceeding
$50,000. Proceeds of such redemptions are remitted by check to
the shareholder's address of record. Telephone redemption by
check is not available with respect to shares (i) for which
certificates have been issued, (ii) held in nominee or "street
name" accounts, (iii) held by a shareholder who has changed his
or her address of record within the preceding 30 calendar days or
(iv) held in any retirement plan account. A shareholder
otherwise eligible for telephone redemption by check may cancel
the privilege by written instruction to Alliance Fund Services,
Inc., or by checking the appropriate box on the Subscription
Application found in the Prospectus.
Telephone Redemptions - General. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
25
<PAGE>
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information. The
Company reserves the right to suspend or terminate its telephone
redemption service at any time without notice. Neither the
Company nor the Adviser, the Principal Underwriter or Alliance
Fund Services, Inc. will be responsible for the authenticity of
telephone requests for redemptions that the Company reasonably
believes to be genuine. The Company will employ reasonable
procedures in order to verify that telephone requests for
redemptions are genuine, including, among others, recording such
telephone instructions and causing written confirmations of the
resulting transactions to be sent to shareholders. If the
Company did not employ such procedures, it could be liable for
losses arising from unauthorized or fraudulent telephone
instructions. Financial representatives may charge a commission
for handling telephone requests for redemptions.
Repurchase
The Company may repurchase shares through the Principal
Underwriter or selected financial intermediaries. The repurchase
price will be the net asset value next determined after the
Principal Underwriter receives the request, except that requests
placed through selected financial representatives before the
close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary is
responsible for transmitting the request to the Principal
Underwriter by 5:00 p.m. If the financial intermediary fails to
do so, the shareholder's right to receive that day's closing
price must be settled between the shareholder and the financial
representative. A shareholder may offer shares of the Fund to
the Principal Underwriter either directly or through the
shareholder's financial representative. Neither the Company nor
the Principal Underwriter charges a fee or commission in
connection with the repurchase of shares. Normally, if shares of
the Fund are offered through a financial intermediary, the
repurchase is settled by the shareholder as an ordinary
transaction with or through the financial representative, who may
charge the shareholder for this service. The repurchase of
shares of the Fund as described above is a voluntary service of
the Fund and the Fund may suspend or terminate this practice at
any time.
26
<PAGE>
General
The Company reserves the right to close out an account
that has remained below $200 for at least 90 days. Shareholders
will receive 60 days' written notice to increase the account
value before the account is closed. In the case of a redemption
or repurchase of shares of the Fund recently purchased by check,
redemption proceeds will not be made available until the Company
is reasonably assured that the check has cleared, normally up to
15 calendar days following the purchase date.
_________________________________________________________________
SHAREHOLDER SERVICES
_________________________________________________________________
The following information supplements that set forth in
the Prospectus under the heading "Purchase and Sale of Shares-
- -Shareholder Services." If you are a shareholder through an
account established under a fee-based program, your fee-based
program may impose requirements with respect to the purchase,
sale or exchange of shares of the Fund that are different from
those described herein. A transaction fee may be charged by your
financial representative with respect to the purchase, sale or
exchange of shares made through such financial representative.
Exchange Privilege
You may exchange your investment in the Fund for shares
of the same class of any other Fund and for Class A shares of any
other Alliance Mutual Fund (as defined below). Exchanges of
shares are made at the net asset value next determined and
without sales or service charges. Exchanges may be made by
telephone or written request. Telephone exchange requests must
be received by Alliance Fund Services, Inc. by 4:00 p.m. Eastern
time on a Company business day in order to be effected at that
day's net asset value.
Currently, the Alliance Mutual Funds include:
AFD Exchange Reserves
The Alliance Fund, Inc.
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
27
<PAGE>
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance/Regent Sector Opportunity Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Strategic Balanced Fund
-Alliance Short-Term U.S. Government Fund
Please read carefully the portions of the Prospectus
concerning the Fund or the prospectus of the Alliance Mutual
Fund, as applicable, into which you wish to exchange before
submitting the request. Call Alliance Fund Services, Inc. at
(800) 221-5672 to exchange uncertificated shares. Exchanges of
shares as described above in this section are taxable
transactions for federal income tax purposes. The exchange
service may be changed, suspended or terminated on 60 days'
written notice.
28
<PAGE>
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus or the prospectus for the Alliance Mutual Fund whose
shares are being acquired, as applicable. An exchange is
effected through the redemption of the shares tendered for
exchange and the purchase of shares being acquired at their
respective net asset values as next determined following receipt
by the Fund or the Alliance Mutual Fund, as applicable, whose
shares are being exchanged of (i) proper instructions and all
necessary supporting documents as described in that fund's
prospectus, or (ii) a telephone request for such exchange in
accordance with the procedures set forth in the following
paragraph. Exchanges involving the redemption of shares recently
purchased by check will be permitted only after the fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
Each Fund shareholder, and the shareholder's financial
representative, are authorized to make telephone requests for
exchanges unless Alliance Fund Services, Inc., receives a written
instruction to the contrary from the shareholder, or the
shareholder declines the privilege by checking the appropriate
box on the Subscription Application found in the Prospectus.
Such telephone requests cannot be accepted with respect to shares
then represented by stock certificates. Shares acquired pursuant
to a telephone request for exchange will be held under the same
account registration as the shares redeemed through the exchange.
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange at (800) 221-5672 on a
Company business day as defined above. Telephone requests for
exchange received before 4:00 p.m. Eastern time on a Company
business day will be processed as of the close of business on
that day. During periods of drastic economic or market
developments, such as the market break of October 1987, it is
possible that shareholders would have difficulty in reaching
Alliance Fund Services, Inc. by telephone (although no such
difficulty was apparent at any time in connection with the 1987
market break). If a shareholder were to experience such
difficulty, the shareholder should issue written instructions to
Alliance Fund Services, Inc. at the address shown on the cover of
this Statement of Additional Information.
None of the Company, the Alliance Mutual Funds, the
Adviser, the Principal Underwriter or Alliance Fund Services,
Inc. will be responsible for the authenticity of telephone
requests for exchanges that the Company reasonably believes to be
genuine. The Company will employ reasonable procedures in order
to verify that telephone requests for exchanges are genuine,
29
<PAGE>
including, among others, recording such telephone instructions
and causing written confirmations of the resulting transactions
to be sent to shareholders. If the Company did not employ such
procedures, it could be liable for losses arising from
unauthorized or fraudulent telephone instructions. Financial
representatives, may charge a commission for handling telephone
requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Fund being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
Retirement Plans
The Fund may be a suitable investment vehicle for part
or all of the assets held in various types of retirement plans,
such as those listed below. The Company has available forms of
such plans pursuant to which investments can be made in the Fund
and other Alliance Mutual Funds. Persons desiring information
concerning these plans should contact Alliance Fund Services,
Inc. at the "For Literature" telephone number on the cover of
this Statement of Additional Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 07096-1520
Employer-Sponsored Qualified Retirement Plans. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including
Section 401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals. The minimum
initial investment requirement may be waived with respect to
certain of these qualified plans.
Simplified Employee Pension Plan ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
IRA established by each eligible employee within prescribed
limits based on employee compensation.
403(b)(7) Retirement Plan. Certain tax-exempt
organizations and public educational institutions may sponsor
retirement plans under which an employee may agree that monies
deducted from his or her compensation (minimum $25 per pay
30
<PAGE>
period) may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable which serves as custodian or trustee
under the retirement plan prototype forms available from the
Fund, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
to Alliance Fund Services, Inc. as compensation for its services
to the retirement plan accounts maintained with the Fund.
Distributions from retirement plans are subject to
certain Code requirements in addition to normal redemption
procedures. For additional information please contact Alliance
Fund Services, Inc.
Statements and Reports
Each shareholder of the Fund receives semi-annual and
annual reports which include a listing of the Fund's investments,
financial statements and, in the case of the annual report, the
report of the Company's independent auditors, Ernst & Young LLP,
as well as a confirmation of each purchase and redemption of
shares by the shareholder. By contacting the shareholder's
broker or Alliance Fund Services, Inc., a shareholder can arrange
for a copy of the shareholder's account statements to be sent to
another person.
_______________________________________________________________
NET ASSET VALUE
_______________________________________________________________
The net asset value of each share of the Fund's Common
Stock on which the subscription and redemption prices are based
is determined by the market value of the securities and other
assets owned by the Fund less its liabilities, computed in
accordance with the Articles of Incorporation and By-Laws of the
Fund on each Company business day as of the next close of trading
on the Exchange following receipt of a purchase or redemption
order (and on such other days as the Board of Directors deems
necessary in order to comply with Rule 22c-1 under the 1940 Act),
and the net asset value of a share is the quotient obtained by
dividing the value, as of such closing, of the net assets of the
Fund (i.e., the value of the assets of the Fund less its
liabilities, including expenses payable or accrued but excluding
capital stock and surplus) by the total number of shares of
Common Stock then outstanding at such closing.
For purposes of this computation, readily marketable
portfolio securities, including open short positions, listed on
31
<PAGE>
the Exchange are valued at the last sale price reflected on the
consolidated tape at the close of the Exchange on the business
day as of which such value is being determined. If there has
been no sale on such day, the securities are valued at the mean
of the closing bid and asked prices on such day. If no bid or
asked prices are quoted on such day, then the security is valued
by such method as the Board of Directors of the Fund shall
determine in good faith to reflect its fair market value.
Securities not listed on the Exchange but listed on other
national securities exchanges or admitted to trading on the
NASDAQ List are valued in like manner.
Portfolio securities traded on more than one national
securities exchange are valued at the last sale price on the
business day as of which such value is being determined as
reflected on the tape at the close of the exchange representing
the principal market for such securities. Securities traded only
in the over-the-counter market, excluding those admitted to
trading on the NASDAQ List, are valued at the mean of the current
bid and asked prices as reported by NASDAQ or, in the case of
securities not quoted by NASDAQ, the National Quotation Bureau or
such other comparable sources as the Board of Directors of the
Fund deem appropriate to reflect their fair market value. Call
options written or purchased by the Fund are valued at the last
sale price and put options purchased by the Fund are valued at
the last sale price. Short-term obligations with less than 60
days remaining until maturity are stated at amortized cost which
approximates market value. All other assets of the Fund,
including restricted securities, are valued in such manner as the
Board of Directors of the Fund in good faith deem appropriate to
reflect their fair market value.
The assets belonging to the Class I shares and the
Class II shares will be invested together in a single portfolio.
The net asset value of each class will be determined separately
by subtracting the accrued expenses and liabilities allocated to
that class from the assets belonging to that class.
_______________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_______________________________________________________________
General
The Fund intends for each taxable year to qualify as a
"regulated investment company" under the Code. Such
qualification does not, of course, involve governmental
supervision of management or investment practices or policies.
Investors should consult their own counsel for a complete
understanding of the requirements the Fund must meet to qualify
32
<PAGE>
for such treatment. The information set forth in the Prospectus
and the following discussion relate solely to federal income
taxes on dividends and distributions by the Fund and assumes that
the Fund qualifies as a regulated investment company. Investors
should consult their own counsel for further details and for the
application of state and local tax laws to his or her particular
situation.
Each dividend and capital gains distribution, if any,
declared by the Fund on its outstanding shares will, at the
election of each shareholder, be paid in cash or reinvested in
additional full or fractional shares of the same class of common
stock of the Fund having an aggregate net asset value as of the
payment date of such dividend or distribution equal to the cash
amount of such dividend or distribution. Election to receive
dividends and distributions in cash or full or fractional shares
is made at the time the shares are initially purchased and may be
changed at any time prior to the record date for a particular
dividend or distribution. Cash dividends can be paid by check
or, if the shareholder so elects, electronically via the ACH
network. There is no sales or other charge in connection with
the reinvestment of dividends and capital gains distributions.
Dividends of net ordinary income and distributions of
net short-term capital gains are taxable to shareholders as
ordinary income. The dividends-received deduction for
corporations should also be applicable to the Fund's dividends of
net investment income and distributions of net realized short-
term capital gains. The amount of such dividends and
distributions eligible for the dividends-received deduction is
limited to the amount of dividends from domestic corporations
received by the Fund during the fiscal year. Under provisions of
the tax law, a corporate shareholder's dividends received
deduction will be disallowed unless the shareholder holds shares
in the Fund at least 46 days during the 90-day period beginning
45 days before the date on which the shareholder becomes entitled
to receive the dividends. In determining the holding period of
such shares for this purpose, any period during which a
shareholder's risk of loss is offset by means of options, short
sales or similar transactions is not counted. Furthermore,
provisions of the tax law disallow the dividends-received
deduction to the extent a corporation's investment in shares of
the Fund is financed with indebtedness.
Pursuant to the Taxpayer Relief Act of 1997, two
different tax rates apply to net capital gains--that is, the
excess of net gains from capital assets held for more than one
year over net losses from capital assets held for not more than
one year. One rate (generally 28%) applies to net gains on
capital assets held for more than one year but not more than 18
months ("mid-term gains"), and a second rate (generally 20%)
33
<PAGE>
applies to the balance of such net capital gains ("adjusted net
capital gains"). Except as noted below, distributions of net
capital gains will be treated in the hands of shareholders as
mid-term gains to the extent designated by the Fund as deriving
from net gains from assets held for more than one year but not
more than 18 months, and the balance will be treated as adjusted
net capital gains. Gains derived from assets sold before May 7,
1997 and held for more than 18 months will be treated as mid-term
gains. Gains derived from assets sold after May 6, 1997 and
before July 29, 1997 and held for more than one year will be
treated as adjusted net capital gains. Distributions of mid-term
gains and adjusted net capital gains will be taxable to
shareholders as such, regardless of how long a shareholder has
held shares in the Fund. Capital gains distributions are not
eligible for the dividends received deduction referred to above.
Any dividend or distribution received by a shareholder on shares
of the Fund will have the effect of reducing the net asset value
of such shares by the amount of such dividend or distribution.
Furthermore, a dividend or distribution made shortly after the
purchase of such shares by a shareholder, although in effect a
return of capital to that particular shareholder, would be
taxable to him as described above.
Dividends and distributions are taxable in the manner
described above regardless of whether they are paid to the
shareholder in cash or are reinvested in additional shares of the
Fund's common stock. Any gain or loss arising from a sale or
redemption of Fund shares generally will be capital gain or loss
except in the case of a dealer or a financial institution, and
will be long-term capital gain or loss if such shareholder has
held such shares for more than one year at the time of the sale
or redemption; otherwise it will be short-term capital gain or
loss. In the case of an individual shareholder, the applicable
tax rate imposed on long-term capital gains differs depending on
whether the shares were held at the time of the sale or
redemption for more than 18 months, or for more than one year but
not more than 18 months. If a shareholder has held shares in the
Fund for six months or less and during that period has received a
distribution of net capital gains, any loss recognized by the
shareholder on the sale of those shares during the six-month
period will be treated as a long-term capital loss to the extent
of the distribution. In determining the holding period of such
shares for this purpose, any period during which a shareholder's
risk of loss is offset by means of options, short sales or
similar transactions is not counted.
Foreign Tax Credits
Income received by the Fund may also be subject to
foreign income taxes, including withholding taxes. It is
impossible to determine the effective rate of foreign tax in
34
<PAGE>
advance since the amount of the Fund's assets to be invested
within various countries is not known. If more than 50% of the
value of the Fund's total assets at the close of its taxable year
consists of stocks or securities of foreign corporations, the
Fund will be eligible and intends to file an election with the
Internal Revenue Service to pass through to its shareholders the
amount of foreign taxes paid by the Fund. However, there can be
no assurance that the Fund will be able to do so. Pursuant to
this election a shareholder will be required to (i) include in
gross income (in addition to taxable dividends actually received)
his pro rata share of foreign taxes paid by the Fund, (ii) treat
his pro rata share of such foreign taxes as having been paid by
him, and (iii) either deduct such pro rata share of foreign taxes
in computing his taxable income or treat such foreign taxes as a
credit against United States federal income taxes. Shareholders
who are not liable for federal income taxes, such as retirement
plans qualified under section 401 of the Code, will not be
affected by any such pass-through of taxes by the Fund. No
deduction for foreign taxes may be claimed by an individual
shareholder who does not itemize deductions. In addition,
certain shareholders may be subject to rules which limit or
reduce their ability to fully deduct, or claim a credit for,
their pro rata share of the foreign taxes paid by the Fund. A
shareholder's foreign tax credit with respect to a dividend
received from the Fund will be disallowed unless the shareholder
holds shares in the Fund on the ex-dividend date and for at least
15 other days during the 30-day period beginning 15 days prior to
the ex-dividend date. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the
foreign taxes paid by the Fund will pass through for that year
and, if so, such notification will designate (i) the
shareholder's portion of the foreign taxes paid to each such
country and (ii) the portion of dividends that represents income
derived from sources within each such country.
The federal income tax status of each year's
distributions by the Fund will be reported to shareholders and to
the Internal Revenue Service. The foregoing is only a general
description of the treatment of foreign taxes under the United
States federal income tax laws. Because the availability of a
foreign tax credit or deduction will depend on the particular
circumstances of each shareholder, potential investors are
advised to consult their own tax advisers.
The foregoing discussion relates only to U.S. federal
income tax law as it affects shareholders who are U.S. residents
or U.S. corporations. The effects of Federal income tax law on
shareholders who are non-resident aliens or foreign corporations
may be substantially different. Foreign investors should consult
their counsel for further information as to the U.S. tax
consequences of receipt of income from the Fund.
35
<PAGE>
For Federal income tax purposes, when equity call
options which the Fund has written expire unexercised, the
premiums received by the Fund give rise to short-term capital
gains at the time of expiration. When a call written by the Fund
is exercised, the selling price or purchase price of stock is
increased by the amount of the premium, and the gain or loss on
the sale of stock becomes long-term or short-term depending on
the holding period of the stock. There may be short-term gains
or losses associated with closing purchase transactions.
_______________________________________________________________
BROKERAGE AND PORTFOLIO TRANSACTIONS
_______________________________________________________________
Subject to the general supervision of the Board of
Directors of the Fund, the Adviser is responsible for the
investment decisions and the placing of orders for portfolio
transactions for the Fund. The Adviser determines the broker to
be used in each specific transaction with the objective of
negotiating a combination of the most favorable commission and
the best price obtainable on each transaction (generally defined
as best execution). When consistent with the objective of
obtaining best execution, brokerage may be directed to persons or
firms supplying investment information to the Adviser. There may
be occasions where the transaction cost charged by a broker may
be greater than that which another broker may charge if the Fund
determines in good faith that the amount of such transaction cost
is reasonable in relation to the value of the brokerage, research
and statistical services provided by the executing broker.
Neither the Company nor the Adviser has entered into
agreements or understandings with any brokers regarding the
placement of securities transactions because of research services
they provide. To the extent that such persons or firms supply
investment information to the Adviser for use in rendering
investment advice to the Fund, such information may be supplied
at no cost to the Adviser and, therefore, may have the effect of
reducing the expenses of the Adviser in rendering advice to the
Fund. While it is impossible to place an actual dollar value on
such investment information, its receipt by the Adviser probably
does not reduce the overall expenses of the Adviser to any
material extent.
The investment information provided to the Adviser is of
the type described in Section 28(e)(3) of the Securities Exchange
Act of 1934 and is designed to augment the Adviser's own internal
research and investment strategy capabilities. Research services
furnished by brokers through which the Fund effects securities
transactions are used by the Adviser in carrying out its
36
<PAGE>
investment management responsibilities with respect to all its
client accounts.
The Fund may deal in some instances in securities which
are not listed on a national stock exchange but are traded in the
over-the-counter market. The Fund may also purchase listed
securities through the third market, i.e., from a dealer which is
not a member of the exchange on which a security is listed. Where
transactions are executed in the over-the-counter market or third
market, the Fund will seek to deal with the primary market
makers; but when necessary in order to obtain the best price and
execution, it will utilize the services of others. In all cases,
the Fund will attempt to negotiate best execution.
The extent to which commissions that will be charged by
broker-dealers selected by the Fund may reflect an element of
value for research cannot presently be determined. To the extent
that research services of value are provided by broker-dealers
with or through whom the Fund places portfolio transactions, the
Adviser may be relieved of expenses which it might otherwise
bear. Research services furnished by broker-dealers could be
useful and of value to the Adviser in servicing its other clients
as well as the Fund; but, on the other hand, certain research
services obtained by the Adviser as a result of the placement of
portfolio brokerage of other clients could be useful and of value
to it in serving the Fund. Consistent with the Conduct Rules of
the National Association of Securities Dealers, Inc. and subject
to seeking best execution, the Fund may consider sales of shares
of the Fund or other investment companies managed by the Adviser
as a factor in the selection of brokers to execute portfolio
transactions for the Fund.
The Fund may from time to time place orders for the
purchase or sale of securities (including listed call options)
with DLJ, an affiliate of the Adviser, and with brokers which may
have their transactions cleared or settled, or both, by the
Pershing Division of DLJ, for which DLJ may receive a portion of
the brokerage commission. In such instances, the placement of
orders with such brokers would be consistent with the Fund's
objective of obtaining best execution and would not be dependent
upon the fact that DLJ is an affiliate of the Adviser. With
respect to orders placed with DLJ for execution on a national
securities exchange, commissions received must conform to Section
17(e)(2)(A) of the 1940 Act and Rule 17e-1 thereunder, which
permit an affiliated person of a registered investment company
(such as the Fund), or any affiliated person of such person, to
receive a brokerage commission from such registered investment
company provided that such commission is reasonable and fair
compared to the commissions received by other brokers in
connection with comparable transactions involving similar
securities during a comparable period of time.
37
<PAGE>
_______________________________________________________________
GENERAL INFORMATION
_______________________________________________________________
Capitalization
The Company is a Maryland corporation organized on
October 3, 1997. The authorized capital stock of the Company
consists of 18,000,000,000 shares, of which 3,000,000,000 shares
are Class I shares of the Fund and 3,000,000,000 shares are Class
II shares of the Fund, each having $.001 par value. The balance
of the shares of the Company are Class I and Class II shares of
the Company's other two portfolios.
All shares of the Fund, when issued, are fully paid and
non-assessable. The Directors are authorized to reclassify and
issue any unissued shares to any number of additional series and
classes without shareholder approval. Accordingly, the Directors
in the future, for reasons such as the desire to establish one or
more additional portfolios with different investment objectives,
policies or restrictions, may create additional classes or series
of shares. Any issuance of shares of another class or series
would be governed by the 1940 Act and the law of the State of
Maryland. If shares of another series were issued in connection
with the creation of a new portfolio, each share of each
portfolio would normally be entitled to one vote for all
purposes. Generally, shares of all portfolios would vote as a
single series on matters, such as the election of Directors, that
affected both portfolios in substantially the same manner. As to
matters affecting portfolios differently, such as approval of the
Advisory Agreement and changes in investment policy, shares of
each portfolio would vote as a separate series. Procedures for
calling a shareholders' meeting for the removal of Directors of
the Fund, similar to those set forth in Section 16(c) of the 1940
Act, are available to shareholders of the Fund. The rights of
the holders of shares of a series may not be modified except by
the vote of a majority of the outstanding shares of such series.
Custodian
State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts, will act as the Fund's custodian
for the assets of the Fund but plays no part in decisions as to
the purchase or sale of portfolio securities. Subject to the
supervision of the Directors, State Street Bank and Trust Company
may enter into sub-custodial agreements for the holding of the
Fund's foreign securities.
38
<PAGE>
Principal Underwriter
Alliance Fund Distributors, Inc., 1345 Avenue of the
Americas, New York, New York 10105, serves as the Fund's
Principal Underwriter and as such may solicit orders from the
public to purchase shares of the Fund. Under the Distribution
Services Agreement between the Fund and the Principal
Underwriter, the Fund has agreed to indemnify the Principal
Underwriter, in the absence of its willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations
thereunder, against certain civil liabilities, including
liabilities under the Securities Act.
Counsel
Legal matters in connection with the issuance of the
Common Stock offered hereby are passed upon by Seward & Kissel,
New York, New York. Seward & Kissel has relied upon the opinion
of Venable, Baetjer and Howard, LLP, Baltimore, Maryland, for
matters relating to Maryland law.
Independent Auditors
Ernst & Young LLP, New York, New York, have been
appointed as independent auditors for the Company.
Performance Information
From time to time the Fund advertises its "total
return." Computed separately for each class, the Fund's "total
return" is its average annual compounded total return for its
most recently completed one, five and ten-year periods (or the
period since the Fund's inception). The Fund's total return for
such a period is computed by finding, through the use of a
formula prescribed by the Commission, the average annual
compounded rate of return over the period that would equate an
assumed initial amount invested to the value of such investment
at the end of the period. For purposes of computing total
return, income dividends and capital gains distributions paid on
shares of the Fund are assumed to have been reinvested in Fund
shares when paid.
The Fund's total return is computed separately for
Class I and Class II shares. The Fund's total return is not
fixed and will fluctuate in response to prevailing market
conditions or as a function of the type and quality of the
securities in the Fund's portfolio and the Fund's expenses.
Total return information is useful in reviewing the Fund's
performance, but such information may not provide a basis for
comparison with bank deposits or other investments which pay a
fixed yield for a stated period of time. An investor's principal
39
<PAGE>
invested in the Fund is not fixed and will fluctuate in response
to prevailing market conditions.
Advertisements quoting performance ratings of the Fund
as measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc. and
Morningstar, Inc. and advertisements presenting the historical
record of payments of income dividends by the Fund may also from
time to time be sent to investors or placed in newspapers or
magazines such as Barrons, Business Week, Changing Times, Forbes,
Investor's Daily, Money Magazine, The New York Times and The Wall
Street Journal or other media on behalf of the Fund.
Additional Information
Any shareholder inquiries may be directed to the
shareholder's broker or to Alliance Fund Services, Inc. at the
address or telephone numbers shown on the front cover of this
Statement of Additional Information. This Statement of
Additional Information does not contain all the information set
forth in the Registration Statement filed by the Fund with the
Commission under the Securities Act. Copies of the Registration
Statement may be obtained at a reasonable charge from the
Commission or may be examined, without charge, at the offices of
the Commission in Washington, D.C.
40
<PAGE>
Alliance Institutional Funds, Inc.
Statement of Assets and Liabilities
November 12, 1997
Real Estate
Premier Growth Quasar Investment
Institutional Institutional Institutional
Fund Fund Fund
ASSETS
Cash............................ $33,330 $33,330 $33,340
Deferred organization expenses
(Note A) ....................... 73,098 73,098 73,099
________ _______ _______
Total assets.................... 106,428 106,428 106,439
________ _______ _______
LIABILITIES
Deferred organization expenses
payable (Note A)................ $73,098 $73,098 $73,099
________ _______ _______
NET ASSETS
Class I Shares
Net Assets...................... $33,000 $33,000 $33,000
======= ======= =======
Shares of beneficial interest
outstanding..................... 3,300 3,300 3,300
======= ======= =======
Class II Shares
Net Assets $330 $330 $340
======= ======= =======
Shares of beneficial interest
outstanding..................... 33 33 34
======= ======= =======
CALCULATION OF MAXIMUM OFFERING
PRICE
Class I Shares
Net asset value, offering and
redemption price per share...... $10.00 $10.00 $10.00
======= ======= =======
41
<PAGE>
Class II Shares
Net asset value, offering and
redemption price per share...... $10.00 $10.00 $10.00
======= ======= =======
See Notes to the Statement of Assets and Liabilities
42
<PAGE>
Alliance Institutional Funds, Inc.
Notes to the Statement of Assets and Liabilities
November 12, 1997
Note A-Organization
Alliance Institutional Funds, Inc. (the "Company") was
organized as a Maryland corporation on October 3, 1997 and
is registered under the Investment Company Act of 1940 as an
open-end series investment company. The Company offers
three separately managed pools of assets which have
differing investment objectives and policies. The Company
currently issues shares of the Alliance Premier Growth
Institutional Fund, the Alliance Quasar Institutional Fund,
and the Alliance Real Estate Investment Institutional Fund
(the "Funds"). The Company has had no operations other than
the sale to Alliance Capital Management L.P. (the "Adviser")
of 3,300 shares of Class I common stock of the Alliance
Premier Growth Institutional Fund for the amount of $33,000,
3,300 shares of Class I common stock of the Alliance Quasar
Institutional Fund for the amount of $33,000, 3,300 shares
of Class I common stock of the Alliance Real Estate
Investment Institutional Fund for the amount of $33,000, 33
shares of Class II common stock of the Alliance Premier
Growth Institutional Fund for the amount of $330, 33 shares
of Class II common stock of the Alliance Quasar
Institutional Fund for the amount of $330, and 34 shares of
Class II common stock of the Alliance Real Estate Investment
Institutional Fund for the amount of $340, in each case on
November 12, 1997. Sales are made without a sales charge,
at each Funds' net asset value per share. Costs incurred
and to be incurred in connection with the organization and
initial registration of the Company will be paid initially
by the Adviser. The Company will reimburse the Adviser for
such costs, which will be deferred and amortized by the
Company over the period of benefit, not to exceed 60 months
from the date the Company commences investment operations.
If any of the initial shares of the Company are redeemed by
a holder thereof during such amortization period, the
proceeds will be reduced by the unamortized organization
expenses in the same ratio as the number of initial shares
being redeemed bears to the number of initial shares
outstanding at the time of redemption.
Note B-Investment Management, Transfer Agency and
Distribution Services Agreements
Under the terms of an investment advisory agreement, each of
the Funds will pay the Adviser an investment advisory fee
based on aggregate average daily net assets at the following
annual rates: Alliance Premier Growth Institutional Fund,
43
<PAGE>
.90%; Alliance Quasar Institutional Fund, 1.00%; and
Alliance Real Estate Investment Institutional Fund, .90%.
Such fee will be accrued daily and paid monthly.
Each of the Funds has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributors,
Inc., ("AFD"), a wholly-owned subsidiary of the Adviser. The
Agreement provides that with respect to Class II shares,
each of the Funds will pay AFD a distribution fee of .30% of
each Funds' aggregate average daily net assets. Such fee
will be accrued daily and paid monthly. AFD will use
amounts payable under the Agreement in their entirety for
distribution assistance and promotional activities. The
Agreement also provides that the Adviser may use its own
resources to finance the distribution of the Company's
shares. There is no distribution fee with respect to Class I
shares.
The Company will compensate Alliance Fund Services, Inc. (a
wholly-owned subsidiary of the Adviser) for performing
transfer agency-related services for the Company.
44
<PAGE>
Report of Independent Auditors
Shareholder and Board of Directors
Alliance Institutional Funds, Inc.
We have audited the accompanying statement of assets and
liabilities of Alliance Institutional Funds, Inc.
(comprising, respectively, Premier Growth Institutional
Fund, Quasar Institutional Fund, and Real Estate Investment
Institutional Fund) as of November 12, 1997. This statement
of assets and liabilities is the responsibility of the
Fund's management. Our responsibility is to express an
opinion on this statement of assets and liabilities based on
our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether this statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the statement of assets and liabilities. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall statement of assets and liabilities
presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities
referred to above presents fairly, in all material respects,
the financial position of Alliance Institutional Funds, Inc.
at November 12, 1997, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
New York, New York
November 13, 1997
45
<PAGE>
(LOGO) ALLIANCE INSTITUTIONAL FUNDS, INC.
- ALLIANCE REAL ESTATE INVESTMENT
INSTITUTIONAL FUND
_______________________________________________________________
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
_______________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
November 14, 1997
_______________________________________________________________
This Statement of Additional Information is not a
prospectus but supplements and should be read in conjunction with
the current Prospectus (the "Prospectus") for Alliance
Institutional Funds, Inc. (the "Company"). Copies of the
Prospectus may be obtained by contacting Alliance Fund Services,
Inc. at the address or the "For Literature" telephone number
shown above.
TABLE OF CONTENTS
Page
DESCRIPTION OF THE FUND..................................
MANAGEMENT OF THE FUND...................................
EXPENSES OF THE FUND.....................................
PURCHASE OF SHARES.......................................
REDEMPTION AND REPURCHASE OF SHARES......................
SHAREHOLDER SERVICES.....................................
NET ASSET VALUE..........................................
DIVIDENDS, DISTRIBUTIONS AND TAXES.......................
BROKERAGE AND PORTFOLIO TRANSACTIONS.....................
GENERAL INFORMATION......................................
REPORT OF INDEPENDENT AUDITORS AND
FINANCIAL STATEMENTS...................................
(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.
46
<PAGE>
_______________________________________________________________
DESCRIPTION OF THE FUND
_______________________________________________________________
The Company is an open-end management investment company
whose shares are offered in separate series referred to as
"Funds." Each Fund is a separate pool of assets constituting, in
effect, a separate fund with its own investment objective and
policies. A shareholder in a Fund will be entitled to his or her
pro-rata share of all dividends and distributions arising from
that Fund's assets and, upon redeeming shares of that Fund, the
shareholder will receive the then current net asset value of the
applicable class of shares of that Fund. (See "Purchase of
Shares" and "Redemption and Repurchase of Shares," in the
Prospectus.) The Company is empowered to establish, without
shareholder approval, additional Funds which may have different
investment objectives.
The Company currently has three portfolios: Alliance
Real Estate Investment Institutional Fund (the "Fund"), which is
described in this Statement of Additional Information, and
Alliance Premier Growth Institutional Fund and Alliance Quasar
Institutional Fund which are each described in a separate
Statement of Additional Information, copies of which can be
obtained by contacting Alliance Fund Services, Inc. at the
address or the "For Literature" telephone number shown on the
cover of this Statement of Additional Information.
The Fund's investment objective is "fundamental" and
cannot be changed without a shareholder vote. Except as noted,
the Fund's investment policies are not fundamental and thus can
be changed without a shareholder vote. The Fund will not change
these policies without notifying its shareholders. There is no
guarantee that the Fund will achieve its investment objective.
Investment Objective
The Fund's investment objective is to seek a total
return on its assets from long-term growth of capital and from
income principally through investing in a portfolio of equity
securities of issuers that are primarily engaged in or related to
the real estate industry.
Investment Policies
Under normal circumstances, at least 65% of the Fund's
total assets will be invested in equity securities of real estate
investment trusts ("REITs") and other real estate industry
companies. A "real estate industry company" is a company that
derives at least 50% of its gross revenues or net profits from
2
<PAGE>
the ownership, development, construction, financing, management
or sale of commercial, industrial or residential real estate or
interests therein. The equity securities in which the Fund will
invest for this purpose consist of common stock, shares of
beneficial interest of REITs and securities with common stock
characteristics, such as preferred stock or convertible
securities ("Real Estate Equity Securities").
The Fund may invest up to 35% of its total assets in
(a) securities that directly or indirectly represent
participations in, or are collateralized by and payable from,
mortgage loans secured by real property ("Mortgage-Backed
Securities"), such as mortgage pass-through certificates, real
estate mortgage investment conduit ("REMIC") certificates and
collateralized mortgage obligations ("CMOs") and (b) short-term
investments. These instruments are described below. The risks
associated with the Fund's transactions in REMICs, CMOs and other
types of mortgage-backed securities, which are considered to be
derivative securities, may include some or all of the following:
market risk, leverage and volatility risk, correlation risk,
credit risk and liquidity and valuation risk. See "Risk
Considerations--Risk Factors Associated with the Real Estate
Industry" in the Prospectus for a description of these and other
risks.
As to any investment in Real Estate Equity Securities,
the analysis of Alliance Capital Management, L.P., the Fund's
investment adviser (the "Adviser") will focus on determining the
degree to which the company involved can achieve sustainable
growth in cash flow and dividend paying capability. The Adviser
believes that the primary determinant of this capability is the
economic viability of property markets in which the company
operates and that the secondary determinant of this capability is
the ability of management to add value through strategic focus
and operating expertise. The Fund will purchase Real Estate
Equity Securities when, in the judgment of the Adviser, their
market price does not adequately reflect this potential. In
making this determination, the Adviser will take into account
fundamental trends in underlying property markets as determined
by proprietary models, site visits conducted by individuals
knowledgeable in local real estate markets, price-earnings ratios
(as defined for real estate companies), cash flow growth and
stability, the relationship between asset value and market price
of the securities, dividend payment history, and such other
factors which the Adviser may determine from time to time to be
relevant. The Adviser will attempt to purchase for the Fund Real
Estate Equity Securities of companies whose underlying portfolios
are diversified geographically and by property type.
The Fund may invest without limitation in shares of
REITs. REITs are pooled investment vehicles which invest
3
<PAGE>
primarily in income producing real estate or real estate related
loans or interests. REITs are generally classified as equity
REITs, mortgage REITs or a combination of equity and mortgage
REITs. Equity REITs invest the majority of their assets directly
in real property and derive income primarily from the collection
of rents. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage REITs invest
the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. Similar to
investment companies such as the Fund, REITs are not taxed on
income distributed to shareholders provided they comply with
several requirements of the Internal Revenue Code of 1986, as
amended (the "Code"). The Fund will indirectly bear its
proportionate share of expenses incurred by REITs in which the
Fund invests in addition to the expenses incurred directly by the
Fund. The Fund may invest up to 5% of its total assets in Real
Estate Equity Securities of non-U.S. issuers.
Additional Investment Policies and Practices
To the extent not described in the Prospectus, set forth
below is additional information regarding the Fund's investment
policies and practices, including restrictions. Except as
otherwise noted, the Fund's investment policies and are not
designated "fundamental policies" within the meaning of the
Investment Company Act of 1940, as amended (the "1940 Act") and,
therefore, may be changed by the Board of Directors of the
Company (the "Board of Directors" or the "Directors") without a
shareholder vote. However, the Fund will not change its
investment policies and practices without contemporaneous written
notice to shareholders.
Convertible Securities. The Fund may invest up to 15%
of its total assets in convertible securities of issuers whose
common stocks are eligible for purchase by the Fund under the
investment policies described above. Convertible securities
include bonds, debentures, corporate notes and preferred stocks.
Convertible securities are instruments that are convertible at a
stated exchange rate into common stock. Prior to their
conversion, convertible securities have the same general
characteristics as non-convertible securities which provide a
stable stream of income with generally higher yields than those
of equity securities of the same or similar issuers. The market
value of convertible securities tends to decline as interest
rates increase and, conversely, to increase as interest rates
decline. While convertible securities generally offer lower
interest yields than non-convertible debt securities of similar
quality, they do enable the investor to benefit from increases in
the market price of the underlying common stock.
4
<PAGE>
When the market price of the common stock underlying a
convertible security increases, the price of the convertible
security increasingly reflects the value of the underlying common
stock and may rise accordingly. As the market price of the
underlying common stock declines, the convertible security tends
to trade increasingly on a yield basis, and thus may not
depreciate to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an
issuer's capital structure. They are consequently of higher
quality and entail less risk than the issuer's common stock,
although the extent to which such risk is reduced depends in
large measure upon the degree to which the convertible security
sells above its value as a fixed income security.
Forward Commitments. No forward commitments will be
made by the Fund if, as a result, the Fund's aggregate
commitments under such transactions would be more than 30% of the
then current value of the Fund's total assets. The Fund's right
to receive or deliver a security under a forward commitment may
be sold prior to the settlement date, but the Fund will enter
into forward commitments only with the intention of actually
receiving or delivering the securities, as the case may be. To
facilitate such transactions, the Fund's custodian will maintain,
in a segregated account of the Fund, liquid assets having value
equal to, or greater than, any commitments to purchase securities
on a forward commitment basis and, with respect to forward
commitments to sell portfolio securities of the Fund, the
portfolio securities themselves. If the Fund, however, chooses
to dispose of the right to receive or deliver a security subject
to a forward commitment prior to the settlement date of the
transaction, it may incur a gain or loss. In the event the other
party to a forward commitment transaction were to default, the
Fund might lose the opportunity to invest money at favorable
rates or to dispose of securities at favorable prices.
Standby Commitment Agreements. The purchase of a
security subject to a standby commitment agreement and the
related commitment fee will be recorded on the date on which the
security can reasonably be expected to be issued and the value of
the security will thereafter be reflected in the calculation of
the Fund's net asset value. The cost basis of the security will
be adjusted by the amount of the commitment fee. In the event
the security is not issued, the commitment fee will be recorded
as income on the expiration date of the standby commitment. The
Fund will at all times maintain a segregated account with its
custodian of liquid assets in an aggregate amount equal to the
purchase price of the securities underlying the commitment.
There can be no assurance that the securities subject to
a standby commitment will be issued and the value of the
security, if issued, on the delivery date may be more or less
5
<PAGE>
than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the
Fund will bear the risk of capital loss in the event the value of
the security declines and may not benefit from an appreciation in
the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Fund.
Repurchase Agreements. The Fund may enter into
repurchase agreements pertaining to U.S. Government Securities
with member banks of the Federal Reserve System or "primary
dealers" (as designated by the Federal Reserve Bank of New York)
in such securities. There is no percentage restriction on the
Fund's ability to enter into repurchase agreements. Currently,
the Fund intends to enter into repurchase agreements only with
its custodian and such primary dealers. A repurchase agreement
arises when a buyer purchases a security and simultaneously
agrees to resell it to the vendor at an agreed-upon future date,
normally one day or a few days later. The resale price is
greater than the purchase price, reflecting an agreed-upon
interest rate which is effective for the period of time the
buyer's money is invested in the security and which is related to
the current market rate rather than the coupon rate on the
purchased security. This results in a fixed rate of return
insulated from market fluctuations during such period. Such
agreements permit the Fund to keep all of its assets at work
while retaining "overnight" flexibility in pursuit of investments
of a longer-term nature. The Fund requires continual maintenance
by its Custodian for its account in the Federal Reserve/Treasury
Book Entry System of collateral in an amount equal to, or in
excess of, the resale price. In the event a vendor defaulted on
its repurchase obligation, the Fund might suffer a loss to the
extent that the proceeds from the sale of the collateral were
less than the repurchase price. In the event of a vendor's
bankruptcy, the Fund might be delayed in, or prevented from,
selling the collateral for its benefit. The Board of Directors
has established procedures, which are periodically reviewed by
the Board, pursuant to which the Adviser monitors the
creditworthiness of the dealers with which the Fund enters into
repurchase agreement transactions.
Short Sales. When engaging in a short sale, in addition
to depositing collateral with a broker-dealer, the Fund is
currently required under the 1940 Act to establish a segregated
account with its custodian and to maintain therein liquid assets
in an amount that, when added to cash or securities deposited
with the broker-dealer, will at all times equal at least 100% of
the current market value of the security sold short.
Illiquid Securities. Historically, illiquid securities
have included securities subject to contractual or legal
restrictions on resale because they have not been registered
6
<PAGE>
under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and
repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the
Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a
mutual fund might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions within seven
days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market
has developed for certain securities that are not registered
under the Securities Act, including repurchase agreements,
commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand
for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.
The Fund may invest in restricted securities issued
under Section 4(2) of the Securities Act, which exempts from
registration "transactions by an issuer not involving any public
offering." Section 4(2) instruments are restricted in the sense
that they can only be resold through the issuing dealer to
institutional investors and in private transactions; they cannot
be resold to the general public without registration.
Rule 144A under the Securities Act allows a broader
institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of
the Securities Act for resales of certain securities to qualified
institutional buyers. An insufficient number of qualified
institutional buyers interested in purchasing certain restricted
securities held by the Fund, however, could affect adversely the
marketability of such portfolio securities and the Fund might be
unable to dispose of such securities promptly or at reasonable
prices. Rule 144A has already produced enhanced liquidity for
many restricted securities, and market liquidity for such
7
<PAGE>
securities may continue to expand as a result of this regulation
and the consequent inception of the PORTAL System, an automated
system for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers sponsored by the
National Association of Securities Dealers, Inc.
The Adviser, under the supervision of the Board of
Directors, will monitor the liquidity of restricted securities in
the Fund's portfolio. In reaching liquidity decisions, the
Adviser will consider, among other factors, the following:
(1) the frequency of trades and quotes for the security; (2) the
number of dealers making quotations to purchase or sell the
security; (3) the number of other potential purchasers of the
security; (4) the number of dealers undertaking to make a market
in the security; (5) the nature of the security (including its
unregistered nature) and the nature of the marketplace for the
security (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer);
and (6) any applicable Securities and Exchange Commission (the
"Commission") interpretation or position with respect to such
type of security.
Defensive Position. For temporary defensive purposes,
the Fund may vary from its investment objectives during periods
in which conditions in securities markets or other economic or
political conditions warrant. During such periods, the Fund may
increase without limit its position in short-term, liquid, high-
grade debt securities, which may include securities issued by the
U.S. government, its agencies and, instrumentalities ("U.S.
Government Securities"), bank deposit, money market instruments,
short-term (for this purpose, securities with a remaining
maturity of one year or less) debt securities, including notes
and bonds, and short-term foreign currency denominated debt
securities rated A or higher by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Services ("S&P") Duff &
Phelps Credit Rating Co. ("Duff & Phelps") or Fitch Investors
Service, Inc. ("Fitch") or, if not so rated, of equivalent
investment quality as determined by the Adviser.
Subject to its policy of investing at least 65% of its
total assets in equity securities of real estate investment
trusts and other real estate industry companies, the Fund may
also at any time temporarily invest funds awaiting reinvestment
or held as reserves for dividends and other distributions to
shareholders in money market instruments referred to above.
Portfolio Turnover
Generally, the Fund's policy with respect to portfolio
turnover is to sell any security whenever, in the judgment of the
Adviser, its appreciation possibilities have been substantially
8
<PAGE>
realized or the business or market prospects for such security
have deteriorated, irrespective of the length of time that such
security has been held. The Adviser anticipates that the Fund's
annual rate of portfolio turnover will not exceed 100%. A 100%
annual turnover rate would occur if all the securities in the
Fund's portfolio were replaced once within a period of one year.
The turnover rate has a direct effect on the transaction costs to
be borne by the Fund, and as portfolio turnover increases it is
more likely that the Fund will realize short-term capital gains.
Other Restrictions
In addition to the investment restrictions described
below, the Fund has undertaken as a matter of non-fundamental
investment policy that it will not (i) invest more than 5% of its
total assets in warrants, except for warrants acquired by the
Fund as a part of a unit or attached to securities, provided that
not more than 2% of the Fund's net assets may be invested in
warrants that are not listed on the New York Stock Exchange or
American Stock Exchange; (ii) purchase or sell real property
(excluding REITs and readily marketable securities of companies
which invest in real estate); or (iii) invest more than 10% of
its total assets in restricted securities (excluding securities
that may be resold pursuant to Rule 144A under the Securities
Act).
Certain Fundamental Investment Policies
The following restrictions, which supplement those set
forth in the Fund's Prospectus, may not be changed without
approval by the vote of a majority of the Fund's outstanding
voting securities, which means the affirmative vote of the
holders of (i) 67% or more or the shares represented at a meeting
at which more than 50% of the outstanding shares are represented,
or (ii) more than 50% of the outstanding shares, whichever is
less.
To reduce investment risk, as a matter of fundamental
policy the Fund may not:
(i) pledge, hypothecate, mortgage or otherwise
encumber its assets, except to secure permitted
borrowings;
(ii) make loans except through (a) the purchase of
debt obligations in accordance with its investment
objectives and policies; (b) the lending of portfolio
securities; or (c) the use of repurchase agreements;
(iii) participate on a joint or joint and several
basis in any securities trading account;
9
<PAGE>
(iv) invest in companies for the purpose of
exercising control;
(v) issue any senior security within the meaning
of the 1940 Act;
(vi) make short sales of securities or maintain a
short position, unless at all times when a short
position is open not more than 25% of the Fund's net
assets (taken at market value) is held as collateral for
such sales at any one time; and
(vii) (a) purchase or sell commodities or commodity
contracts including futures contracts; (b) invest in
interests in oil, gas, or other mineral exploration or
development programs; (c) purchase securities on margin,
except for such short-term credits as may be necessary
for the clearance of transactions; and (d) act as an
underwriter of securities, except that the Fund may
acquire restricted securities under circumstances in
which, if such securities were sold, the Fund might be
deemed to be an underwriter for purposes of the
Securities Act.
Application of Percentage Limitations
Except as otherwise indicated, whenever any investment
policy or practice, including any restriction, described in the
Prospectus or under the heading "Description of the Fund," states
a maximum percentage of the Fund's assets which may be invested
in any security or other asset, it is intended that such maximum
percentage limitation be determined immediately after and as a
result of the Fund's acquisition of such securities or other
assets. Accordingly, any later increase or decrease in
percentage beyond the specified limitation resulting from a
change in values or net assets will not be considered a violation
of any such maximum.
_______________________________________________________________
MANAGEMENT OF THE FUND
_______________________________________________________________
Adviser
Alliance Capital Management L.P., a Delaware limited
partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
10
<PAGE>
supervision of the Fund's Board of Directors (see "Management of
the Fund" in the Prospectus).
Alliance is a leading international investment manager
supervising client accounts with assets as of September 30, 1997
of more than $217 billion (of which more than $81 billion
represented the assets of investment companies). The Adviser's
clients are primarily major corporate employee benefit funds,
public employee retirement systems, investment companies,
foundation and endowment funds. As of September 30, 1997, the
Adviser was an investment manager of employee benefit fund assets
for 28 of the FORTUNE 100 companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,500
employees who operated out of domestic offices and the offices of
subsidiaries in Bahrain, Bangalore, Chennai, Istanbul, London,
Madrid, Mumbai, Paris, Singapore, Tokyo and Toronto and affiliate
offices located in Vienna, Warsaw, Hong Kong, Sao Paulo and
Moscow. The 54 registered investment companies comprising more
than 116 separate investment portfolios managed by the Adviser
currently have more than two million shareholders.
Alliance Capital Management Corporation, the sole
general partner of, and the owner of a 1% general partnership
interest in, the Adviser, is an indirect wholly-owned subsidiary
of The Equitable Life Assurance Society of the United States
("Equitable"), one of the largest life insurance companies in the
United States and a wholly-owned subsidiary of The Equitable
Companies Incorporated ("ECI"). ECI is a holding company
controlled by AXA-UAP, a French insurance holding company which
at September 30, 1997, beneficially owned approximately 59% of
the outstanding voting shares of ECI. As of June 30, 1997, ACMC,
Inc. and Equitable Capital Management Corporation, each a wholly-
owned direct or indirect subsidiary of Equitable, together with
Equitable, owned in the aggregate approximately 57% of the issued
and outstanding units representing assignments of beneficial
ownership of limited partnership interests in the Adviser.
AXA-UAP is a holding company for an international group
of insurance and related financial services companies. AXA-UAP's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities
principally in Western Europe, North America and the Asia/Pacific
area. AXA-UAP is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA-UAP, as of
September 30, 1997 more than 25% of the voting power of AXA-UAP
was controlled directly and indirectly by FINAXA, a French
11
<PAGE>
holding company. As of September 30, 1997 more than 25% of the
voting power of FINAXA was controlled directly and indirectly by
four French mutual insurance companies (the "Mutuelles AXA"), one
of which, AXA Assurances I.A.R.D. Mutuelle, itself controlled
directly and indirectly more than 25% of the voting power of
FINAXA. Acting as a group, the Mutuelles AXA control AXA-UAP and
FINAXA.
Under the Advisory Agreement between the Company and the
Adviser (the "Advisory Agreement"), the Adviser furnishes advice
and recommendations with respect to the Fund's portfolio of
securities and investments and provides persons satisfactory to
the Board of Directors to act as officers and employees of the
Company. Such officers and employees may be employees of the
Adviser or its affiliates.
The Adviser is, under the Advisory Agreement,
responsible for certain expenses incurred by the Fund, including,
for example, office facilities and certain administrative
services, and any expenses incurred in promoting the sale of Fund
shares (other than the portion of the promotional expenses borne
by the Fund in accordance with an effective plan pursuant to Rule
12b-1 under the 1940 Act, and the costs of printing Company
prospectuses and other reports to shareholders and fees related
to registration with the Commission and with state regulatory
authorities).
The Fund has, under the Advisory Agreement, assumed the
obligation for payment of all of its other expenses. As to the
obtaining of services other than those specifically provided to
the Fund by the Adviser, the Fund may utilize personnel employed
by the Adviser or by other subsidiaries of Equitable. The Fund
may employ its own personnel or contract for services to be
performed by third parties. In such event, the services will be
provided to the Fund at cost and the payments specifically
approved by the Board of Directors.
For the services rendered by the Adviser under the
Advisory Agreement, the Fund pays the Adviser at an annualized
rate of 0.90% of the average daily value of the Fund's net
assets. The fee is accrued daily and paid monthly.
The Advisory Agreement became effective on November 7,
1997, having been approved by the unanimous vote, cast in person,
of the Directors (including the Directors who are not parties to
the Advisory Agreement or interested persons, as defined by the
1940 Act, of any such party) at a meeting called for that purpose
held on that date, and by the Fund's initial shareholder on
November 3, 1997.
12
<PAGE>
The Advisory Agreement will remain in effect until
November 5, 1999 and continue in effect thereafter only so long
as its continuance is approved annually by a vote of a majority
of the Fund's outstanding voting securities (as defined in the
1940 Act) or by the Board of Directors, including in either case,
approval by a majority of the Directors who are not parties to
the Advisory Agreement or interested persons of any such party as
defined by the 1940 Act.
The Advisory Agreement is terminable without penalty by
a vote of a majority of the Fund's outstanding voting securities
or by a vote of a majority of the Directors on 60 days' written
notice, or by the Adviser on 60 days' written notice, and will
automatically terminate in the event of its assignment. The
Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the
Adviser, or of reckless disregard of its obligations thereunder,
the Adviser will not be liable for any action or failure to act
in accordance with its duties thereunder.
Certain other clients of the Adviser have investment
objectives and policies similar to those of the Fund. The Adviser
may, from time to time, make recommendations which result in the
purchase or sale of a particular security by other of its clients
simultaneously with the Fund. If transactions on behalf of more
than one client during the same period increase the demand for
securities being purchased or the supply of securities being
sold, there may be an adverse effect on price or quantity. It is
the policy of the Adviser to allocate advisory recommendations
and the placing of orders in a manner which is deemed equitable
by the Adviser to the accounts involved, including the Fund.
When two or more of the clients of the Adviser (including the
Fund) are purchasing or selling the same security on a given day
from the same broker-dealer, such transactions may be averaged as
to price.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to the following registered investment
companies: ACM Institutional Reserves, Inc., AFD Exchange
Reserves, The Alliance Fund, Inc., Alliance All-Asia Investment
Fund, Inc., Alliance Balanced Shares, Inc., Alliance Bond Fund,
Inc., Alliance Capital Reserves, Alliance Developing Markets
Fund, Inc., Alliance Global Dollar Government Fund, Inc.,
Alliance Global Environment Fund, Inc., Alliance Global Small Cap
Fund, Inc., Alliance Global Strategic Income Trust, Inc.,
Alliance Government Reserves, Alliance Greater China '97 Fund,
Inc., Alliance Growth and Income Fund, Inc., Alliance High Yield
Fund, Inc., Alliance Income Builder Fund, Inc., Alliance
International Fund, Alliance Limited Maturity Government Fund,
Inc., Alliance Money Market Fund, Alliance Mortgage Securities
13
<PAGE>
Income Fund, Inc., Alliance Multi- Market Strategy Trust, Inc.,
Alliance Municipal Income Fund, Inc., Alliance Municipal Income
Fund II, Alliance Municipal Trust, Alliance New Europe Fund,
Inc., Alliance North American Government Income Trust, Inc.,
Alliance Quasar Fund, Inc., Alliance Real Estate Investment Fund,
Inc., Alliance/Regent Sector Opportunity Fund, Inc., Alliance
Short-Term Multi-Market Trust, Inc., Alliance Technology Fund,
Inc., Alliance Utility Income Fund, Inc., Alliance Variable
Products Series Fund, Inc., Alliance World Income Trust, Inc.,
Alliance Worldwide Privatization Fund, Inc., The Alliance
Portfolios, Fiduciary Management Associates and The Hudson River
Trust, all registered open-end investment companies; and to ACM
Government Income Fund, Inc., ACM Government Securities Fund,
Inc., ACM Government Spectrum Fund, Inc., ACM Government
Opportunity Fund, Inc., ACM Managed Income Fund, Inc., ACM
Managed Dollar Income Fund, Inc., ACM Municipal Securities Income
Fund, Inc., Alliance All-Market Advantage Fund, Inc., Alliance
World Dollar Government Fund, Inc., Alliance World Dollar
Government Fund II, Inc., The Austria Fund, Inc., The Korean
Investment Fund, Inc., The Southern Africa Fund, Inc., and The
Spain Fund, Inc., all registered closed-end investment companies.
Directors and Officers
The Directors and principal officers of the Company,
their ages and their primary occupations during the past five
years are set forth below. Each of the Directors and officers
are trustees, directors and officers of other registered
investment companies sponsored by the Adviser. Unless otherwise
specified, the address of each such person is 1345 Avenue of the
Americas, New York, New York 10105.
Directors
JOHN D. CARIFA,*** 52, Chairman of the Board of
Directors, is the President, Chief Operating Officer and a
Director of Alliance Capital Management Corporation ("ACMC"),
with which he has been associated since prior to 1992.
RUTH BLOCK, 66, was formerly Executive Vice President
and Chief Insurance Officer of Equitable. She is a Director of
Ecolab Incorporated (specialty chemicals) and Amoco Corporation
(oil and gas). Her address is Box 4653, Stamford, Connecticut,
06903.
____________________
*** An "interested person" of the Fund as defined in the 1940
Act.
14
<PAGE>
DAVID H. DIEVLER, 68, was formerly a Senior Vice
President of ACMC, with which he was associated since prior to
1992 through 1994. He is currently an independent consultant.
His address is P.O. Box 167, Spring Lake, New Jersey, 07762.
JOHN H. DOBKIN, 55, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1992.
Previously, he was Director of the National Academy of Design.
His address is 105 West 55th Street, New York, New York 10019.
WILLIAM H. FOULK, JR., 65, is an Investment Advisor and
Independent Consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, since
1986. His address is Suite 100, 2 Greenwich Plaza, Greenwich,
Connecticut 06830.
DR. JAMES M. HESTER, 73, is President of the Harry Frank
Guggenheim Foundation and a Director of Union Carbide
Corporation, with which he has been associated since prior to
1992. He was formerly President of New York University, the New
York Botanical Garden and Rector of the United Nations
University. His address is 45 East 89th Street, New York, New
York 10128.
CLIFFORD L. MICHEL, 57, is a partner of the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1992. He is Chief Executive Officer of Wenonah
Development Company (investment holding company) and a Director
of Placer Dome, Inc. (mining). His address is 80 Pine Street,
New York, New York 10005.
DONALD J. ROBINSON, 62, was formerly a partner of the
law firm of Orrick, Herrington & Sutcliffe since prior to 1992
and is currently of counsel to that firm. His address is 599
Lexington Avenue, 26th Floor, New York, New York 10022.
Officers
JOHN D. CARIFA, President, see biography above.
ALFRED HARRISON, Executive Vice President, 59, is Vice
Chairman of the Board of ACMC, with which he has been associated
since prior to 1992.
ALDEN M. STEWART, Executive Vice President, 51, is an
Executive Vice President of ACMC since July 1993. Previously, he
was associated with ECMC since prior to 1992.
KATHLEEN A. CORBET, Senior Vice President, 37, has been
a Senior Vice President of ACMC since July 1993. Previously, she
held various responsibilities as head of Equitable Capital
15
<PAGE>
Management Corporation's Fixed Income Management Department,
Private Placement Secondary Trading and Fund Management since
prior to 1992.
RANDALL E. HAASE, Senior Vice President, 32, has been a
Vice President of ACMC since July, 1993. Prior thereto he was
associated with ECMC.
DANIEL G. PINE, Senior Vice President, 44, has been
associated with the Adviser since 1996. Previously, he was a
Senior Vice President of Desai Capital Management since prior to
1992.
THOMAS BARDONG, Vice President, 52, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1992.
DAVID KRUTH, Vice President, 34, is a Vice President of
ACMC, with which he has been associated since 1997. Prior
thereto he was a Senior Vice President of the Yarmouth Group.
DANIEL PANKER, Vice President, 58, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1992.
MARK D. GERSTEN, Treasurer and Chief Financial Officer,
47, is a Senior Vice President of Alliance Fund Services, Inc.
with which he has been associated since prior to 1992.
VINCENT S. NOTO, Controller, 33, is a Vice President of
Alliance Fund Services, Inc., with which he has been associated
since prior to 1992.
JOSEPH MANTINEO, Assistant Controller, 38, has been a
Vice President of Alliance Fund Services, Inc. since prior to
1992.
PHYLLIS CLARKE, Assistant Controller, 37, is an
Accounting Manager of Mutual Funds for Alliance Fund Services,
Inc. since prior to 1992.
JUAN J. RODRIGUEZ, Assistant Controller, 40, is an
Assistant Vice President of Alliance Fund Services, Inc. with
which he has been associated since prior to 1992.
EDMUND P. BERGAN, JR., Secretary, 47, is a Senior Vice
President and General Counsel of Alliance Fund Distributors and
Alliance Fund Services, Inc. and Vice President and Assistant
General Counsel of ACMC, with which he has been associated since
prior to 1992.
16
<PAGE>
DOMENICK PUGLIESE, Assistant Secretary, 36, is a Vice
President and Assistant General Counsel of Alliance Fund
Services, Inc., with which he has been associated since May 1995.
Previously, he was Vice President and Counsel of Concord Holding
Corporation since 1994, Vice President and Associate General
Counsel of Prudential Securities since 1992.
The aggregate compensation paid by the Company to each
of the Directors during its fiscal year ending October 31, 1998
(estimating future payments based on existing arrangements), the
aggregate compensation paid to each of the Directors during
calendar year 1996 by all of the funds to which the Adviser
provides investment advisory services (collectively, the
"Alliance Fund Complex") and the total number of registered
investment companies (and separate investment portfolios within
those companies) in the Alliance Fund Complex with respect to
which each of the Directors serves as a director or trustee, are
set forth below. Neither the Fund nor any other fund in the
Alliance Fund Complex provides compensation in the form of
pension or retirement benefits to any of its directors or
trustees. Each of the Directors is a director or trustee of one
or more other registered investment companies in the Alliance
Fund Complex.
Total Number Total Number
of Funds in of Investment
the Alliance Portfolios
Total Complex, within the
Compensation Including the Funds, Including
from the Fund, as to the Fund, as
Aggregate Alliance Fund which the to which the
Compensation Complex, Director is a Director is a
from the Including the Director or Director or
Name of Director Company** Company Trustee Trustee
John D. Carifa $ -0- $ -0- 52 114
Ruth Block $3,000 $157,500 38 76
David H. Dievler $3,000 $182,000 45 79
John H. Dobkin $3,000 $121,250 31 52
William H. Foulk, Jr. $3,000 $144,250 34 70
Dr. James M. Hester $3,000 $148,500 39 73
Clifford L. Michel $3,000 $146,068 39 88
Donald J. Robinson $3,000 $137,250 42 102
As of November 14, 1997, the Directors and officers of
the Company as a group owned less than 1% of the Class I and
Class II shares of the Fund.
_______
17
<PAGE>
**estimated
_________________________________________________________________
EXPENSES OF THE FUND
_________________________________________________________________
Distribution Services Agreement
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributors,
Inc., the Fund's principal underwriter (the "Principal
Underwriter"), to permit the Principal Underwriter to distribute
the Fund's Class I and Class II shares and to permit the Fund to
pay distribution services fees to defray expenses associated with
the distribution of its Class II shares in accordance with a plan
of distribution which is included in the Agreement and which has
been duly adopted and approved in accordance with Rule 12b-1
adopted by the Commission under the 1940 Act (the "Rule 12b-1
Plan").
Distribution services fees are accrued daily, paid
monthly and charged as expenses of the Fund as accrued. Under
the Agreement, the Treasurer of the Fund reports the amounts
expended under the Rule 12b-1 Plan and the purposes for which
such expenditures were made to the Directors for their review on
a quarterly basis. Also, the Agreement provides that the
selection and nomination of Directors who are not "interested
persons" of the Company, as defined in the 1940 Act, are
committed to the discretion of such disinterested Directors then
in office. The Agreement was initially approved by the Directors
at a meeting held on November 7, 1997, and by the Fund's initial
shareholder on November 3, 1997.
The Agreement became effective on November 7, 1997. The
Agreement will continue in effect so long as its continuance is
specifically approved annually by the Directors or by vote of the
holders of a majority of the outstanding voting securities (as
defined in the 1940 Act) of that class, and, in either case, by a
majority of the Directors who are not parties to the Agreement or
interested persons, as defined in the 1940 Act, of any such party
(other than as directors of the Fund) and who have no direct or
indirect financial interest in the operation of the Rule 12b-1
Plan or any agreement related thereto.
The Adviser may from time to time and from its own funds
or such other resources as may be permitted by rules of the
Commission make payments for distribution services to the
Principal Underwriter; the latter may, in turn, pay part or all
of such compensation to brokers or other persons for their
distribution assistance.
18
<PAGE>
All material amendments to the Agreement must be
approved by a vote of the Directors or the holders of the Fund's
outstanding voting securities, voting separately by class, and in
either case, by a majority of the disinterested Directors, cast
in person at a meeting called for the purpose of voting on such
approval; and the Agreement may not be amended in order to
increase materially the costs that the Fund may bear pursuant to
the Agreement without the approval of a majority of the holders
of the outstanding voting shares of the class or classes
affected. The Agreement may be terminated (a) by the Fund
without penalty at any time by a majority vote of the holders of
the outstanding voting securities of the Fund, voting separately
by class, or by a majority vote of the Directors who are not
"interested persons" as defined in the 1940 Act, or (b) by the
Principal Underwriter. To terminate the Agreement, the
terminating party must give the other party 60 days' written
notice; to terminate the Rule 12b-1 Plan only, the Fund need give
no notice to the Principal Underwriter. The Agreement will
terminate automatically in the event of its assignment.
Transfer Agency Agreement
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of each of the Class I and Class II shares of the
Fund, plus reimbursement for its out-of-pocket expenses. The
transfer agency fee with respect to the Class II shares is higher
than the transfer agency fee with respect to the Class I shares.
_________________________________________________________________
PURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in
the Prospectus under the heading "Purchase and Sale of Shares-
- -How To Buy Shares."
General
Class I shares of the Fund may be purchased and held
solely (i) through accounts established under a fee-based program
sponsored and maintained by a registered broker-dealer or other
financial intermediary and approved by the Principal Underwriter,
(ii) through employee benefit plans, including defined
contribution and defined benefit plans ("Employee Plans"), that
have at least $10 million in assets, (iii) by investment advisory
clients of the Adviser or its affiliates, (iv) by (a) officers
and present or former Directors of the Company, (b) present or
former directors and trustees of other investment companies
managed by the Adviser, (c) present or retired full-time
19
<PAGE>
employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates, (d) officers and
directors of ACMC, the Principal Underwriter, Alliance Fund
Services, Inc. and their affiliates, (e) (1) the spouse, sibling,
direct ancestor or direct descendant (collectively "relatives")
of any person listed in (a) through (d), (2) any trust,
individual retirement account or retirement plan account for the
benefit of any person listed in (a) through (d) or a relative of
such person, or (3) the estate of any person listed in (a)
through (d) or a relative of such person, if such shares are
purchased for investment purposes (such shares may not be resold
except to the Fund), (v) by (a) the Adviser, the Principal
Underwriter, Alliance Fund Services, Inc. and their affiliates or
(b) certain employee benefit plans for employees of the Adviser,
the Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates, (vi) through registered investment advisers or other
financial intermediaries who charge a management, consulting or
other fee for their service and who purchase shares through a
broker or agent approved by the Principal Underwriter, and
clients of such registered investment advisers or financial
intermediaries whose accounts are linked to the master account of
such investment adviser or financial intermediary on the books of
such approved broker or agent and (vii) by directors and present
or retired full-time employees of CB Commercial Real Estate
Group, Inc.
Class II shares of the Fund may be purchased and held
solely (i) by investors participating in wrap fee or other
similar programs offered by registered broker-dealers or other
financial intermediaries that meet certain requirements
established by the Principal Underwriter, and (ii) Employee Plans
that have at least $10 million in assets.
The shares of the Fund are offered on a continuous basis
at a price equal to their net asset value. The minimum initial
investment in the Company is $2,000,000, which may be invested in
any one or more of the Funds. Investments made through fee-based
or "wrap fee" programs will satisfy the minimum initial
investment requirement if the fee-based or "wrap fee" program, as
a whole, invests at least $2,000,000 in one or more of the Funds.
There is no minimum for subsequent investments. The minimum
initial investment may be waived in the discretion of the
Company.
Investors may purchase shares of the Fund through their
financial representatives. A transaction, service,
administrative or other similar fee may be charged by your
financial representative with respect to the purchase, sale or
exchange of shares made through such financial representative.
Your financial representative may also impose requirements with
respect to the purchase, sale or exchange of shares that are
20
<PAGE>
different from, or in addition to, those imposed by the Fund as
described in the Prospectus and this Statement of Additional
Information, including requirements as to the minimum initial and
subsequent investment amounts.
The Fund may refuse any order for the purchase of
shares. The Fund reserves the right to suspend the sale of its
shares to the public in response to conditions in the securities
markets or for other reasons.
The public offering price of shares of the Fund is their
net asset value. On each Company business day on which a
purchase or redemption order is received by the Fund and trading
in the types of securities in which the Fund invests might
materially affect the value of Fund shares, the per share net
asset value is computed in accordance with the Fund's Articles of
Incorporation and By-Laws as of the next close of regular trading
on the New York Stock Exchange (the "Exchange") (currently 4:00
p.m. Eastern time) by dividing the value of the Fund's total
assets, less its liabilities, by the total number of its shares
then outstanding. A Company business day is any day on which the
Exchange is open for trading.
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined as described below. Orders received
by the Principal Underwriter prior to the close of regular
trading on the Exchange on each day the Exchange is open for
trading are priced at the net asset value computed as of the
close of regular trading on the Exchange on that day. In the
case of orders for the purchase of shares placed through
financial representatives, the applicable public offering price
will be the net asset value as so determined, but only if the
financial representative receives the order prior to the close of
regular trading on the Exchange and transmits it to the Principal
Underwriter prior to 5:00 p.m. Eastern time. The financial
representative is responsible for transmitting such orders by
5:00 p.m. If the financial representative fails to do so, the
investor's right to that day's closing price must be settled
between the investor and the financial representative. If the
financial representative receives the order after the close of
regular trading on the Exchange, the price will be based on the
net asset value determined as of the close of regular trading on
the Exchange on the next day it is open for trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application obtained by calling the "For Literature" telephone
number shown on the cover of this Statement of Additional
21
<PAGE>
Information. Except with respect to certain omnibus accounts,
telephone purchase orders may not exceed $500,000. Payment for
shares purchased by telephone can be made only by electronic
funds transfer from a bank account maintained by the shareholder
at a bank that is a member of the National Automated Clearing
House Association ("NACHA"). If a shareholder's telephone
purchase request is received before 3:00 p.m. Eastern time on a
Company business day, the order to purchase shares is
automatically placed the following Company business day, and the
applicable public offering price will be the public offering
price determined as of the close of business on such following
business day.
Full and fractional shares are credited to a
shareholder's account in the amount purchased by the shareholder.
As a convenience to the subscriber, and to avoid unnecessary
expense to the Fund, stock certificates representing shares of
the Fund are not issued except upon written request to the Fund
by the shareholder or the shareholder's financial representative.
This facilitates later redemption and relieves the shareholder of
the responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
although such shares remain in the shareholder's account on the
books of the Fund.
In addition to the discount or commission which may be
paid to dealers or agents in connection with the sale of Fund
shares, the Principal Underwriter from time to time may pay
additional cash or other incentives to dealers or agents,
including EQ Financial Consultants, Inc., formerly Equico
Securities, Inc., an affiliate of the Principal Underwriter, in
connection with such sales. Such additional amounts may be
utilized, in whole or in part, to provide additional compensation
to registered representatives who sell shares of the Fund. On
some occasions, cash or other incentives will be conditioned upon
the sale of a specified minimum dollar amount of the shares of
the Fund and/or other Alliance Mutual Funds, as defined below,
during a specific period of time. On some occasions, such cash
or other incentives may take the form of payment for attendance
at seminars, meals, sporting events or theater performances, or
payment for travel, lodging and entertainment incurred in
connection with travel taken by persons associated with a dealer
or agent and their immediate family members to urban or resort
locations within or outside the United States. Such dealer or
agent may elect to receive cash incentives of equivalent amount
in lieu of such payments.
Class I and Class II shares each represent an interest
in the same portfolio of investments of the Fund, have the same
rights and are identical in all respects, except that
(i) Class II has exclusive voting rights with respect to
22
<PAGE>
provisions of the Rule 12b-1 Plan pursuant to which its
distribution services fees are paid and other matters for which
separate class voting is appropriate under applicable law,
provided that, if the Fund submits to a vote of the Class II
shareholders an amendment to the Rule 12b-1 Plan that would
materially increase the amount to be paid thereunder with respect
to the Class II shares, then such amendment will also be
submitted to the Class I shareholders and the Class II and Class
I shareholders will vote separately thereon by class and
(ii) Class I shares are subject to a conversion feature.
The Directors have determined that currently no conflict
of interest exists between Class I and Class II shares. On an
ongoing basis, the Directors, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
Conversion of Class I
Shares to Class II Shares
Class I shares may be held solely through the fee-based
program accounts, employee benefit plans and registered
investment advisory or other financial intermediary relationships
described under "--General," and by investment advisory clients
of, and certain other persons associated with, the Adviser and
its affiliates or the Fund. If (i) a holder of Class I shares
ceases to participate in the fee-based program or plan, or to be
associated with an investment advisor or financial intermediary,
in each case one that satisfies the requirements to purchase
shares set forth under "--General", or (ii) the holder is
otherwise no longer eligible to purchase Class I shares as
described in this Statement of Additional Information (each, a
"Conversion Event"), then all Class I shares held by the
shareholder will convert automatically and without notice to the
shareholder, other than the notice contained in this Statement of
Additional Information, to Class II shares of the Fund during the
calendar month following the month in which the Fund is informed
or otherwise learns of the occurrence of the Conversion Event.
The failure of a shareholder or a fee-based program to satisfy
the minimum investment requirements to purchase Class I shares
will not constitute a Conversion Event. The conversion would
occur on the basis of the relative net asset values of the two
classes and without the imposition of any sales load, fee or
other charge. Class II shares currently bear a .30% distribution
services fee and have a higher expense ratio than Class I shares.
As a result, Class II shares may pay correspondingly lower
dividends and have a lower net asset value than Class I shares.
The conversion of Class I shares to Class II shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class I shares to Class II
23
<PAGE>
shares does not constitute a taxable event under federal income
tax law. The conversion of Class I shares to Class II shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, the Class I
shareholder would be required to redeem his Class I shares, which
would constitute a taxable event under federal income tax law.
_________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in
the Prospectus under the heading "Purchase and Sale of Shares-
- -How to Sell Shares." If you are a shareholder through an
account established under a fee-based program, your fee-based
program may impose requirements with respect to the purchase,
sale or exchange of shares of the Fund that are different from
those described herein. A transaction fee may be charged by your
financial representative with respect to the purchase, sale or
exchange of shares made through such financial representative.
Redemption
Subject to the limitations described below, the
Company's Articles of Incorporation require that the Company
redeem the shares tendered to it, as described below, at a
redemption price equal to their net asset value as next computed
following the receipt of shares tendered for redemption in proper
form. There is no redemption charge. If a shareholder is in
doubt about what documents are required by his or her fee-based
program or employee benefit plan, the shareholder should contact
the shareholder's financial representative.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the Commission determines
that trading thereon is restricted, or for any period during
which an emergency (as determined by the Commission) exists as a
result of which disposal by the Fund of securities owned by it is
not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Commission
may by order permit for the protection of security holders of the
Fund.
Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
24
<PAGE>
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
repurchase. Payment received by a shareholder upon redemption or
repurchase of the shareholder's shares, assuming the shares
constitute capital assets in the shareholder's hands, will result
in long-term or short-term capital gains (or loss) depending upon
the shareholder's holding period and basis in respect of the
shares redeemed.
To redeem shares of the Fund for which no stock
certificates have been issued, the registered owner or owners
should forward a letter to the Company containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an institution that is an "eligible guarantor
institution" as defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended.
To redeem shares of the Fund represented by stock
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Company with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
stock certificate surrendered to the Company for redemption must
be signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the stock certificate or certificates or, where
tender is made by mail, separately mailed to the Company. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
Telephone Redemption by Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer once in any 30-day period (except for certain
omnibus accounts), of shares for which no stock certificates have
been issued by telephone at (800) 221-5672 by a shareholder who
has completed the appropriate portion of the Subscription
Application or, in the case of an existing shareholder, an
"Autosell" application obtained from Alliance Fund Services, Inc.
A telephone redemption request may not exceed $100,000 (except
for certain omnibus accounts) and must be made by 4:00 p.m.
Eastern time on a Company business day as defined above.
Proceeds of telephone redemptions will be sent by electronic
funds transfer to a shareholder's designated bank account at a
bank selected by the shareholder that is a member of the NACHA.
Telephone Redemption by Check. Except for certain
omnibus accounts or as noted below, each Fund shareholder is
eligible to request redemption by check, once in any 30-day
25
<PAGE>
period, of shares for which no stock certificates have been
issued by telephone at (800) 221-5672 before 4:00 p.m. Eastern
time on a Company business day in an amount not exceeding
$50,000. Proceeds of such redemptions are remitted by check to
the shareholder's address of record. Telephone redemption by
check is not available with respect to shares (i) for which
certificates have been issued, (ii) held in nominee or "street
name" accounts, (iii) held by a shareholder who has changed his
or her address of record within the preceding 30 calendar days or
(iv) held in any retirement plan account. A shareholder
otherwise eligible for telephone redemption by check may cancel
the privilege by written instruction to Alliance Fund Services,
Inc., or by checking the appropriate box on the Subscription
Application found in the Prospectus.
Telephone Redemptions - General. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information. The
Company reserves the right to suspend or terminate its telephone
redemption service at any time without notice. Neither the
Company nor the Adviser, the Principal Underwriter or Alliance
Fund Services, Inc. will be responsible for the authenticity of
telephone requests for redemptions that the Company reasonably
believes to be genuine. The Company will employ reasonable
procedures in order to verify that telephone requests for
redemptions are genuine, including, among others, recording such
telephone instructions and causing written confirmations of the
resulting transactions to be sent to shareholders. If the
Company did not employ such procedures, it could be liable for
losses arising from unauthorized or fraudulent telephone
instructions. Financial representatives may charge a commission
for handling telephone requests for redemptions.
Repurchase
The Company may repurchase shares through the Principal
Underwriter or selected financial intermediaries. The repurchase
price will be the net asset value next determined after the
Principal Underwriter receives the request, except that requests
placed through selected financial representatives before the
close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary is
26
<PAGE>
responsible for transmitting the request to the Principal
Underwriter by 5:00 p.m. If the financial intermediary fails to
do so, the shareholder's right to receive that day's closing
price must be settled between the shareholder and the financial
representative. A shareholder may offer shares of the Fund to
the Principal Underwriter either directly or through the
shareholder's financial representative. Neither the Company nor
the Principal Underwriter charges a fee or commission in
connection with the repurchase of shares. Normally, if shares of
the Fund are offered through a financial intermediary, the
repurchase is settled by the shareholder as an ordinary
transaction with or through the financial representative, who may
charge the shareholder for this service. The repurchase of
shares of the Fund as described above is a voluntary service of
the Fund and the Fund may suspend or terminate this practice at
any time.
General
The Company reserves the right to close out an account
that has remained below $200 for at least 90 days. Shareholders
will receive 60 days' written notice to increase the account
value before the account is closed. In the case of a redemption
or repurchase of shares of the Fund recently purchased by check,
redemption proceeds will not be made available until the Company
is reasonably assured that the check has cleared, normally up to
15 calendar days following the purchase date.
_________________________________________________________________
SHAREHOLDER SERVICES
_________________________________________________________________
The following information supplements that set forth in
the Prospectus under the heading "Purchase and Sale of Shares-
- -Shareholder Services." If you are a shareholder through an
account established under a fee-based program, your fee-based
program may impose requirements with respect to the purchase,
sale or exchange of shares of the Fund that are different from
those described herein. A transaction fee may be charged by your
financial representative with respect to the purchase, sale or
exchange of shares made through such financial representative.
Exchange Privilege
You may exchange your investment in the Fund for shares
of the same class of any other Fund and for Class A shares of any
other Alliance Mutual Fund (as defined below). Exchanges of
shares are made at the net asset value next determined and
without sales or service charges. Exchanges may be made by
telephone or written request. Telephone exchange requests must
27
<PAGE>
be received by Alliance Fund Services, Inc. by 4:00 p.m. Eastern
time on a Company business day in order to be effected at that
day's net asset value.
Currently, the Alliance Mutual Funds include:
AFD Exchange Reserves
The Alliance Fund, Inc.
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance/Regent Sector Opportunity Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.
28
<PAGE>
Alliance Worldwide Privatization Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Strategic Balanced Fund
-Alliance Short-Term U.S. Government Fund
Please read carefully the portions of the Prospectus
concerning the Fund or the prospectus of the Alliance Mutual
Fund, as applicable, into which you wish to exchange before
submitting the request. Call Alliance Fund Services, Inc. at
(800) 221-5672 to exchange uncertificated shares. Exchanges of
shares as described above in this section are taxable
transactions for federal income tax purposes. The exchange
service may be changed, suspended or terminated on 60 days'
written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus or the prospectus for the Alliance Mutual Fund whose
shares are being acquired, as applicable. An exchange is
effected through the redemption of the shares tendered for
exchange and the purchase of shares being acquired at their
respective net asset values as next determined following receipt
by the Fund or the Alliance Mutual Fund, as applicable, whose
shares are being exchanged of (i) proper instructions and all
necessary supporting documents as described in that fund's
prospectus, or (ii) a telephone request for such exchange in
accordance with the procedures set forth in the following
paragraph. Exchanges involving the redemption of shares recently
purchased by check will be permitted only after the fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
Each Fund shareholder, and the shareholder's financial
representative, are authorized to make telephone requests for
exchanges unless Alliance Fund Services, Inc., receives a written
instruction to the contrary from the shareholder, or the
shareholder declines the privilege by checking the appropriate
box on the Subscription Application found in the Prospectus.
Such telephone requests cannot be accepted with respect to shares
then represented by stock certificates. Shares acquired pursuant
to a telephone request for exchange will be held under the same
account registration as the shares redeemed through the exchange.
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange at (800) 221-5672 on a
Company business day as defined above. Telephone requests for
29
<PAGE>
exchange received before 4:00 p.m. Eastern time on a Company
business day will be processed as of the close of business on
that day. During periods of drastic economic or market
developments, such as the market break of October 1987, it is
possible that shareholders would have difficulty in reaching
Alliance Fund Services, Inc. by telephone (although no such
difficulty was apparent at any time in connection with the 1987
market break). If a shareholder were to experience such
difficulty, the shareholder should issue written instructions to
Alliance Fund Services, Inc. at the address shown on the cover of
this Statement of Additional Information.
None of the Company, the Alliance Mutual Funds, the
Adviser, the Principal Underwriter or Alliance Fund Services,
Inc. will be responsible for the authenticity of telephone
requests for exchanges that the Company reasonably believes to be
genuine. The Company will employ reasonable procedures in order
to verify that telephone requests for exchanges are genuine,
including, among others, recording such telephone instructions
and causing written confirmations of the resulting transactions
to be sent to shareholders. If the Company did not employ such
procedures, it could be liable for losses arising from
unauthorized or fraudulent telephone instructions. Financial
representatives, may charge a commission for handling telephone
requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Fund being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
Retirement Plans
The Fund may be a suitable investment vehicle for part
or all of the assets held in various types of retirement plans,
such as those listed below. The Company has available forms of
such plans pursuant to which investments can be made in the Fund
and other Alliance Mutual Funds. Persons desiring information
concerning these plans should contact Alliance Fund Services,
Inc. at the "For Literature" telephone number on the cover of
this Statement of Additional Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 07096-1520
Employer-Sponsored Qualified Retirement Plans. Sole
proprietors, partnerships and corporations may sponsor qualified
30
<PAGE>
money purchase pension and profit-sharing plans, including
Section 401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals. The minimum
initial investment requirement may be waived with respect to
certain of these qualified plans.
Simplified Employee Pension Plan ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
IRA established by each eligible employee within prescribed
limits based on employee compensation.
403(b)(7) Retirement Plan. Certain tax-exempt
organizations and public educational institutions may sponsor
retirement plans under which an employee may agree that monies
deducted from his or her compensation (minimum $25 per pay
period) may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable which serves as custodian or trustee
under the retirement plan prototype forms available from the
Fund, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
to Alliance Fund Services, Inc. as compensation for its services
to the retirement plan accounts maintained with the Fund.
Distributions from retirement plans are subject to
certain Code requirements in addition to normal redemption
procedures. For additional information please contact Alliance
Fund Services, Inc.
Statements and Reports
Each shareholder of the Fund receives semi-annual and
annual reports which include a listing of the Fund's investments,
financial statements and, in the case of the annual report, the
report of the Company's independent auditors, Ernst & Young LLP,
as well as a confirmation of each purchase and redemption of
shares by the shareholder. By contacting the shareholder's
broker or Alliance Fund Services, Inc., a shareholder can arrange
for a copy of the shareholder's account statements to be sent to
another person.
31
<PAGE>
_______________________________________________________________
NET ASSET VALUE
_______________________________________________________________
The per share net asset value is computed in accordance
with the Company's Articles of Incorporation and By-Laws at the
next close of regular trading on the Exchange following receipt
of a purchase or redemption order (and on such other days as the
Directors deem necessary in order to comply with Rule 22c-1 under
the 1940 Act). The Fund's per share net asset value is
calculated by dividing the value of the Fund's total assets, less
its liabilities, by the total number of its shares then
outstanding. The net asset value is calculated at the close of
business on each Fund business day.
For purposes of this computation, readily marketable
portfolio securities listed on the Exchange are valued, except as
indicated below, at the last sale price reflected on the
consolidated tape at the close of the Exchange on the business
day as of which such value is being determined. If there has
been no sale on such day, the securities are valued at the mean
of the closing bid and asked prices on such day. If no bid or
asked prices are quoted on such day, then the security is valued
by such method as the Directors shall determine in good faith to
reflect its fair market value. Readily marketable securities not
listed on the Exchange but listed on other national securities
exchanges or admitted to trading on the National Association of
Securities Dealers Automatic Quotations, Inc. ("NASDAQ") National
List ("List") are valued in like manner. Portfolio securities
traded on more than one national securities exchange are valued
at the last sale price on the business day as of which such value
is being determined as reflected on the tape at the close of the
exchange representing the principal market for such securities.
Readily marketable securities traded only in the over-
the-counter market, including listed securities whose primary
market is believed by the Adviser to be over-the-counter but
excluding those admitted to trading on the List, are valued at
the mean of the current bid and asked prices as reported by
NASDAQ or, in the case of securities not quoted by NASDAQ, the
National Quotation Bureau or such other comparable sources as the
Directors deem appropriate to reflect their fair market value.
United States Government obligations and other debt instruments
having sixty days or less remaining until maturity are stated at
amortized cost which approximates market value. All other assets
of the Fund, including restricted and not readily marketable
securities, are valued in such manner as the Directors in good
faith deem appropriate to reflect their fair market value.
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<PAGE>
The assets belonging to the Class I and Class II shares
will be invested together in a single portfolio. The net asset
value of each class will be determined separately by subtracting
the liabilities allocated to that class from the assets belonging
to that class in conformance with the provisions of a plan
adopted by the Fund in accordance with Rule 18f-3 under the 1940
Act.
_______________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_______________________________________________________________
United States Federal Income Taxes
General. The Fund intends for each taxable year to
qualify as a "regulated investment company" under sections 851
through 855 of the Code. To so qualify, the Fund must, among
other things, (i) derive at least 90% of its gross income in each
taxable year from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of
stock or securities or foreign currency, or certain other income
(including, but not limited to, gains from options, futures and
forward contracts) derived with respect to its business of
investing in stock, securities or currency; and (ii) diversify
its holdings so that, at the end of each quarter of its taxable
year, the following two conditions are met: (a) at least 50% of
the value of the Fund's assets is represented by cash, U.S.
Government Securities, securities of other regulated investment
companies and other securities with respect to which the Fund's
investment is limited, in respect of any one issuer, to an amount
not greater than 5% of the Fund's assets and 10% of the
outstanding voting securities of such issuer, and (b) not more
than 25% of the value of the Fund's assets is invested in
securities of any one issuer (other than U.S. Government
Securities or securities of other regulated investment
companies).
If the Fund qualifies as a regulated investment company
for any taxable year and makes timely distributions to its
shareholders of 90% or more of its net investment income for that
year (calculated without regard to its net capital gain, i.e.,
the excess of its net long-term capital gain over its net short-
term capital loss), it will not be subject to federal income tax
on the portion of its taxable income for the year (including any
net capital gain) that it distributes to shareholders.
The Fund intends to also avoid the 4% federal excise tax
that would otherwise apply to certain undistributed income for a
given calendar year if it makes timely distributions to the
shareholders equal to at least the sum of (i) 98% of its ordinary
33
<PAGE>
income for that year; (ii) 98% of its capital gain net income and
foreign currency gains for the twelve-month period ending on
October 31 of that year; and (iii) any ordinary income or capital
gain net income from the preceding calendar year that was not
distributed during that year. For this purpose, income or gain
retained by the Fund that is subject to corporate income tax will
be considered to have been distributed by the Fund by year-end.
For federal income and excise tax purposes, dividends declared
and payable to shareholders of record as of a date in October,
November or December of a given year but actually paid during the
immediately following January will be treated as if paid by the
Fund on December 31 of that calendar year, and will be taxable to
these shareholders for the year declared, and not for the year in
which the shareholders actually receive the dividend.
The Fund intends to make timely distributions of the
Fund's taxable income (including any net capital gain) so that
the Fund will not be subject to federal income or excise taxes.
However, exchange control or other regulations on the
repatriation of investment income, capital or the proceeds of
securities sales, if any exist or are enacted in the future, may
limit the Fund's ability to make distributions sufficient in
amount to avoid being subject to one or both of such federal
taxes.
Dividends and Distributions. The Fund intends to make
timely distributions of the Fund's taxable income (including any
net capital gain) so that the Fund will not be subject to federal
income and excise taxes. Dividends of the Fund's net ordinary
income and distributions of any net realized short-term capital
gain are taxable to shareholders as ordinary income. Due to
distributions of amounts representing a return of capital the
Fund will receive from REITs in which the Fund is invested,
distributions made by the Fund may also include nontaxable
returns of capital, which will reduce a shareholder's basis in
shares of the Fund. If a shareholder's basis is reduced to zero
(which could happen if the shareholder does not reinvest
distributions and returns of capital are significant), any
further returns of capital will be taxable as capital gain.
Pursuant to the Taxpayer Relief Act of 1997, two
different tax rates apply to net capital gains--that is, the
excess of net gains from capital assets held for more than one
year over net losses from capital assets held for not more than
one year. One rate (generally 28%) applies to net gains on
capital assets held for more than one year but not more than 18
months ("mid-term gains"), and a second rate (generally 20%)
applies to the balance of such net capital gains ("adjusted net
capital gains"). Except as noted below, distributions of net
capital gains will be treated in the hands of shareholders as
mid-term gains to the extent designated by the Fund as deriving
34
<PAGE>
from net gains from assets held for more than one year but not
more than 18 months, and the balance will be treated as adjusted
net capital gains. Gains derived from assets sold before May 7,
1997 and held for more than 18 months will be treated as mid-term
gains. Gains derived from assets sold after May 6, 1997 and
before July 29, 1997 and held for more than one year will be
treated as adjusted net capital gains. Distributions of mid-term
gains and adjusted net capital gains will be taxable to
shareholders as such, regardless of how long a shareholder has
held shares in the Fund. Any dividend or distribution received
by a shareholder on shares of the Fund will have the effect of
reducing the net asset value of such shares by the amount of such
dividend or distribution. Furthermore, a dividend or
distribution made shortly after the purchase of such shares by a
shareholder, although in effect a return of capital to that
particular shareholder, would be taxable to him as described
above. Dividends are taxable in the manner discussed regardless
of whether they are paid to the shareholder in cash or are
reinvested in additional shares of the Fund.
After the end of the taxable year, the Fund will notify
shareholders of the federal income tax status of any
distributions made by the Fund to shareholders during such year.
It is the present policy of the Fund to distribute to
shareholders all net investment income and realized capital
gains, if any, quarterly. There is no fixed dividend rate and
there can be no assurance that the Fund will pay any dividends.
The amount of any dividend or distribution paid on shares of the
Fund must necessarily depend upon the realization of income and
capital gains from the Fund's investments.
Sales and Redemptions. Any gain or loss arising from a
sale or redemption of Fund shares generally will be capital gain
or loss except in the case of a dealer or a financial
institution, and will be long-term capital gain or loss if such
shareholder has held such shares for more than one year at the
time of the sale or redemption; otherwise it will be short-term
capital gain or loss. In the case of an individual shareholder,
the applicable tax rate imposed on long-term capital gains
differs depending on whether the shares were held at the time of
the sale or redemption for more than 18 months, or for more than
one year but not more than 18 months. If a shareholder has held
shares in the Fund for six months or less and during that period
has received a distribution of net capital gains, any loss
recognized by the shareholder on the sale of those shares during
the six-month period will be treated as a long-term capital loss
to the extent of the distribution. In determining the holding
period of such shares for this purpose, any period during which a
shareholder's risk of loss is offset by means of options, short
sales or similar transactions is not counted.
35
<PAGE>
Any loss realized by a shareholder on a sale or exchange
of shares of the Fund will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30
days before and ending 30 days after the shares are sold or
exchanged. For this purpose, acquisitions pursuant to the
Dividend Reinvestment Plan would constitute a replacement if made
within the period. If disallowed, the loss will be reflected in
an upward adjustment to the basis of the shares acquired.
Backup Withholding. The Fund may be required to
withhold United States federal income tax at the rate of 31% of
all taxable distributions payable to shareholders who fail to
provide the Fund with their correct taxpayer identification
numbers or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to
backup withholding. Corporate shareholders and certain other
shareholders specified in the Code are exempt from such backup
withholding. Backup withholding is not an additional tax; any
amounts so withheld may be credited against a shareholder's
United States federal income tax liability or refunded.
Short Sales. In general, gain or loss realized by the
Fund on the closing of a short sale will be considered to be
short-term capital gain or loss.
Taxation of Foreign Shareholders. The foregoing
discussion relates only to United States federal income tax law
as it affects shareholders who are United States citizens or
residents or United States corporations. The effects of federal
income tax law on shareholders who are non-resident alien
individuals or foreign corporations may be substantially
different. Foreign investors should therefore consult their
counsel for further information as to the United States tax
consequences of receipt of income from the Fund.
Real Estate Mortgage Investment Conduits. The Fund may
invest in REMICs. Interests in REMICs are classified as either
"regular" interests or "residual" interests. Regular interests
in a REMIC are treated as debt instruments for federal income tax
purposes to which the rules generally applicable to debt
obligations apply. If regular interests in a REMIC are issued at
a discount, application of the original issue discount provisions
of the Code may increase the amount of the Fund's net investment
income available to be distributed to shareholders, potentially
causing the Fund to pay out as an income distribution each year
an amount which is greater than the total amount of cash interest
the Fund actually received.
Under the Code, special rules apply with respect to the
treatment of a portion of the Fund income from REMIC residual
interests. (Such portion is referred to herein as "Excess
36
<PAGE>
Inclusion Income".) Excess Inclusion Income generally cannot be
offset by net operating losses and, in addition, constitutes
unrelated business taxable income to entities which are subject
to the unrelated business income tax. The Code provides that a
portion of Excess Inclusion Income attributable to REMIC residual
interests held by regulated investment companies such as the Fund
shall, pursuant to regulations, be allocated to the shareholders
of such regulated investment company in proportion to the
dividends received by such shareholders. Accordingly,
shareholders of the Fund will generally not be able to use net
operating losses to offset such Excess Inclusion Income. In
addition, if a shareholder of the Fund is a tax-exempt entity not
subject to the unrelated business income tax and is allocated any
amount of Excess Inclusion Income, the Fund must pay a tax on the
amount of Excess Inclusion Income allocated to such shareholder
at the highest corporate rate. Any tax paid by the Fund as a
result of this requirement may be deducted by the Fund from the
gross income of the residual interest involved. A shareholder
subject to the unrelated business income tax may be required to
file a return and pay a tax on such Excess Inclusion Income even
though a shareholder might not have been required to pay such tax
or file such return absent the receipt of such Excess Inclusion
Income. It is anticipated that only a small portion, if any, of
the assets of the Fund will be invested in REMIC residual
interests. Accordingly, the amount of Excess Inclusion Income,
if any, received by the Fund and allocated to its shareholders
should be quite small. Shareholders that are subject to the
unrelated business income tax should consult their own tax
advisor regarding the treatment of their income derived from the
Fund.
_______________________________________________________________
BROKERAGE AND PORTFOLIO TRANSACTIONS
_______________________________________________________________
The management of the Fund has the responsibility for
allocating its brokerage orders and may direct orders to any
broker. It is the Fund's general policy to seek favorable net
prices and prompt reliable execution in connection with the
purchase or sale of all portfolio securities. In the purchase
and sale of over-the-counter securities, it is the Fund's policy
to use the primary market makers except when a better price can
be obtained by using a broker. The Board of Directors has
approved, as in the best interests of the Fund and the
shareholders, a policy of considering, among other factors, sales
of the Fund's shares as a factor in the selection of broker-
dealers to execute portfolio transactions, subject to best
execution. The Adviser is authorized under the Advisory
Agreement to place brokerage business with such brokers and
dealers. The use of brokers who supply supplemental research and
37
<PAGE>
analysis and other services may result in the payment of higher
commissions than those available from other brokers and dealers
who provide only the execution of portfolio transactions. In
addition, the supplemental research and analysis and other
services that may be obtained from brokers and dealers through
which brokerage transactions are affected may be useful to the
Adviser in connection with advisory clients other than the Fund.
Investment decisions for the Fund are made independently
from those for other investment companies and other advisory
accounts managed by the Adviser. It may happen, on occasion,
that the same security is held in the portfolio of the Fund and
one or more of such other companies or accounts. Simultaneous
transactions are likely when several funds or accounts are
managed by the same Adviser, particularly when a security is
suitable for the investment objectives of more than one of such
companies or accounts. When two or more companies or accounts
managed by the Adviser are simultaneously engaged in the purchase
or sale of the same security, the transactions are allocated to
the respective companies or accounts both as to amount and price,
in accordance with a method deemed equitable to each company or
account. In some cases this system may adversely affect the
price paid or received by the Fund or the size of the position
obtainable for the Fund.
Allocations are made by the officers of the Fund or of
the Adviser. Purchases and sales of portfolio securities are
determined by the Adviser and are placed with broker-dealers by
the order department of the Adviser.
The extent to which commissions that will be charged by
broker-dealers selected by the Fund may reflect an element of
value for research cannot presently be determined. To the extent
that research services of value are provided by broker-dealers
with or through whom the Fund places portfolio transactions, the
Adviser may be relieved of expenses which it might otherwise
bear. Research services furnished by broker-dealers could be
useful and of value to the Adviser in servicing its other clients
as well as the Fund; but, on the other hand, certain research
services obtained by the Adviser as a result of the placement of
portfolio brokerage of other clients could be useful and of value
to it in serving the Fund. Consistent with the Conduct Rules of
the National Association of Securities Dealers, Inc. and subject
to seeking best execution, the Fund may consider sales of shares
of the Fund or other investment companies managed by the Adviser
as a factor in the selection of brokers to execute portfolio
transactions for the Fund.
The Fund may from time to time place orders for the
purchase or sale of securities (including listed call options)
with Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"),
38
<PAGE>
an affiliate of the Adviser, and with brokers which may have
their transactions cleared or settled, or both, by the Pershing
Division of DLJ for which DLJ may receive a portion of the
brokerage commissions. In such instances, the placement of
orders with such brokers would be consistent with the Fund's
objective of obtaining best execution and would not be dependent
upon the fact that DLJ is an affiliate of the Adviser.
_______________________________________________________________
GENERAL INFORMATION
_______________________________________________________________
Capitalization
The Company is a Maryland corporation organized on
October 3, 1997. The authorized capital stock of the Company
consists of 18,000,000,000 shares, of which 3,000,000,000 shares
are Class I shares of the Fund and 3,000,000,000 shares are Class
II shares of the Fund, each having $.001 par value. The balance
of the shares of the Company are Class I and Class II shares of
the Company's other two portfolios.
All shares of the Fund, when issued, are fully paid and
non-assessable. The Directors are authorized to reclassify and
issue any unissued shares to any number of additional series and
classes without shareholder approval. Accordingly, the Directors
in the future, for reasons such as the desire to establish one or
more additional portfolios with different investment objectives,
policies or restrictions, may create additional classes or series
of shares. Any issuance of shares of another class or series
would be governed by the 1940 Act and the law of the State of
Maryland. If shares of another series were issued in connection
with the creation of a new portfolio, each share of each
portfolio would normally be entitled to one vote for all
purposes. Generally, shares of all portfolios would vote as a
single series on matters, such as the election of Directors, that
affected both portfolios in substantially the same manner. As to
matters affecting portfolios differently, such as approval of the
Advisory Agreement and changes in investment policy, shares of
each portfolio would vote as a separate series. Procedures for
calling a shareholders' meeting for the removal of Directors of
the Fund, similar to those set forth in Section 16(c) of the 1940
Act, are available to shareholders of the Fund. The rights of
the holders of shares of a series may not be modified except by
the vote of a majority of the outstanding shares of such series.
39
<PAGE>
Custodian
State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts, will act as the Fund's custodian
for the assets of the Fund but plays no part in decisions as to
the purchase or sale of portfolio securities. Subject to the
supervision of the Directors, State Street Bank and Trust Company
may enter into sub-custodial agreements for the holding of the
Fund's foreign securities.
Principal Underwriter
Alliance Fund Distributors, Inc., 1345 Avenue of the
Americas, New York, New York 10105, serves as the Fund's
Principal Underwriter and as such may solicit orders from the
public to purchase shares of the Fund. Under the Distribution
Services Agreement between the Fund and the Principal
Underwriter, the Fund has agreed to indemnify the Principal
Underwriter, in the absence of its willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations
thereunder, against certain civil liabilities, including
liabilities under the Securities Act.
Counsel
Legal matters in connection with the issuance of the
Common Stock offered hereby are passed upon by Seward & Kissel,
New York, New York. Seward & Kissel has relied upon the opinion
of Venable, Baetjer and Howard, LLP, Baltimore, Maryland, for
matters relating to Maryland law.
Independent Auditors
Ernst & Young LLP, New York, New York, have been
appointed as independent auditors for the Company.
Performance Information
From time to time the Fund advertises its "total
return." Computed separately for each class, the Fund's "total
return" is its average annual compounded total return for its
most recently completed one, five and ten-year periods (or the
period since the Fund's inception). The Fund's total return for
such a period is computed by finding, through the use of a
formula prescribed by the Commission, the average annual
compounded rate of return over the period that would equate an
assumed initial amount invested to the value of such investment
at the end of the period. For purposes of computing total
return, income dividends and capital gains distributions paid on
shares of the Fund are assumed to have been reinvested in Fund
shares when paid.
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<PAGE>
The Fund's total return is computed separately for Class
I and Class II shares. The Fund's total return is not fixed and
will fluctuate in response to prevailing market conditions or as
a function of the type and quality of the securities in the
Fund's portfolio and the Fund's expenses. Total return
information is useful in reviewing the Fund's performance, but
such information may not provide a basis for comparison with bank
deposits or other investments which pay a fixed yield for a
stated period of time. An investor's principal invested in the
Fund is not fixed and will fluctuate in response to prevailing
market conditions.
Advertisements quoting performance rankings of the Fund
as measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc. and
Morningstar, Inc., and advertisements presenting the historical
record of payments of income dividends by the Fund may also from
time to time be sent to investors or placed in newspapers,
magazines such as The Wall Street Journal, The New York Times,
Barrons, Investor's Daily, Money Magazine, Changing Times,
Business Week and Forbes or other media on behalf of the Fund.
Additional Information
Any shareholder inquiries may be directed to the
shareholder's broker or to Alliance Fund Services, Inc. at the
address or telephone number shown on the front cover of this
Statement of Additional Information. This Statement of
Additional Information does not contain all the information set
forth in the Registration Statement filed by the Fund with the
Commission under the Securities Act. Copies of the Registration
Statement may be obtained at a reasonable charge from the
Commission or may be examined, without charge, at the offices of
the Commission in Washington, D.C.
41
<PAGE>
Alliance Institutional Funds, Inc.
Statement of Assets and Liabilities
November 12, 1997
Real Estate
Premier Growth Quasar Investment
Institutional Institutional Institutional
Fund Fund Fund
ASSETS
Cash............................ $33,330 $33,330 $33,340
Deferred organization expenses
(Note A) ....................... 73,098 73,098 73,099
________ _______ _______
Total assets.................... 106,428 106,428 106,439
________ _______ _______
LIABILITIES
Deferred organization expenses
payable (Note A)................ $73,098 $73,098 $73,099
________ _______ _______
NET ASSETS
Class I Shares
Net Assets...................... $33,000 $33,000 $33,000
======= ======= =======
Shares of beneficial interest
outstanding..................... 3,300 3,300 3,300
======= ======= =======
Class II Shares
Net Assets $330 $330 $340
======= ======= =======
Shares of beneficial interest
outstanding..................... 33 33 34
======= ======= =======
CALCULATION OF MAXIMUM OFFERING
PRICE
Class I Shares
Net asset value, offering and
redemption price per share...... $10.00 $10.00 $10.00
======= ======= =======
42
<PAGE>
Class II Shares
Net asset value, offering and
redemption price per share...... $10.00 $10.00 $10.00
======= ======= =======
See Notes to the Statement of Assets and Liabilities
43
<PAGE>
Alliance Institutional Funds, Inc.
Notes to the Statement of Assets and Liabilities
November 12, 1997
Note A-Organization
Alliance Institutional Funds, Inc. (the "Company") was
organized as a Maryland corporation on October 3, 1997 and
is registered under the Investment Company Act of 1940 as an
open-end series investment company. The Company offers
three separately managed pools of assets which have
differing investment objectives and policies. The Company
currently issues shares of the Alliance Premier Growth
Institutional Fund, the Alliance Quasar Institutional Fund,
and the Alliance Real Estate Investment Institutional Fund
(the "Funds"). The Company has had no operations other than
the sale to Alliance Capital Management L.P. (the "Adviser")
of 3,300 shares of Class I common stock of the Alliance
Premier Growth Institutional Fund for the amount of $33,000,
3,300 shares of Class I common stock of the Alliance Quasar
Institutional Fund for the amount of $33,000, 3,300 shares
of Class I common stock of the Alliance Real Estate
Investment Institutional Fund for the amount of $33,000, 33
shares of Class II common stock of the Alliance Premier
Growth Institutional Fund for the amount of $330, 33 shares
of Class II common stock of the Alliance Quasar
Institutional Fund for the amount of $330, and 34 shares of
Class II common stock of the Alliance Real Estate Investment
Institutional Fund for the amount of $340, in each case on
November 12, 1997. Sales are made without a sales charge,
at each Funds' net asset value per share. Costs incurred
and to be incurred in connection with the organization and
initial registration of the Company will be paid initially
by the Adviser. The Company will reimburse the Adviser for
such costs, which will be deferred and amortized by the
Company over the period of benefit, not to exceed 60 months
from the date the Company commences investment operations.
If any of the initial shares of the Company are redeemed by
a holder thereof during such amortization period, the
proceeds will be reduced by the unamortized organization
expenses in the same ratio as the number of initial shares
being redeemed bears to the number of initial shares
outstanding at the time of redemption.
Note B-Investment Management, Transfer Agency and
Distribution Services Agreements
Under the terms of an investment advisory agreement, each of
the Funds will pay the Adviser an investment advisory fee
based on aggregate average daily net assets at the following
annual rates: Alliance Premier Growth Institutional Fund,
44
<PAGE>
.90%; Alliance Quasar Institutional Fund, 1.00%; and
Alliance Real Estate Investment Institutional Fund, .90%.
Such fee will be accrued daily and paid monthly.
Each of the Funds has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributors,
Inc., ("AFD"), a wholly-owned subsidiary of the Adviser. The
Agreement provides that with respect to Class II shares,
each of the Funds will pay AFD a distribution fee of .30% of
each Funds' aggregate average daily net assets. Such fee
will be accrued daily and paid monthly. AFD will use
amounts payable under the Agreement in their entirety for
distribution assistance and promotional activities. The
Agreement also provides that the Adviser may use its own
resources to finance the distribution of the Company's
shares. There is no distribution fee with respect to Class I
shares.
The Company will compensate Alliance Fund Services, Inc. (a
wholly-owned subsidiary of the Adviser) for performing
transfer agency-related services for the Company.
45
<PAGE>
Report of Independent Auditors
Shareholder and Board of Directors
Alliance Institutional Funds, Inc.
We have audited the accompanying statement of assets and
liabilities of Alliance Institutional Funds, Inc.
(comprising, respectively, Premier Growth Institutional
Fund, Quasar Institutional Fund, and Real Estate Investment
Institutional Fund) as of November 12, 1997. This statement
of assets and liabilities is the responsibility of the
Fund's management. Our responsibility is to express an
opinion on this statement of assets and liabilities based on
our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether this statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the statement of assets and liabilities. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall statement of assets and liabilities
presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities
referred to above presents fairly, in all material respects,
the financial position of Alliance Institutional Funds, Inc.
at November 12, 1997, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
New York, New York
November 13, 1997
46
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits.
(a) Financial Statements
Included in Statement of Additional Information:
Statement of Assets and Liabilities.
Notes to Financial Statements.
Report of Independent Auditors.
Included in Part C of the Registration Statement:
All other financial statements or schedules are not
required or the required information is shown in the Statement of
Assets and Liabilities or the notes thereto.
(b) Exhibits
(1) Copy of Articles of Incorporation.****
(2) Copy of By-Laws of the Registrant.****
(3) Not applicable.
(4) Not applicable.
(5) Copy of proposed Advisory Agreement between the
Registrant and Alliance Capital Management L.P. - filed herewith.
(6) (a) Copy of proposed Distribution Services
Agreement between the Registrant and Alliance Fund Distributors,
Inc. - filed herewith.
(b) Form of Selected Dealer Agreement between
Alliance Fund Distributors, Inc. and selected dealers offering
shares of Registrant - filed herewith.
(c) Form of Selected Agent Agreement between
Alliance Fund Distributors, Inc. and selected agents making
available shares of Registrant - filed herewith.
____________________
**** Incorporated by reference from Registrant's Registration
Statement on Form N-1A (File Nos. 333-37177 and 811-08403)
filed with the Securities and Exchange Commission on
October 3, 1997.
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(7) Not applicable.
(8) Copy of proposed Custodian Contract between the
Registrant and State Street Bank and Trust Company - filed
herewith.
(9) Copy of proposed Transfer Agency Agreement between
the Registrant and Alliance Fund Services, Inc. - filed herewith.
(10) (a) Opinion and Consent of Seward & Kissel - filed
herewith.
(b) Opinion and Consent of Venable, Baetjer and
Howard, LLP - filed herewith.
(11) Consent of Independent Accountants - filed
herewith.
(12) Not applicable.
(13) Investment representation letter of Alliance
Capital Management L.P. - filed herewith.
(14) Not applicable.
(15) Rule 12b-1 Plan - see Exhibit 6(a) hereto.
(16) Schedule for computation of performance
quotations.*****
(18) Rule 18f-3 Plan - filed herewith.
Other Exhibits -- Powers of Attorney for John D. Carifa, Ruth
Block, David H. Dievler, John H. Dobkin, William H. Foulk, Jr.,
Dr. James M. Hester, Clifford L. Michel, Donald J. Robinson -
filed herewith.
ITEM 25. Persons Controlled by or under Common Control with
Registrant.
Alliance Capital Management L.P. owns 100% of its issued
and outstanding common stock.
____________________
*****To be filed in a subsequent pre-effective amendment.
C-2
<PAGE>
ITEM 26. Number of Holders of Securities.
One. The Registrant is a recently organized corporation
and Alliance Capital Management L.P. owns 100% of its
issued and outstanding common stock.
ITEM 27. Indemnification.
It is the Registrant's policy to indemnify its directors
and officers, employees and other agents to the maximum
extent permitted by Section 2-418 of the General
Corporation Law of the State of Maryland, which is
incorporated by reference herein, and as set forth in
Article EIGHTH of Registrant's Articles of
Incorporation, filed as Exhibit 1 hereto, Article VII
and Article VIII of Registrant's By-Laws, filed as
Exhibit 2 hereto, and Section 10 of the proposed
Distribution Services Agreement, to be filed by Pre-
Effective Amendment as Exhibit 6(a) hereto. The
Adviser's liability for any loss suffered by the
Registrant or its shareholders is set forth in Section 4
of the proposed Advisory Agreement, to be filed by Pre-
Effective Amendment as Exhibit 5 hereto.
Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors,
officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection
with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of
whether such indemnification by it is against public
policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
In accordance with Release No. IC-11330 (September 2,
1980), the Registrant will indemnify its directors,
officers, investment manager and principal underwriters
only if (1) a final decision on the merits was issued by
the court or other body before whom the proceeding was
C-3
<PAGE>
brought that the person to be indemnified (the
"indemnitee") was not liable by reason or willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office ("disabling conduct") or (2) a reasonable
determination is made, based upon a review of the facts,
that the indemnitee was not liable by reason of
disabling conduct, by (a) the vote of a majority of a
quorum of the directors who are neither "interested
persons" of the Registrant as defined in section
2(a)(19) of the Investment Company Act of 1940 nor
parties to the proceeding ("disinterested, non-party
directors"), or (b) an independent legal counsel in a
written opinion. The Registrant will advance attorneys
fees or other expenses incurred by its directors,
officers, investment adviser or principal underwriters
in defending a proceeding, upon the undertaking by or on
behalf of the indemnitee to repay the advance unless it
is ultimately determined that he is entitled to
indemnification and, as a condition to the advance,
(1) the indemnitee shall provide a security for his
undertaking, (2) the Registrant shall be insured against
losses arising by reason of any lawful advances, or
(3) a majority of a quorum of disinterested, non-party
directors of the Registrant, or an independent legal
counsel in a written opinion, shall determine, based on
a review of readily available facts (as opposed to a
full trial-type inquiry), that there is reason to
believe that the indemnitee ultimately will be found
entitled to indemnification.
The Registrant participates in a joint
trustees/directors and officers liability insurance
policy issued by the ICI Mutual Insurance Company.
Coverage under this policy has been extended to
directors, trustees and officers of the investment
companies managed by Alliance Capital Management L.P.
Under this policy, outside trustees and directors are
covered up to the limits specified for any claim against
them for acts committed in their capacities as trustee
or director. A pro rata share of the premium for this
coverage is charged to each investment company and to
the Adviser.
ITEM 28. Business and Other Connections of Investment Adviser.
The descriptions of Alliance Capital Management L.P.
under the captions "Management of the Funds" in the
Prospectus and in the Statement of Additional
Information constituting Parts A and B, respectively, of
C-4
<PAGE>
this Registration Statement are incorporated by
reference herein.
The information as to the directors and executive
officers of Alliance Capital Management Corporation, the
general partner of Alliance Capital Management L.P., set
forth in Alliance Capital Management L.P.'s Form ADV
filed with the Securities and Exchange Commission on
April 21, 1988 (File No. 801-32361) and amended through
the date hereof, is incorporated by reference.
ITEM 29. Principal Underwriters.
(a) Alliance Fund Distributors, Inc. is the
Registrant's Principal Underwriter in
connection with the sale of shares of the
Registrant. Alliance Fund Distributors, Inc.
also acts as Principal Underwriter or
Distributor for the following investment
companies:
ACM Institutional Reserves, Inc.
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
Alliance Capital Reserves
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance Institutional Funds, Inc.
Alliance International Fund
Alliance Limited Maturity Government
Fund, Inc.
Alliance Money Market Fund
Alliance Mortgage Securities Income
Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
Alliance Municipal Income Fund II
Alliance Municipal Trust
Alliance New Europe Fund, Inc.
Alliance North American Government Income
Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
C-5
<PAGE>
Alliance Real Estate Investment Fund, Inc.
Alliance/Regent Sector Opportunity Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Variable Products Series Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
Fiduciary Management Associates
The Alliance Fund, Inc.
The Alliance Portfolios
(b) The following are the Directors and officers of Alliance
Fund Distributors, Inc., the principal place of business
of which is 1345 Avenue of the Americas, New York, New
York, 10105.
POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
Michael J. Laughlin Chairman
Robert L. Errico President
Edmund P. Bergan, Jr. Senior Vice Secretary
President,
General Counsel
and Secretary
James S. Comforti Senior Vice President
James L. Cronin Senior Vice President
Daniel J. Dart Senior Vice President
Richard A. Davies Senior Vice President,
Managing Director
Byron M. Davis Senior Vice President
Anne S. Drennan Senior Vice President
& Treasurer
Mark J. Dunbar Senior Vice President
Bradley F. Hanson Senior Vice President
Geoffrey L. Hyde Senior Vice President
C-6
<PAGE>
Robert H. Joseph, Jr. Senior Vice President
and Chief Financial Officer
Richard E. Khaleel Senior Vice President
Stephen R. Lau Senior Vice President
Daniel D. McGinley Senior Vice President
Ryne A. Nishimi Senior Vice President
Antonios G. Poleondakis Senior Vice President
Robert E. Powers Senior Vice President
Richard K. Sacculo Senior Vice President
Gregory K. Shannahan Senior Vice President
Joseph F. Sumanski Senior Vice President
Peter J. Szabo Senior Vice President
Nicholas K. Willett Senior Vice President
Richard A. Winge Senior Vice President
Jamie A. Atkinson Vice President
Benji A. Baer Vice President
Kenneth F. Barkoff Vice President
Casimir F. Bolanowski Vice President
Timothy W. CallVice President
Kevin T. Cannon Vice President
John R. Carl Vice President
William W. Collins, Jr. Vice President
Leo H. Cook Vice President
Richard W. Dabney Vice President
John F. Dolan Vice President
Sohaila S. Farsheed Vice President
C-7
<PAGE>
William C. Fisher Vice President
Gerard J. Friscia Vice President &
Controller
Andrew L. Gangolf Vice President and
Assistant General
Counsel
Mark D. Gersten Vice President Treasurer and
Chief
Financial
Officer
Joseph W. Gibson Vice President
Charles M. Greenberg Vice President
Alan Halfenger Vice President
William B. Hanigan Vice President
Daniel M. Hazard Vice President
George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
Scott Hutton Vice President
Thomas K. Intoccia Vice President
Larry P. Johns Vice President
Richard D. Keppler Vice President
Gwenn M. Kessler Vice President
Donna M. Lamback Vice President
James M. Liptrot Vice President
James P. Luisi Vice President
Christopher J. MacDonald Vice President
Michael F. Mahoney Vice President
Lori E. Master Vice President
Shawn P. McClain Vice President
C-8
<PAGE>
Maura A. McGrath Vice President
Matthew P. Mintzer Vice President
Thomas F. Monnerat Vice President
Joanna D. Murray Vice President
Jeanette M. Nardella Vice President
Nicole Nolan-Koester Vice President
John C. O'Connell Vice President
John J. O'Connor Vice President
Robert T. Pigozzi Vice President
James J. Posch Vice President
Domenick Pugliese Vice President and Assistant Secretary
Assistant General
Counsel
Bruce W. Reitz Vice President
Dennis A. Sanford Vice President
Karen C. Satterberg Vice President
Robert C. Schultz Vice President
Raymond S. Sclafani Vice President
Richard J. Sidell Vice President
Andrew D. Strauss Vice President
Michael J. Tobin Vice President
Joseph T. Tocyloski Vice President
Martha D. Volcker Vice President
Patrick E. Walsh Vice President
William C. White Vice President
C-9
<PAGE>
Emilie D. Wrapp Vice President and
Special Counsel
Charles M. Barrett Assistant Vice President
Robert F. Brendli Assistant Vice President
Maria L. Carreras Assistant Vice President
John P. Chase Assistant Vice President
Russell R. Corby Assistant Vice President
John W. Cronin Assistant Vice President
Ralph A. DiMeglio Assistant Vice President
Faith C. Dunn Assistant Vice President
John C. Endahl Assistant Vice President
John E. English Assistant Vice President
Duff C. Ferguson Assistant Vice President
John Grambone Assistant Vice President
Brian S. Hanigan Assistant Vice President
James J. Hill Assistant Vice President
Edward W. Kelly Assistant Vice President
Michael Laino Assistant Vice President
Nicholas J. Lapi Assistant Vice President
Patrick Look Assistant Vice President &
Assistant Treasurer
Richard F. Meier Assistant Vice President
Catherine N. Peterson Assistant Vice President
Carol H. Rappa Assistant Vice President
Clara Sierra Assistant Vice President
Vincent T. Strangio Assistant Vice President
Wesley S. Williams Assistant Vice President
C-10
<PAGE>
Christopher J. Zingaro Assistant Vice President
Mark R. Manley Assistant Secretary
(c) Not applicable. Registrant is a newly organized
corporation.
ITEM 30. Location of Accounts and Records.
The majority of the accounts, books and other documents
required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the rules thereunder
are maintained as follows: journals, ledgers,
securities records and other original records are
maintained principally at the offices of Alliance Fund
Services, Inc., 500 Plaza Drive, Secaucus, New Jersey,
07094 and at the offices of State Street Bank and Trust
Company the Registrant's custodian, 225 Franklin Street,
Boston, Massachusetts. All other records so required to
be maintained are maintained at the offices of Alliance
Capital Management L.P., 1345 Avenue of the Americas,
New York, New York, 10105.
ITEM 31. Management Services.
Not applicable.
ITEM 32. Undertakings.
(b) Registrant undertakes to file a Post-Effective
Amendment, using financial statements which need not be
certified, within four to six months from the effective
date of its Securities Act of 1933 Registration
Statement.
The Registrant undertakes to provide assistance to
shareholders in communications concerning the removal of
any Director of the Fund in accordance with Section 16
of the Investment Company Act of 1940.
C-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as
amended, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in The City of New York and the State
of New York, on the 14th day of November, 1997.
Alliance Institutional
Funds, Inc.
/s/ John D. Carifa
__________________________________
John D. Carifa
Chairman and President
Pursuant to the requirements of the Securities Act of
1933, as amended, this Registration Statement has been signed
below by the following persons in the capacities and on the date
indicated.
Signature Title Date
_____________ _____ ____
(1) Principal Executive Officer:
/s/ John D. Carifa Chairman and November 14, 1997
______________________ President
John D. Carifa
(2) Principal Financial
and Accounting Officer:
/s/ Mark D. Gersten Treasurer November 14, 1997
_____________________ and Chief
Mark D. Gersten Financial
Officer
(3) All of the Directors:
John D. Carifa Dr. James M. Hester
Ruth Block Clifford L. Michel
David H. Dievler Donald J. Robinson
John H. Dobkin
William H. Foulk, Jr.
/s/ Edmund P. Bergan, Jr. Secretary
_________________________ November 14, 1997
Edmund P. Bergan, Jr.
(Attorney-in-fact)
C-12
<PAGE>
Index To Exhibits
(5) Copy of proposed Advisory Agreement between the
Registrant and Alliance Capital Management L.P.
(6) (a) Copy of proposed Distribution Services
Agreement between the Registrant and Alliance Fund Distributors,
Inc.
(b) Form of Selected Dealer Agreement between
Alliance Fund Distributors, Inc. and selected dealers offering
shares of the Registrant.
(c) Form of Selected Agent Agreement between
Alliance Fund Distributors, Inc., and selected agents making
available shares of the Registrant.
(8) Copy of proposed Custodian Contract between the
Registrant and State Street Bank and Trust Company.
(9) Copy of Proposed Transfer Agency Agreement between
the Registrant and Alliance Fund Services, Inc.
(10) (a) Opinion and Consent of Seward & Kissel.
(b) Opinion and Consent of Venable, Baetjer and
Howard, LLP.
(11) Consent of Independent Auditors.
(13) Investment representation letter of Alliance
Capital Management L.P. - filed herewith.
(18) Rule 18f-3 plan.
Other Exhibits: Powers of Attorney for John D. Carifa,
Ruth Block, David H. Dievler, John H. Dobkin, William H. Foulk,
Jr., Dr. James M. Hester, Clifford L. Michel, Donald J. Robinson.
C-13
00250237.AE7
<PAGE>
ADVISORY AGREEMENT
Alliance Institutional Funds, Inc.
1345 Avenue Of The Americas
New York, New York 10105
, 1997
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
Dear Sirs:
Alliance Institutional Funds, Inc. herewith
confirms our agreement with you as follows:
1. We are an open-end management investment
company registered under the Investment Company Act of 1940,
as amended (the "Act"). We currently have three portfolios,
Alliance Premier Growth Institutional Fund ("Premier
Growth"), Alliance Real Estate Investment Institutional Fund
("Real Estate") and Alliance Quasar Institutional Fund
("Quasar") (each, a "portfolio") as described in the
prospectus and the statements of additional information
constituting parts of our Registration Statement on Form
N-1A filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended,
and the Act (the "Registration Statement"). We propose to
engage in the business of investing and reinvesting the
assets of each portfolio in securities ("portfolio assets")
<PAGE>
of the type and in accordance with the limitations specified
in our Articles of Incorporation, By-Laws and Registration
Statement, and any representations made in our prospectus
and statement of additional information, all in such manner
and to such extent as may from time to time be authorized by
our Board of Directors. We enclose a copy of each of the
documents listed above and will from time to time furnish
you with any amendments thereof.
2. (a) With respect to each portfolio, we hereby
employ you to manage the investment and reinvestment of
portfolio assets and, without limiting the generality of the
foregoing, to provide management and other services
specified below.
(b) You will make decisions with respect to
all purchases and sales of portfolio assets. To carry out
such decisions, you are hereby authorized, as our agent and
attorney-in-fact, for our account and at our risk and in our
name, to place orders for the investment and reinvestment of
our assets. In all purchases, sales and other transactions
in each of our portfolios you are authorized to exercise
full discretion and act for us in the same manner and with
the same force and effect as we might or could do with
respect to such purchases, sales or other transactions, as
well as with respect to all other things necessary or
2
<PAGE>
incidental to the furtherance or conduct of such purchases,
sales or other transactions.
(c) You will report to our Board of Directors
at each meeting thereof all changes in each portfolio since
the prior report, and will also keep us in touch with
important developments affecting any portfolio and on your
own initiative will furnish us from time to time with such
information as you may believe appropriate for this purpose,
whether concerning the individual issuers whose securities
are included in our portfolios, the industries in which they
engage, or the conditions prevailing in the economy
generally. You will also furnish us with such statistical
and analytical information with respect to securities in
each of our portfolios as you may believe appropriate or as
we reasonably may request. In making such purchases and
sales in any of our portfolios, you will bear in mind the
policies set from time to time by our Board of Directors as
well as the limitations imposed by our Articles of
Incorporation and in our Registration Statement, in each
case as amended from time to time, the limitations in the
Act and of the Internal Revenue Code of 1986, as amended, in
respect of regulated investment companies and the respective
investment objective or investment objectives, policies and
3
<PAGE>
practices, including restrictions, applicable to each of our
portfolios.
(d) It is understood that you will from time
to time employ or associate with yourselves such persons as
you believe to be particularly fitted to assist you in the
execution of your duties hereunder, the cost of performance
of such duties to be borne and paid by you. No obligation
may be incurred on our behalf in any such respect. During
the continuance of this Agreement and at our request you
will provide to us persons satisfactory to our Board of
Directors to serve as our officers. You or your affiliates
will also provide persons, who may be our officers, to
render such clerical, accounting and other services to us as
we may from time to time request of you. Such personnel may
be employees of you or your affiliates. We will pay to you
or your affiliates the cost of such personnel for rendering
such services to us, provided that all time devoted to the
investment or reinvestment of the portfolio assets shall be
for your account. Nothing contained herein shall be
construed to restrict our right to hire our own employees or
to contract for services to be performed by third parties.
Furthermore, you or your affiliates shall furnish us without
charge with such management supervision and assistance and
such office facilities as you may believe appropriate or as
4
<PAGE>
we may reasonably request subject to the requirements of any
regulatory authority to which you may be subject. You or
your affiliates shall also be responsible for the payment of
any expenses incurred in promoting the sale of our shares
(other than the portion of the promotional expenses to be
borne by us in accordance with an effective plan pursuant to
Rule 12b-1 under the Act and the costs of printing our
prospectuses and reports to shareholders and fees related to
registration with the Commission and with state regulatory
authorities).
3. We hereby confirm that we shall be responsible
and hereby assume the obligation for payment of all of our
expenses, including: (a) payment to you of the fees provided
for in paragraph 5 below; (b) custody, transfer and dividend
disbursing expenses; (c) fees of directors who are not your
affiliated persons; (d) legal and auditing expenses; (e)
clerical, accounting and other office costs; (f) the cost of
personnel providing services to us, as provided in
subparagraph (d) of paragraph 2 above; (g) costs of printing
our prospectuses and shareholder reports; (h) cost of
maintenance of our corporate existence; (i) interest
charges, taxes, brokerage fees and commissions; (j) costs of
stationery and supplies; (k) expenses and fees related to
registrations and filings with the Commission and with state
5
<PAGE>
regulatory authorities; and (l) such promotional,
shareholder servicing and other expenses as may be
contemplated by one or more effective plans pursuant to Rule
12b-1 under the Act or one or more duly approved and
effective non-Rule 12b-1 shareholder servicing plans, in
each case provided, however, that our payment of such
promotional, shareholder servicing and other expenses shall
be in the amounts, and in accordance with the procedures,
set forth in such plan or plans.
4. We shall expect of you, and you will give us
the benefit of, your best judgment and efforts in rendering
these services to us, and we agree as an inducement to your
undertaking these services that you shall not be liable
hereunder for any mistake of judgment or in any event
whatsoever, except for lack of good faith, provided that
nothing herein shall be deemed to protect, or purport to
protect, you against any liability to us or to our security
holders to which you would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the
performance of your duties hereunder, or by reason of your
reckless disregard of your obligations and duties hereunder.
5. In consideration of the foregoing, we will pay
you with respect to each of Premier Growth and Quasar a fee
at an annualized rate of 1% of the average daily net assets
6
<PAGE>
of Premier Growth and Quasar, respectively, and with respect
to Real Estate a fee at an annualized rate of 0.90% of the
average daily net assets of Real Estate. These fees shall
be payable in arrears on the last day of each calendar month
for services performed hereunder during such month. If our
initial Registration Statement is declared effective by the
Commission after the beginning of a calendar month or this
Agreement terminates prior to the end of a calendar month,
the fees for Premier Growth, Quasar and Real Estate shall be
prorated according to the proportion which such portion of
the month bears to the full month.
6. This Agreement shall become effective on the
date hereof and shall remain in effect until November 5,
1999 and continue in effect thereafter with respect to a
portfolio only so long as its continuance with respect to
that portfolio is specifically approved annually by our
Board of Directors or by vote of a majority of the
outstanding voting securities (as defined in the Act) of
such portfolio, and, in either case, by vote, cast in person
at a meeting called for the purpose of voting on such
approval, of a majority of our Directors who are not parties
to this Agreement or interested persons, as defined in the
Act, of any party to this Agreement (other than as our
Directors), and provided further, however, that if the
7
<PAGE>
continuation of this Agreement is not approved as to a
portfolio, you may continue to render to such portfolio the
services described herein in the manner and to the extent
permitted by the Act and the rules and regulations
thereunder. Upon the effectiveness of this Agreement, it
shall supersede all previous agreements between us covering
the subject matter hereof. This Agreement may be terminated
with respect to any portfolio at any time, without the
payment of any penalty, by vote of a majority of the
outstanding voting securities (as defined in the Act) of
such portfolio, or by a vote of our Board of Directors on 60
days' written notice to you, or by you with respect to any
portfolio on 60 days' written notice to us.
7. This Agreement shall not be amended as to any
portfolio unless such amendment is approved by vote of a
majority of the outstanding voting securities (as defined in
the Act) of such portfolio, and by vote, cast in person at a
meeting called for the purpose of voting on such approval,
of a majority of our Directors who are not parties to this
Agreement or interested persons, as defined in the Act, of
any party to this Agreement (other than as our Directors).
Shareholders of a portfolio not affected by any such
amendment shall have no right to vote with respect to such
amendment.
8
<PAGE>
8. As to any particular portfolio, this Agreement
may not be transferred, assigned, sold or in any manner
hypothecated or pledged by you and as to such portfolio,
this Agreement shall terminate automatically in the event of
any such transfer, assignment, sale, hypothecation or pledge
by you. The terms "transfer", "assignment" and "sale" as
used in this paragraph shall have the meanings ascribed
thereto by governing law and any interpretation thereof
contained in rules or regulations promulgated by the
Commission thereunder.
9. (a) Except to the extent necessary to perform
your obligations hereunder, nothing herein shall be deemed
to limit or restrict your right, or the right of any of your
employees, or any of the officers or directors of Alliance
Capital Management Corporation, your general partner, who
may also be a Director, officer or employee of ours, or
persons otherwise affiliated with us (within the meaning of
the Act), to engage in any other business or to devote time
and attention to the management or other aspects of any
other business, whether of a similar or dissimilar nature,
or to render services of any kind to any other trust,
corporation, firm, individual or association.
9
<PAGE>
(b) You will notify us of any change in the
general partners of your partnership within a reasonable
time after such change.
10. If you cease to act as our investment adviser,
or, in any event, if you so request in writing, we agree to
take all necessary action to change our name to a name not
including the term "Alliance." You may from time to time
make available without charge to us for our use such marks
or symbols owned by you, including marks or symbols
containing the term "Alliance" or any variation thereof, as
you may consider appropriate. Any such marks or symbols so
made available will remain your property and you shall have
the right, upon notice in writing, to require us to cease
the use of such mark or symbol at any time.
11. This Agreement shall be construed in
accordance with the laws of the State of New York, provided,
however, that nothing herein shall be construed as being
inconsistent with the Act.
If the foregoing is in accordance with your
understanding, will you kindly so indicate by signing and
returning to us the enclosed copy hereof.
10
<PAGE>
Very truly yours,
ALLIANCE INSTITUTIONAL
FUNDS, INC.
By__________________________
Agreed to and accepted
as of the date first set forth above
ALLIANCE CAPITAL MANAGEMENT L.P.
By ALLIANCE CAPITAL MANAGEMENT
CORPORATION, its general
partner
By_______________________________
11
00250237.AC1
<PAGE>
DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made as of [ ], 1997 between
ALLIANCE INSTITUTIONAL FUNDS, INC., a Maryland corporation
(the "Fund"), and ALLIANCE FUND DISTRIBUTORS, INC., a
Delaware corporation (the "Underwriter").
WITNESSETH
WHEREAS, the Fund is registered under the
Investment Company Act of 1940, as amended (the "Investment
Company Act"), as an open-end management investment company
and it is in the interest of the Fund to offer its shares
for sale continuously;
WHEREAS, the Underwriter is a securities firm
engaged in the business of selling shares of investment
companies either directly to purchasers or through other
securities dealers;
WHEREAS, the Fund and the Underwriter wish to enter
into an agreement with each other with respect to the
continuous offering of the Fund's shares in order to promote
the growth of the Fund and facilitate the distribution of
its shares;
NOW, THEREFORE, the parties agree as follows:
SECTION 1. Appointment of the Underwriter. The
Fund hereby appoints the Underwriter as the principal
underwriter and distributor of the Fund to sell to the
public shares of its Class I Common Stock (the "Class I
shares"), Class II Common Stock (the "Class II shares") and
shares of such other class or classes as the Fund and the
Underwriter shall from time to time mutually agree in
writing shall become subject to this Agreement (the "New
shares") (the Class I shares, the Class II shares and the
New shares being collectively referred to herein as the
"shares") and hereby agrees during the term of this
Agreement to sell shares to the Underwriter upon the terms
and conditions herein set forth.
SECTION 2. Exclusive Nature of Duties. The
Underwriter shall be the exclusive representative of the
Fund to act as principal underwriter and distributor of the
shares except that the rights given under this Agreement to
the Underwriter shall not apply to shares issued in
connection with (a) the merger or consolidation of any other
investment company with the Fund, (b) the Fund's acquisition
by purchase or otherwise of all or substantially all of the
<PAGE>
assets or stock of any other investment company or (c) the
reinvestment in shares by the Fund's shareholders of
dividends or other distributions.
SECTION 3. Purchase of Shares from the Fund.
(a) The Underwriter shall have the right to buy
from the Fund the shares needed to fill unconditional orders
for shares of the Fund placed with the Underwriter by
investors or securities dealers, depository institutions or
other financial intermediaries acting as agent for their
customers. The price which the Underwriter shall pay for
the shares so purchased from the Fund shall be the net asset
value, determined as set forth in Section 3(d) hereof, used
in determining the public offering price on which such
orders are based.
(b) The shares are to be resold by the Underwriter
to investors at a public offering price, as set forth in
Section 3(c) hereof, or to securities dealers, depository
institutions or other financial intermediaries acting as
agent for their customers having agreements with the
Underwriter, upon the terms and conditions set forth in
Section 8 hereof.
(c) The public offering price of the shares, i.e.,
the price per share at which the Underwriter or selected
dealers or selected agents (each as defined in Section 8(a)
below) may sell shares to the public, shall be the public
offering price determined in accordance with one or more
then current prospectuses and statements of additional
information of the Fund (each a "Prospectus" and a
"Statement of Additional Information," respectively) under
the Securities Act of 1933, as amended (the "Securities
Act"), relating to such shares, but not to exceed the net
asset value at which the Underwriter is to purchase such
shares. All payments to the Fund hereunder shall be made in
the manner set forth in Section 3(f) hereof.
(d) The net asset value of shares of the Fund
shall be determined by the Fund, or any agent of the Fund,
as of the close of regular trading on the New York Stock
Exchange on each Fund business day in accordance with the
method set forth in the Prospectus and Statement of
Additional Information and guidelines established by the
Directors of the Fund.
(e) The Fund reserves the right to suspend the
offering of its shares at any time in the absolute
discretion of its Directors.
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<PAGE>
(f) The Fund, or any agent of the Fund designated
in writing to the Underwriter by the Fund, shall be promptly
advised by the Underwriter of all purchase orders for shares
received by the Underwriter. Any order may be rejected by
the Fund; provided, however, that the Fund will not
arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of shares. The Fund (or its
agent) will confirm orders upon their receipt, will make
appropriate book entries and, upon receipt by the Fund (or
its agent) of payment thereof, will deliver deposit receipts
or certificates for such shares pursuant to the instructions
of the Underwriter. Payment shall be made to the Fund in
New York Clearing House funds. The Underwriter agrees to
cause such payment and such instructions to be delivered
promptly to the Fund (or its agent).
SECTION 4. Repurchase or Redemption of
Shares by the Fund.
(a) Any of the outstanding shares may be tendered
for redemption at any time, and the Fund agrees to redeem or
repurchase the shares so tendered in accordance with its
obligations as set forth in Section 9(d) of ARTICLE FIFTH of
its Articles of Incorporation and in accordance with the
applicable provisions of the Prospectus and Statement of
Additional Information. The price to be paid to redeem or
repurchase the shares shall be equal to the net asset value
calculated in accordance with the provisions of Section 3(d)
hereof, less any applicable sales charge. All payments by
the Fund hereunder shall be made in the manner set forth
below.
The Fund (or its agent) shall pay the total amount
of the redemption price and, except as may be otherwise
required by the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD") and any
interpretations thereof ("NASD rules and interpretations"),
the deferred sales charges, if any, pursuant to the
instructions of the Underwriter in New York Clearing House
funds on or before the seventh business day subsequent to
its having received the notice of redemption in proper form.
(b) Redemption of shares or payment may be
suspended at times when the New York Stock Exchange is
closed, when trading thereon is restricted, when an
emergency exists as a result of which disposal by the Fund
of securities owned by it is not reasonably practicable or
it is not reasonably practicable for the Fund fairly to
determine the value of its net assets, or during any other
period when the Securities and Exchange Commission, by
order, so permits.
3
<PAGE>
SECTION 5. Plan of Distribution.
(a) It is understood that Sections 5, 12 and 16
hereof together constitute a plan of distribution (the
"Plan") within the meaning of Rule 12b-1 adopted by the
Securities and Exchange Commission under the Investment
Company Act ("Rule 12b-1").
(b) Except as may be required by NASD rules and
interpretations, the Fund will pay to the Underwriter each
month a distribution services fee with respect to each
portfolio of the Fund specified by the Fund's Directors (a
"Portfolio") that will not exceed, on an annualized basis,
.30% of the aggregate average daily net assets of the Fund
attributable to the Class II shares of the Portfolio. With
respect to each Portfolio, the distribution services fee
will be used in its entirety by the Underwriter to make
payments (i) to compensate broker-dealers or other persons
for providing distribution assistance, (ii) to otherwise
promote the sale of shares of each Portfolio, including
payment for the preparation, printing and distribution of
prospectuses and sales literature or other promotional
activities, and (iii) to compensate broker-dealers,
depository institutions and other financial intermediaries
for providing administrative, accounting and other services
with respect to each Portfolio's shareholders. A portion of
the distribution services fee that will not exceed, on an
annualized basis, .25% of the aggregate average daily net
assets of the Fund attributable to the Class II shares of
each Portfolio will constitute a service fee that will be
used by the Underwriter for personal service and/or the
maintenance of shareholder accounts within the meaning of
NASD rules and interpretations.
(c) Alliance Capital Management L.P., the Fund's
investment adviser (the "Adviser"), may, with respect to any
and all classes of shares of the Fund, make payments from
time to time from its own resources for the purposes
described in Section 5(b) hereof.
(d) Payments to broker-dealers, depository
institutions and other financial intermediaries for the
purposes set forth in Section 5(b) are subject to the terms
and conditions of the respective written agreements between
the Underwriter and each broker-dealer, depository
institution or other financial intermediary. Such
agreements will be in a form satisfactory to the Directors
of the Fund.
(e) The Treasurer of the Fund will prepare and
furnish to the Fund's Directors, and the Directors will
4
<PAGE>
review, at least quarterly, a written report complying with
the requirements of Rule 12b-1 setting forth all amounts
expended hereunder and the purposes for which such
expenditures were made.
(f) The Fund is not obligated to pay any
distribution expenses in excess of the distribution services
fee described above in Section 5(b) hereof. Any expenses of
distribution of the Fund's Class II shares accrued by the
Underwriter in one fiscal year of the Fund may not be paid
from distribution services fees received from the Fund in
respect of Class II shares in another fiscal year. No
portion of the distribution services fees received from the
Fund in respect of Class II shares may be used to pay any
interest expense, carrying charges or other financing costs
or allocation of overhead of the Underwriter. In the event
this Agreement is terminated by either party or is not
continued with respect to a class of shares as provided in
Section 12 below: (i) no distribution services fees (other
than current amounts accrued but not yet paid) will be owed
by the Fund to the Underwriter with respect to that class,
and (ii) the Fund will not be obligated to pay the
Underwriter for any amounts expended hereunder not
previously reimbursed by the Fund from distribution services
fees in respect of shares of such class. The distribution
services fee of a particular class may not be used to
subsidize the sale of shares of any other class.
SECTION 6. Duties of the Fund.
(a) The Fund shall furnish to the Underwriter
copies of all information, financial statements and other
papers that the Underwriter may reasonably request for use
in connection with the distribution of shares of the Fund,
and this shall include one certified copy, upon request by
the Underwriter, of all financial statements prepared for
the Fund by the Fund's independent public accountants. The
Fund shall make available to the Underwriter such number of
copies of the Prospectus and Statement of Additional
Information as the Underwriter shall reasonably request.
(b) The Fund shall take, from time to time, but
subject to any necessary approval of its shareholders, all
necessary action to fix the number of authorized shares and
such steps as may be necessary to register the same under
the Securities Act, to the end that there will be available
for sale such number of shares as the Underwriter reasonably
may be expected to sell.
(c) The Fund shall use its best efforts to qualify
for sale and maintain the qualification for sale of an
5
<PAGE>
appropriate number of its shares under the securities laws
of such states as the Underwriter and the Fund may approve.
Any such qualification may be withheld, terminated or
withdrawn by the Fund at any time in its discretion. As
provided in Section 9(b) hereof, the expense of
qualification and maintenance of qualification shall be
borne by the Fund. The Underwriter shall furnish such
information and other material relating to its affairs and
activities as may be required by the Fund in connection with
such qualification.
(d) The Fund will furnish, in reasonable
quantities upon request by the Underwriter, copies of annual
and interim reports of the Fund.
SECTION 7. Duties of the Underwriter.
(a) The Underwriter shall devote reasonable time
and effort to effect sales of shares of the Fund, but shall
not be obligated to sell any specific number of shares. The
services hereunder of the Underwriter to the Fund are not to
be deemed exclusive as to the Underwriter and nothing in
this Agreement shall prevent the Underwriter from entering
into like arrangements with other investment companies so
long as the performance of its obligations hereunder is not
impaired thereby.
(b) In selling shares of the Fund, the Underwriter
shall use its best efforts in all material respects duly to
conform with the requirements of all federal and state laws
relating to the sale of such securities. Neither the
Underwriter, any selected dealer, any selected agent nor any
other person is authorized by the Fund to give any
information or to make any representations, other than those
contained in the Fund's Registration Statement on Form N-1A
(the "Registration Statement"), as amended from time to
time, under the Securities Act and the Investment Company
Act or the Prospectus and Statement of Additional
Information or in any sales literature specifically approved
in writing by the Fund.
(c) The Underwriter shall adopt and follow
procedures, as approved by the appropriate officers of the
Fund, for the confirmation of sales to investors and
selected dealers, the collection of amounts payable by
investors and selected dealers on such sales, and the
cancellation of unsettled transactions, as may be necessary
to comply with the requirements of the NASD as such
requirements may from time to time exist.
6
<PAGE>
SECTION 8. Selected Dealer and Agent Agreements.
(a) The Underwriter shall have the right to enter
into selected dealer agreements with securities dealers of
its choice ("selected dealers") and selected agent
agreements with depository institutions and other financial
intermediaries of its choice ("selected agents") for the
sale of shares and fix therein the portion of the sales
charge that may be allocated to the selected dealers and
selected agents; provided, that the Fund shall approve the
forms of agreements with selected dealers and selected
agents and the selected dealer and selected agent
compensation set forth therein. Shares sold to selected
dealers or through selected agents shall be for resale by
such selected dealers and for sale through such selected
agents only at the public offering price set forth in the
Prospectus and/or Statement of Additional Information.
(b) Within the United States, the Underwriter
shall offer and sell shares only to such selected dealers as
are members in good standing of the NASD.
SECTION 9. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of
the Fund, including fees and disbursements of its counsel
and auditors, in connection with the preparation and filing
of its Registration Statement and Prospectus and Statement
of Additional Information, and all amendments and
supplements thereto, and preparing and mailing annual and
interim reports and proxy materials to shareholders
(including but not limited to the expense of printing any
such registration statements, prospectuses, annual or
interim reports or proxy materials).
(b) The Fund shall bear the cost of expenses of
qualification of shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as
an issuer or as a broker or dealer, in such states of the
United States or other jurisdiction as shall be selected by
the Fund and the Underwriter pursuant to Section 6(c) hereof
and the cost and expenses payable to each such state for
continuing qualification therein until the Fund decides to
discontinue such qualification pursuant to Section 6(c)
hereof.
SECTION 10. Indemnification.
(a) The Fund shall indemnify, defend and hold the
Underwriter, and any person who controls the Underwriter
within the meaning of Section 15 of the Securities Act, free
7
<PAGE>
and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of
investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection
therewith) which the Underwriter or any such controlling
person may incur, under the Securities Act, or under common
law or otherwise, arising out of or based upon any alleged
untrue statement of a material fact contained in the Fund's
Registration Statement, Prospectus or Statement of
Additional Information in effect from time to time under the
Securities Act or arising out of or based upon any alleged
omission to state a material fact required to be stated in
any one thereof or necessary to make the statements in any
one thereof not misleading; provided, however, that in no
event shall anything herein contained be so construed as to
protect the Underwriter against any liability to the Fund or
its security holders to which the Underwriter would
otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of its duties,
or by reason of the Underwriter's reckless disregard of its
obligations and duties under this Agreement. The Fund's
agreement to indemnify the Underwriter and any such
controlling person as aforesaid is expressly conditioned
upon the Fund's being notified of the commencement of any
action brought against the Underwriter or any such
controlling person, such notification to be given by letter
or by telegram addressed to the Fund at its principal office
in New York, New York, and sent to the Fund by the person
against whom such action is brought within ten days after
the summons or other first legal process shall have been
served. The failure to so notify the Fund of the
commencement of any such action shall not relieve the Fund
from any liability which it may have to the person against
whom such action is brought by reason of any such alleged
untrue statement or omission otherwise than on account of
the indemnity agreement contained in this Section 10. The
Fund will be entitled to assume the defense of any suit
brought to enforce any such claim, and to retain counsel of
good standing chosen by the Fund and approved by the
Underwriter. In the event the Fund does not elect to assume
the defense of any such suit and retain counsel of good
standing approved by the Underwriter, the defendant or
defendants in such suit shall bear the fees and expenses of
any additional counsel retained by any of them; but if Fund
does not elect to assume the defense of any such suit, or in
case the Underwriter does not approve of counsel chosen by
the Fund, the Fund will reimburse the Underwriter or the
controlling person or persons named as defendant or
defendants in such suit, for the fees and expenses of any
counsel retained by the Underwriter or any such person. The
indemnification agreement contained in this Section 10 shall
8
<PAGE>
remain operative and in full force and effect regardless of
any investigation made by or on behalf of the Underwriter or
any controlling person and shall survive the sale of any of
the Fund's shares made pursuant to subscriptions obtained by
the Underwriter. This agreement of indemnity will inure
exclusively to the benefit of the Underwriter, to the
benefit of its successors and assigns, and to the benefit of
any controlling persons and their successors and assigns.
The Fund shall promptly notify the Underwriter of the
commencement of any litigation or proceeding against the
Fund in connection with the issue and sale of any of its
shares.
(b) The Underwriter shall indemnify, defend and
hold the Fund, its several officers and directors, and any
person who controls the Fund within the meaning of Section
15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such
claims, demands or liabilities and any counsel fees incurred
in connection therewith) which the Fund, its officers or
directors, or any such controlling person may incur under
the Securities Act or under common law or otherwise, but
only to the extent that such liability, or expense incurred
by the Fund, its officers, directors or such controlling
person resulting from such claims or demands shall arise out
of or be based upon any alleged untrue statement of a
material fact contained in information furnished in writing
by the Underwriter to the Fund for use in its Registration
Statement, Prospectus or Statement of Additional Information
in effect from time to time under the Securities Act, or
shall arise out of or be based upon any alleged omission to
state a material fact in connection with such information
required to be stated in the Registration Statement,
Prospectus or Statement of Additional Information or
necessary to make such information not misleading. The
Underwriter's agreement to indemnify the Fund, its officers
and directors, and any such controlling person as aforesaid
is expressly conditioned upon the Underwriter being notified
of the commencement of any action brought against the Fund,
its officers or directors or any such controlling person,
such notification to be given by letter or telegram
addressed to the Underwriter at its principal office in New
York, and sent to the Underwriter by the person against whom
such action is brought, within ten days after the summons or
other first legal process shall have been served. The
Underwriter shall have a right to control the defense of
such action, with counsel of its own choosing, satisfactory
to the Fund, if such action is based solely upon such
alleged misstatement or omission on its part, and in any
other event the Underwriter and the Fund, and their officers
9
<PAGE>
and directors or such controlling person, shall each have
the right to participate in the defense or preparation of
the defense of any such action. The failure so to notify
the Underwriter of the commencement of any such action shall
not relieve the Underwriter from any liability which it may
have to the Fund, to its officers and directors, or to such
controlling person by reason of any such untrue statement or
omission on the part of the Underwriter otherwise than on
account of the indemnity agreement contained in this Section
10.
SECTION 11. Notification by the Fund.
The Fund shall advise the Underwriter immediately:
(a) of any request by the Securities and Exchange
Commission for any amendment to the Fund's Registration
Statement, Prospectus or Statement of Additional Information
or for additional information,
(b) in the event of the issuance by the Securities
and Exchange Commission of any stop order suspending the
effectiveness of the Fund's Registration Statement,
Prospectus or Statement of Additional Information or the
initiation of any proceeding for that purpose,
(c) of the happening of any material event which
makes untrue any statement made in the Fund's Registration
Statement, Prospectus or Statement of Additional Information
or which requires the making of a change in any one thereof
in order to make the statements therein not misleading, and
(d) of all actions of the Securities and Exchange
Commission with respect to any amendment to the Fund's
Registration Statement, Prospectus or Statement of
Additional Information which may from time to time be filed
with the Securities and Exchange Commission under the
Securities Act.
SECTION 12. Term of Agreement.
(a) This Agreement shall become effective on the
date hereof and shall continue in effect with respect to
each class of shares of a Portfolio of the Fund so long as
its continuance with respect to that Portfolio is
specifically approved annually by the Directors of the Fund
or by vote of the holders of a majority of the outstanding
voting securities (as defined in the Investment Company Act)
of that class, and, in either case, by a majority of the
Directors of the Fund who are not parties to this Agreement
or interested persons, as defined in the Investment Company
10
<PAGE>
Act, of any such party (other than as directors of the Fund)
and who have no direct or indirect financial interest in the
operation of the Plan or any agreement related thereto;
provided further, however, that if the continuation of this
Agreement is not approved as to a class or a Portfolio, the
Underwriter may continue to render to such class or
Portfolio the services described herein in the manner and to
the extent permitted by the Act and the rules and
regulations thereunder. Upon effectiveness of this
Agreement, it shall supersede all previous agreements
between the parties hereto covering the subject matter
hereof. This Agreement may be terminated (i) by the Fund
with respect to any class or Portfolio at any time, without
the payment of any penalty, by the vote of a majority of the
outstanding voting securities (as so defined) of such class
or Portfolio, or by a vote of a majority of the Directors of
the Fund who are not interested persons, as defined in the
Investment Company Act, of the Fund (other than as directors
of the Fund) and have no direct and indirect financial
interest in the operation of the Plan or any agreement
related thereto, in any such event on sixty days' written
notice to the Underwriter; provided, however, that no such
notice shall be required if such termination is stated by
the Fund to relate only to Sections 5 and 16 hereof (in
which event Sections 5 and 16 shall be deemed to have been
severed herefrom and all other provisions of this Agreement
shall continue in full force and effect), or (ii) by the
Underwriter with respect to any Portfolio on sixty days'
written notice to the Fund.
(b) This Agreement may be amended at any time with
the approval of the Directors of the Fund, provided that (i)
any material amendments of the terms hereof will become
effective only upon approval as provided in the first
proviso of the first sentence of Section 12(a) hereof, and
(ii) any amendment to increase materially the amount to be
expended for distribution services fees pursuant to Section
5(b) hereof will be effective only upon the additional
approval by a vote of a majority of the outstanding voting
securities as defined in the Investment Company Act of the
class or Portfolio affected.
SECTION 13. No Assignment. This Agreement may not
be transferred, assigned, sold or in any manner hypothecated
or pledged by either party hereto, and this Agreement shall
terminate automatically in the event of any such transfer,
assignment, sale, hypothecation or pledge. The terms
"transfer", "assignment", and "sale" as used in this
paragraph shall have the meanings ascribed thereto by
governing law and any interpretation thereof contained in
11
<PAGE>
rules or regulations promulgated by the Securities and
Exchange Commission thereunder.
SECTION 14. Notices. Any notice required or
permitted to be given hereunder by either party to the other
shall be deemed sufficiently given if sent by registered
mail, postage prepaid, addressed by the party giving such
notice to the other party at the last address furnished by
such other party to the party given notice, and unless and
until changed pursuant to the foregoing provisions hereof
addressed to the Fund or the Underwriter.
SECTION 15. Governing Law. The provisions of this
Agreement shall be, to the extent applicable, construed and
interpreted in accordance with the laws of the State of New
York.
SECTION 16. Disinterested Directors of the Fund.
While this Agreement is in effect, the selection and
nomination of the Directors who are not "interested persons"
of the Fund (as defined in the Investment Company Act) will
be committed to the discretion of such disinterested
Directors.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement.
ALLIANCE INSTITUTIONAL
FUNDS, INC.
By
ALLIANCE FUND DISTRIBUTORS,
INC.
By
Accepted as to
Sections 5, 12 and 16
as of [ ], 1997:
ALLIANCE CAPITAL MANAGEMENT L.P.
By Alliance Capital Management Corporation,
General Partner
By
13
00250237.AC2
<PAGE>
ALLIANCE FUND DISTRIBUTORS, INC.
1345 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10105
(800) 221-5672
(LOGO)
, 199
Selected Dealer Agreement
For Broker/Dealers (other than Bank Subsidiaries)
Dear Sirs:
As the principal underwriter of shares of certain
registered investment companies presently or hereafter managed by
Alliance Capital Management L.P., shares of which companies are
distributed by us pursuant to our Distribution Services
Agreements with such companies (the "Funds"), we invite you to
participate as principal in the distribution of shares of any and
all of the Funds upon the following terms and conditions:
1. You are to offer and sell such shares only at the
public offering prices which shall be currently in effect, in
accordance with the terms of the then current prospectuses and
statements of additional information of the Funds. You agree to
act only as principal in such transactions and shall not have
authority to act as agent for the Funds, for us, or for any other
dealer in any respect. All orders are subject to acceptance by
us and become effective only upon confirmation by us.
2. On each purchase of shares by you from us, the
total sales charges and discount to selected dealer, if any,
shall be as stated in each Fund's then current prospectus.
Such sales charges and discount to selected dealers are
subject to reductions under a variety of circumstances as
described in each Fund's then current prospectus and statement of
additional information. To obtain these reductions, we must be
notified when the sale takes place which would qualify for the
reduced charge.
There is no sales charge or discount to selected dealers
on the reinvestment of dividends.
3. As a selected dealer, you are hereby authorized
(i) to place orders directly with the Funds for their shares to
be resold by us to you subject to the applicable terms and
<PAGE>
conditions governing the placement of orders by us set forth in
the Distribution Services Agreement between each Fund and us and
subject to the applicable compensation provisions set forth in
each Fund's then current prospectus and statement of additional
information and (ii) to tender shares directly to the Funds or
their agent for redemption subject to the applicable terms and
conditions set forth in the Distribution Services Agreement.
4. Repurchases of shares will be made at the net asset
value of such shares in accordance with the then current
prospectuses and statements of additional information of the
Funds.
5. You represent that you are a member of the National
Association of Securities Dealers, Inc. and that you agree to
abide by the Rules of Fair Practice of such Association.
6. This Agreement is in all respects subject to
Rule 26 of the rules of Fair Practice of the National Association
of Securities Dealers, Inc. which shall control any provisions to
the contrary in this Agreement.
7. You agree:
(a) To purchase shares only from us or only from
your customers.
(b) To purchase shares from us only for the
purpose of covering purchase orders already
received or for your own bona fide investment.
(c) That you will not purchase any shares from
your customers at prices lower than the
redemption or repurchase prices then quoted by
the Fund. You shall, however, be permitted to
sell shares for the account of their record
owners to the Funds at the repurchase prices
currently established for such shares and may
charge the owner a fair commission for handing
the transaction.
(d) That you will not withhold placing customers'
orders for shares so as to profit yourself as
a result of such withholding.
(e) That if any shares confirmed to you hereunder
are redeemed or repurchased by any of the
Funds within seven business days after such
confirmation of your original order, you shall
forthwith refund to us the full discount
allowed to you on such sales. We shall notify
2
<PAGE>
you of such redemption or repurchase within
ten days from the date of delivery of the
request therefor or certificates to us or such
Fund. Termination or cancellation of this
Agreement shall not relieve you or us from the
requirements of this subparagraph.
8. We shall not accept from you any conditional orders
for shares. Delivery of certificates for shares purchased shall
be made by the Funds only against receipt of the purchase price,
subject to deduction for the discount reallowed to you and our
portion of the sales charge on such sales. If payment for the
shares purchased is not received within the time customary for
such payments, the sale may be cancelled forthwith without any
responsibility or liability on our part or on the part of the
Funds (in which case you will be responsible for any loss,
including loss of profit, suffered by the Funds resulting from
your failure to make payment as aforesaid), or, at our option, we
may sell the shares ordered back to the Funds (in which case we
may hold you responsible for any loss, including loss of profit
suffered by us resulting from your failure to make payment as
aforesaid).
9. You will not offer or sell any of the shares except
under circumstances that will result in compliance with the
applicable Federal and State securities laws and in connection
with sales and offers to sell shares you will furnish to each
person to whom any such sale or offer is made a copy of the
applicable then current prospectus. We shall be under no
liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing herein
contained, however, shall be deemed to be a condition,
stipulation or provision binding any persons acquiring any
security to waive compliance with any provision of the Securities
Act of 1933, or of the Rules and Regulations of the Securities
and Exchange Commission, or to relieve the parties hereto from
any liability arising under the Securities Act of 1933.
10. From time to time during the term of this Agreement
we may make payments to you pursuant to one or more of the
distribution plans adopted by certain of the Funds pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "Act")
in consideration, with respect to each such Fund, of your
furnishing distribution services hereunder and providing
administrative, accounting and other services, including personal
service and/or the maintenance of shareholder accounts. We have
no obligation to make any such payments and you waive any such
payment until we receive monies therefor from the Fund. Any such
payments made pursuant to this Section 10 shall be subject to the
following terms and conditions:
3
<PAGE>
(a) Any such payments shall be in such amounts as
we may from time to time advise you in writing
but in any event not in excess of the amounts
permitted by the plan in effect with respect
to each particular Fund. Any such payments
shall be in addition to the selling
concession, if any, allowed to you pursuant to
this Agreement. Such payments shall include a
service fee in the amount of .25 of 1% per
annum of the average daily net assets of
certain Funds attributable to your clients.
Any such service fee shall be paid to you
solely for personal service and/or the
maintenance of shareholder accounts.
(b) The provisions of this Section 10 relate to
the plan adopted by a particular Fund pursuant
to Rule 12b-1. In accordance with Rule 12b-1,
any person authorized to direct the
disposition of monies paid or payable by a
Fund pursuant to this Section 10 shall provide
the Fund's Board of Directors, and the
Directors shall review, at least quarterly, a
written report of the amounts so expended and
the purposes for which such expenditures were
made.
(c) The provisions of this Section 10 applicable
to each Fund shall remain in effect for not
more than a year and thereafter for successive
annual periods only so long as such
continuance is specifically approved at least
annually in conformity with Rule 12b-1 and the
Act. The provisions of this Section 10 shall
automatically terminate with respect to a
particular Plan in the event of the assignment
(as defined by the Act) of this Agreement, in
the event such Plan terminates or is not
continued or in the event this Agreement
terminates or ceases to remain in effect. In
addition, the provisions of this Section 10
may be terminated at any time, without
penalty, by either party with respect to any
particular Plan on not more than 60 days' nor
less than 30 days' written notice delivered or
mailed by registered mail, postage prepaid, to
the other party.
11. No person is authorized to make any representations
concerning shares of the Funds except those contained in the
current prospectus, statement of additional information, and
4
<PAGE>
printed information issued by each Fund or by us as information
supplemental to each prospectus. We shall supply prospectuses
and statements of additional information, reasonable quantities
of reports to shareholders, supplemental sales literature, sales
bulletins, and additional information as issued. You agree to
distribute prospectuses and reports to shareholders of the Funds
to your customers in compliance with the applicable requirements,
except to the extent that we expressly undertake to do so on your
behalf. You agree not to use other advertising or sales material
relating to the Funds, unless approved in writing by us in
advance of such use. Any printed information furnished by us
other than the then current prospectus and statement of
additional information for each Fund, periodic reports and proxy
solicitation materials are our sole responsibility and not the
responsibility of the Funds, and you agree that the Funds shall
have no liability or responsibility to you in these respects
unless expressly assumed in connection therewith.
12. In connection with your distribution of shares of a
Fund, you shall conform to such written compliance standards as
we have provided you in the past or may from time to time provide
to you in the future.
13. We, our affiliates and the Funds shall not be
liable for any loss, expense, damages, costs or other claim
arising out of any redemption or exchange pursuant to telephone
instructions from any person or our refusal to execute such
instructions for any reason.
14. Either party to this Agreement may cancel this
Agreement by giving written notice to the other. Such notice
shall be deemed to have been given on the date on which it was
either delivered personally to the other party or any officer or
member thereof, or was mailed postpaid or delivered to a
telegraph office for transmission to the other party at his or
its address as shown below. This Agreement may be amended by us
at any time and your placing of an order after the effective date
of any such amendment shall constitute your acceptance thereof.
5
<PAGE>
15. This Agreement shall be construed in accordance
with the laws of the State of New York and shall be binding upon
both parties thereto when signed by us and accepted by you in the
space provided below.
Very truly yours,
ALLIANCE FUND DISTRIBUTORS, INC.
By:_____________________________
(Authorized Signature)
Bank or Firm Name _______________________________________________
Address _________________________________________________________
City _____________________ State ____________ Zip Code __________
ACCEPTED BY (signature) _____________________ Title _____________
Name (print) ________________________________ Title _____________
Date _____________________ 199__ Phone # ________________________
Please return two signed copies of this Agreement (one of
which will be signed above by us and thereafter returned to you)
in the accompanying return envelope to:
Alliance Fund Distributors, Inc.
1345 Avenue of the Americas, 38th Floor
New York, NY 10105
6
00250237.AF2
<PAGE>
ALLIANCE FUND DISTRIBUTORS, INC.
1345 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10105
(800) 221-5672
(LOGO)
, 199
Selected Agent Agreement
For Depository Institutions and Their Subsidiaries
Dear Sirs:
As the principal underwriter of shares of certain
registered investment companies presently or hereafter managed by
Alliance Capital Management L.P., shares of which companies are
distributed by us pursuant to our Distribution Services
Agreements with such companies (the "Funds"), we invite you,
acting as agent for your customers, to make available to your
customers shares of any or all of the Funds upon the following
terms and conditions:
1. The customers in question will be for all purposes
your customers. We shall execute transactions in shares of the
Funds for each of your customers only upon your authorization, it
being understood in all cases that (a) you are acting as the
agent for the customer; (b) each transaction is initiated solely
upon the order of the customer; (c) each transaction is for the
account of the customer and not for your account; (d) the
transactions are without recourse against you by the customer;
(e) except as we otherwise agree, each transaction is effected on
a fully disclosed basis; (f) as between you and the customer, the
customer will have full beneficial ownership of the shares;
(g) you shall provide no investment advice and exercise no
investment discretion regarding the purchase, sale, or redemption
of the shares; and (h) you shall make appropriate disclosure to
your customers that any Fund's shares are not endorsed by you, do
not constitute your obligation and are not entitled to federal
deposit insurance.
2. You are to sell shares of the Funds only at the
public offering prices which shall be currently in effect, in
accordance with the terms of the then current prospectuses and
statements of additional information of the Funds. You agree to
act only as agent for your customers in such transactions and
shall not have authority to act as agent for the Funds or for us
<PAGE>
in any respect. All orders are subject to acceptance by us and
become effective only upon confirmation by us.
3. On each purchase of shares of a Fund authorized by
you, the total sales charge and commission, if any, shall be as
stated in the Fund's then current prospectus. Such sales charges
and commissions are subject to reductions under a variety of
circumstances as described in each Fund's then current prospectus
and statement of additional information. To obtain such a
reduction, you must provide us with such information as we may
request to establish that a particular transaction qualifies for
the reduction. There is no sales charge or commission to
selected agents on the reinvestment of dividends.
4. As a selected agent, you are hereby authorized
(i) to place orders directly with the Funds for their shares to
be resold by us through you subject to the applicable terms and
conditions governing the placement of orders by us set forth in
the Distribution Services Agreement between each Fund and us and
subject to the applicable compensation provisions set forth in
each Fund's then current prospectus and statement of additional
information, and (ii) to tender shares directly to the Funds or
their agent for redemption or repurchase subject to the
applicable terms and conditions set forth in the Distribution
Services Agreement.
5. Redemptions and repurchases of shares will be made
at the net asset value of such shares in accordance with the then
current prospectuses and statements of additional information of
the Funds.
6. You represent that you are either:
(a) a bank as defined in Section 3(a)(6) of the
Securities Exchange Act of 1934, as amended
(the "1934 Act"), duly authorized to engage in
the transactions to be performed hereunder and
not required to register as a broker-dealer
pursuant to the 1934 Act; or
(b) a bank (as so defined) or an affiliate of a
bank, in either case registered as a broker-
dealer pursuant to the 1934 Act and a member
of the National Association of Securities
Dealers, Inc., and that you agree to abide by
the rules and regulations of the National
Association of Securities Dealers, Inc.
2
<PAGE>
7. You agree:
(a) to order shares of the Funds only from us and
to act as agent only for your customers;
(b) to order shares from us only for the purpose
of covering purchase orders already received;
(c) that you will not purchase any shares from
your customers at prices lower than the
redemption or repurchase prices then quoted by
the Funds, provided, however, that you shall
be permitted to sell shares for the accounts
of their record owners to the Funds at the
repurchase prices currently established for
such shares and may charge the owner a fair
commission for handling the transaction;
(d) that you will not withhold placing customers'
orders for shares so as to profit yourself as
a result of such withholding; and
(e) that if any shares confirmed through you
hereunder are redeemed or repurchased by any
of the Funds within seven business days after
such confirmation of your original order, you
shall forthwith refund to us the full
commission reallowed to you on such sales. We
shall notify you of such redemption or
repurchase within ten days from the date of
delivery of the request therefor or
certificates to us or such Fund. Termination
or cancellation of this Agreement shall not
relieve you or us from the requirements of
this subparagraph.
8. We shall not accept from you any conditional orders
for shares. Delivery of certificates for shares purchased shall
be made by the Funds only against receipt of the purchase price,
subject to deduction for the commission reallowed to you and our
portion of the sales charge on such sale. If payment for the
shares purchased is not received within the time customary for
such payments, the sale may be cancelled forthwith without any
responsibility or liability on our part or on the part of the
Funds (in which case you will be responsible for any loss,
including loss of profit, suffered by the Funds resulting from
your failure to make payment as aforesaid).
9. You will not accept orders for shares of any of the
Funds except under circumstances that will result in compliance
with the applicable Federal and State securities laws and banking
3
<PAGE>
laws, and in connection with sales of shares to your customers
you will furnish, unless we agree otherwise, to each customer who
has ordered shares a copy of the applicable then current
prospectus. We shall be under no liability to you except for
lack of good faith and for obligations expressly assumed by us
herein. Nothing herein contained, however, shall be deemed to be
a condition, stipulation or provision binding any persons
acquiring any security to waive compliance with any provision of
the Securities Act of 1933 or of the rules and regulations of the
Securities and Exchange Commission, or to relieve the parties
hereto from any liability arising under the Securities Act of
1933.
10. From time to time during the term of this Agreement
we may make payments to you pursuant to one or more of the
distribution plans adopted by certain of the Funds pursuant to
rule 12b-1 under the Investment Company Act of 1940 (the "Act"),
to compensate you with respect to the shareholder accounts of
your customers in such Funds for providing administrative,
accounting and other services, including personal service and/or
the maintenance of such accounts. We have no obligation to make
any such payments and you waive any such payment until we receive
monies therefor from the fund. Any such payments made pursuant
to this Section 10 shall be subject to the following terms and
conditions:
(a) Any such payments shall be in such amounts as
we may from time to time advise you in writing
but in any event not in excess of the amounts
permitted by the plan in effect with respect
to each particular Fund. Such payments shall
include a service fee in the amount of .25 of
1% per annum of the average daily net assets
of certain Funds attributable to your clients.
Any such service fee shall be paid to you
solely for personal service and/or the
maintenance of shareholder accounts.
(b) The provisions of this Section 10 relate to
the plan adopted by a particular Fund pursuant
to Rule 12b-1. In accordance with Rule 12b-1,
any person authorized to direct the
disposition of monies paid or payable by a
Fund pursuant to this Section 10 shall provide
the Fund's Board of Directors, and the
Directors shall review, at lest quarterly, a
written report of the amounts so expended and
the purposes for which such expenditures were
made.
4
<PAGE>
(c) The provisions of this Section 10 applicable
to each Fund remain in effect for not more
than a year and thereafter for successive
annual periods only so long as such
continuance is specifically approved at least
annually in conformity with Rule 12b-1 and the
Act. The provisions of this Section 10 shall
automatically terminate with respect to a
particular Plan in the event of the assignment
(as defined by the Act) of this Agreement, in
the event such Plan terminates or is not
continued or in the event this Agreement
terminates or ceases to remain in effect. In
addition, the provisions of this Section 10
may be terminated at any time, without
penalty, by either party with respect to any
particular Plan on not more than 60 days' nor
less than 30 days' written notice delivered or
mailed by registered mail, postage prepaid, to
the other party.
11. No person is authorized to make any representation
concerning shares of the Funds except those contained in the
current prospectus, statement of additional information, and
printed information issued by each Fund or by us as information
supplemental to each prospectus. We shall supply prospectuses
and statements of additional information, reasonable quantities
of reports to shareholders, supplemental sales literature, sales
bulletins, and additional information as issued. You agree to
distribute prospectuses and reports to shareholders of the Funds
to your customers in compliance with applicable requirements,
except to the extent that we expressly undertake to do so on your
behalf. You agree not to use other advertising or sales material
relating to the Funds except in compliance with all laws and
regulations applicable to you and unless approved in writing by
us in advance of such use. Any printed information furnished by
us other than the then current prospectus and statement of
additional information for each Fund, periodic reports and proxy
solicitation materials are our sole responsibility and not the
responsibility of the Funds, and you agree that the Funds shall
have no liability or responsibility to you in these respects
unless expressly assumed in connection therewith.
12. In connection with your making shares of a Fund
available to your customers, you shall conform to such written
compliance standards as we have provided you in the past or may
from time to time provide to you in the future.
13. We, our affiliates and the Funds shall not be
liable for any loss, expense, damages, costs or other claim
arising out of any redemption or exchange pursuant to telephone
5
<PAGE>
instructions from any person or our refusal to execute such
instructions for any reason.
14. Either party to this Agreement may cancel this
Agreement by giving written notice to the other. Such notice
shall be deemed to have been given as of the date on which it was
either delivered personally to the other party or any officer or
member thereof, or was mailed postpaid or delivered to a
telegraph office for transmission to the other party at his or
its address as shown below. This Agreement may be amended by us
at any time and your placing of an order after the effective date
of any such amendment shall constitute your acceptance thereof.
If you are a bank or an affiliate of a bank, this Agreement will
automatically terminate if you cease to be, or the bank of which
you are an affiliate ceases to be, a bank as defined in the 1934
Act.
15. This Agreement shall be construed in accordance
with the laws of the State of New York and shall be binding upon
both parties hereto when signed by us and accepted by you in the
space provided below.
Very truly yours,
ALLIANCE FUND DISTRIBUTORS, INC.
By:_____________________________
(Authorized Signature)
Bank or Firm Name _______________________________________________
Address _________________________________________________________
City _____________________ State ____________ Zip Code __________
ACCEPTED BY (signature) _____________________ Title _____________
Name (print) ________________________________ Title _____________
Date _____________________ 199__ Phone # ________________________
Please return two signed copies of this Agreement (one of
which will be signed by us and thereafter returned to you)
in the accompanying return envelope to:
Alliance Fund Distributors, Inc.
1345 Avenue of the Americas, 38th Floor
New York, NY 10105
6
00250237.AF1
<PAGE>
Draft of 10/23/97
CUSTODIAN CONTRACT
Between
ALLIANCE INSTITUTIONAL FUNDS
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
1. Employment of Custodian and Property to be
Held By It........................................1
2. Duties of the Custodian with Respect to
Property of the Fund Held by the Custodian
in the United States .............................2
2.1 Holding Securities...........................2
2.2 Delivery of Securities ......................2
2.3 Registration of Securities...................4
2.4 Bank Accounts................................5
2.5 Availability of Federal Funds................5
2.6 Collection of Income.........................5
2.7 Payment of Fund Monies.......................5
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased..............7
2.9 Appointment of Agents........................7
2.10 Deposit of Fund Assets in U.S.
Securities System............................7
2.11 Fund Assets Held in the Custodian's
Direct Paper System..........................8
2.12 Segregated Account...........................9
2.13 Ownership Certificates for Tax Purposes...... 10
2.14 Proxies......................................10
2.15 Communications Relating to Portfolio
Securities...................................10
3. Duties of the Custodian with Respect to
Property of the Fund Held Outside of the
United States ....................................11
3.1 Appointment of Foreign Sub-Custodians........11
3.2 Assets to be Held............................11
3.3 Foreign Securities Systems...................11
3.4 Holding Securities...........................11
3.5 Agreements with Foreign Banking
Institutions.................................12
3.6 Access of Independent Accountants of
the Fund.....................................12
3.7 Reports by Custodian.........................12
3.8 Transactions in Foreign Custody Account......12
3.9 Liability of Foreign Sub-Custodians..........13
3.10 Liability of Custodian.......................13
3.11 Reimbursement for Advances...................13
<PAGE>
3.12 Monitoring Responsibilities..................14
3.13 Branches of U.S. Banks.......................14
3.14 Tax Law......................................14
4. Payments for Sales or Repurchase or
Redemptions of Shares of the Fund ................14
5. Proper Instructions ..............................15
6. Actions Permitted Without Express Authority.......15
7. Evidence of Authority ............................16
8. Duties of Custodian With Respect to the
Books of Account and Calculation of Net
Asset Value and Net Income .......................16
9. Records...........................................16
10. Opinion of Fund's Independent Accountants.........17
11. Reports to Fund by Independent Public
Accountants ......................................17
12. Compensation of Custodian.........................17
13. Responsibility of Custodian.......................17
14. Effective Period, Termination and Amendment.......19
15. Successor Custodian ..............................19
16. Interpretive and Additional Provisions............20
17. Additional Funds..................................20
18. Massachusetts Law to Apply .......................21
19. Prior Contracts...................................21
20. Reproduction of Documents ........................21
21. Shareholder Communications........................21
<PAGE>
CUSTODIAN CONTRACT
This Custodian Contract between Alliance Institutional
Funds, a corporation organized and existing under the laws
of Maryland, having its principal place of business at P.O.
Box 1520 Secaucus, New Jersey 07096-1520 hereinafter called
the "Fund", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of
business at 225 Franklin Street, Boston, Massachusetts,
02110, hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in
separate series, with each such series representing
interests in a separate portfolio of securities and other
assets; and
WHEREAS, the Fund intends to initially offer shares in
three series, the Alliance Premier Growth Institutional
Fund, Alliance Quasar Institutional Fund, Alliance Real
Estate Investment Institutional Fund (such series together
with all other series subsequently established by the Fund
and made subject to this Contract in accordance with
paragraph 17, being herein referred to as the
"Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants
and agreements hereinafter contained, the parties hereto
agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian
of the assets of the Portfolios of the Fund, including
securities which the Fund, on behalf of the applicable
Portfolio desires to be held in places within the United
States ("domestic securities") and securities it desires to
be held outside the United States ("foreign securities")
pursuant to the provisions of the Articles of Incorporation.
The Fund on behalf of the Portfolio(s) agrees to deliver to
the Custodian all securities and cash of the Portfolios, and
all payments of income, payments of principal or capital
distributions received by it with respect to all securities
owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares
of capital stock of the Fund representing interests in the
4
<PAGE>
Portfolios, ("Shares") as may be issued or sold from time to
time. The Custodian shall not be responsible for any
property of a Portfolio held or received by the Portfolio
and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the
meaning of Article 5), the Custodian shall on behalf of the
applicable Portfolio(s) from time to time employ one or more
sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Directors
of the Fund on behalf of the applicable Portfolio(s), and
provided that the Custodian shall have no more or less
responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than
any such sub-custodian has to the Custodian. The Custodian
may employ as sub-custodian for the Fund's foreign
securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities
depositories designated in Schedule A hereto but only in
accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of
the Fund Held By the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and
physically segregate for the account of each
Portfolio all non-cash property, to be held by it
in the United States including all domestic
securities owned by such Portfolio, other than (a)
securities which are maintained pursuant to Section
2.10 in a clearing agency which acts as a
securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury
and certain federal agencies (each, a "U.S.
Securities System") and (b) commercial paper of an
issuer for which State Street Bank and Trust
Company acts as issuing and paying agent ("Direct
Paper") which is deposited and/or maintained in the
Direct Paper System of the Custodian (the "Direct
Paper System") pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release
and deliver domestic securities owned by a
Portfolio held by the Custodian or in a U.S.
Securities System account of the Custodian or in
the Custodian's Direct Paper book entry system
account ("Direct Paper System Account") only upon
receipt of Proper Instructions from the Fund on
5
<PAGE>
behalf of the applicable Portfolio, which may be
continuing instructions when deemed appropriate by
the parties, and only in the following cases:
1) Upon sale of such securities for the account
of the Portfolio and receipt of payment
therefor;
2) Upon the receipt of payment in connection with
any repurchase agreement related to such
securities entered into by the Portfolio;
3) In the case of a sale effected through a U.S.
Securities System, in accordance with the
provisions of Section 2.10 hereof;
4) To the depository agent in connection with
tender or other similar offers for securities
of the Portfolio;
5) To the issuer thereof or its agent when such
securities are called, redeemed, retired or
otherwise become payable; provided that, in
any such case, the cash or other
consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for
transfer into the name of the Portfolio or
into the name of any nominee or nominees of
the Custodian or into the name or nominee name
of any agent appointed pursuant to Section 2.9
or into the name or nominee name of any sub-
custodian appointed pursuant to Article 1; or
for exchange for a different number of bonds,
certificates or other evidence representing
the same aggregate face amount or number of
units; provided that, in any such case, the
new securities are to be delivered to the
Custodian;
7) Upon the sale of such securities for the
account of the Portfolio, to the broker or its
clearing agent, against a receipt, for
examination in accordance with "street
delivery" custom; provided that in any such
case, the Custodian shall have no
responsibility or liability for any loss
6
<PAGE>
arising from the delivery of such securities
prior to receiving payment for such securities
except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any
plan of merger, consolidation,
recapitalization, reorganization or
readjustment of the securities of the issuer
of such securities, or pursuant to provisions
for conversion contained in such securities,
or pursuant to any deposit agreement; provided
that, in any such case, the new securities and
cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar
securities, the surrender thereof in the
exercise of such warrants, rights or similar
securities or the surrender of interim
receipts or temporary securities for
definitive securities; provided that, in any
such case, the new securities and cash, if
any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of
securities made by the Portfolio, but only
against receipt of adequate collateral as
agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which
may be in the form of cash or obligations
issued by the United States government, its
agencies or instrumentalities, except that in
connection with any loans for which collateral
is to be credited to the Custodian's account
in the book-entry system authorized by the
U.S. Department of the Treasury, the Custodian
will not be held liable or responsible for the
delivery of securities owned by the Portfolio
prior to the receipt of such collateral;
11) For delivery as security in connection with
any borrowings by the Fund on behalf of the
Portfolio requiring a pledge of assets by the
Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
7
<PAGE>
12) For delivery in accordance with the provisions
of any agreement among the Fund on behalf of
the Portfolio, the Custodian and a broker-
dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and
a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options
Clearing Corporation and of any registered
national securities exchange, or of any
similar organization or organizations,
regarding escrow or other arrangements in
connection with transactions by the Portfolio
of the Fund;
13) For delivery in accordance with the provisions
of any agreement among the Fund on behalf of
the Portfolio, the Custodian, and a Futures
Commission Merchant registered under the
Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures
Trading Commission and/or any Contract Market,
or any similar organization or organizations,
regarding account deposits in connection with
transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer
agent ("Transfer Agent") for the Fund, for
delivery to such Transfer Agent or to the
holders of shares in connection with
distributions in kind, as may be described
from time to time in the currently effective
prospectus and statement of additional
information of the Fund, related to the
Portfolio ("Prospectus"), in satisfaction of
requests by holders of Shares for repurchase
or redemption; and
15) For any other proper corporate purpose, but
only upon receipt of, in addition to Proper
Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a
resolution of the Board of Directors or of the
Executive Committee signed by an officer of
the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities
of the Portfolio to be delivered, setting
forth the purpose for which such delivery is
8
<PAGE>
to be made, declaring such purpose to be a
proper corporate purpose, and naming the
person or persons to whom delivery of such
securities shall be made.
2.3 Registration of Securities. Domestic securities
held by the Custodian (other than bearer
securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund
on behalf of the Portfolio or of any nominee of the
Custodian which nominee shall be assigned
exclusively to the Portfolio, unless the Fund has
authorized in writing the appointment of a nominee
to be used in common with other registered
investment companies having the same investment
adviser as the Portfolio, or in the name or nominee
name of any agent appointed pursuant to Section 2.9
or in the name or nominee name of any sub-custodian
appointed pursuant to Article 1. All securities
accepted by the Custodian on behalf of the
Portfolio under the terms of this Contract shall be
in "street name" or other good delivery form. If,
however, the Fund directs the Custodian to maintain
securities in "street name", the Custodian shall
utilize its best efforts only to timely collect
income due the Fund on such securities and to
notify the Fund on a best efforts basis only of
relevant corporate actions including, without
limitation, pendency of calls, maturities, tender
or exchange offers.
2.4 Bank Accounts. The Custodian shall open and
maintain a separate bank account or accounts in the
United States in the name of each Portfolio of the
Fund, subject only to draft or order by the
Custodian acting pursuant to the terms of this
Contract, and shall hold in such account or
accounts, subject to the provisions hereof, all
cash received by it from or for the account of the
Portfolio, other than cash maintained by the
Portfolio in a bank account established and used in
accordance with Rule 1 7f-3 under the Investment
Company Act of 1940. Funds held by the Custodian
for a Portfolio may be deposited by it to its
credit as Custodian in the Banking Department of
the Custodian or in such other banks or trust
companies as it may in its discretion deem
necessary or desirable; provided, however, that
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every such bank or trust company shall be qualified
to act as a custodian under the Investment Company
Act of 1940 and that each such bank or trust
company and the funds to be deposited with each
such bank or trust company shall on behalf of each
applicable Portfolio be approved by vote of a
majority of the Board of Directors of the Fund.
Such funds shall be deposited by the Custodian in
its capacity as Custodian and shall be withdrawable
by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual
agreement between the Fund on behalf of each
applicable Portfolio and the Custodian, the
Custodian shall, upon the receipt of Proper
Instructions from the Fund on behalf of a
Portfolio, make federal funds available to such
Portfolio as of specified times agreed upon from
time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of
such Portfolio which are deposited into the
Portfolio's account.
2.6 Collection of Income. Subject to the provisions of
Section 2.3, the Custodian shall collect on a
timely basis all income and other payments with
respect to registered domestic securities held
hereunder to which each Portfolio shall be entitled
either by law or pursuant to custom in the
securities business, and shall collect on a timely
basis all income and other payments with respect to
bearer domestic securities if, on the date of
payment by the issuer, such securities are held by
the Custodian or its agent thereof and shall credit
such income, as collected, to such Portfolio's
custodian account. Without limiting the generality
of the foregoing, the Custodian shall detach and
present for payment all coupons and other income
items requiring presentation as and when they
become due and shall collect interest when due on
securities held hereunder. Income due each
Portfolio on securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have
no duty or responsibility in connection therewith,
other than to provide the Fund with such
information or data as may be necessary to assist
the Fund in arranging for the timely delivery to
10
<PAGE>
the Custodian of the income to which the Portfolio
is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper
Instructions from the Fund on behalf of the
applicable Portfolio, which may be continuing
instructions when deemed appropriate by the
parties, the Custodian shall pay out monies of a
Portfolio in the following cases only:
1) Upon the purchase of domestic securities,
options, futures contracts or options on
futures contracts for the account of the
Portfolio but only (a) against the delivery of
such securities or evidence of title to such
options, futures contracts or options on
futures contracts to the Custodian (or any
bank, banking firm or trust company doing
business in the United States or abroad which
is qualified under the Investment Company Act
of 1940, as amended, to act as a custodian and
has been designated by the Custodian as its
agent for this purpose) registered in the name
of the Portfolio or in the name of a nominee
of the Custodian referred to in Section 2.3
hereof or in proper form for transfer; (b) in
the case of a purchase effected through a U.S.
Securities System, in accordance with the
conditions set forth in Section 2.10 hereof;
(c) in the case of a purchase involving the
Direct Paper System, in accordance with the
conditions set forth in Section 2.11; (d) in
the case of repurchase agreements entered into
between the Fund on behalf of the Portfolio
and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i)
against delivery of the securities either in
certificate form or through an entry crediting
the Custodian's account at the Federal Reserve
Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by
the Portfolio of securities owned by the
Custodian along with written evidence of the
agreement by the Custodian to repurchase such
securities from the Portfolio or (e) for
transfer to a time deposit account of the Fund
in any bank, whether domestic or foreign; such
transfer may be effected prior to receipt of a
11
<PAGE>
confirmation from a broker and/or the
applicable bank pursuant to Proper
Instructions from the Fund as defined in
Article 5;
2) In connection with conversion, exchange or
surrender of securities owned by the Portfolio
as set forth in Section 2.2 hereof,
3) For the redemption or repurchase of Shares
issued by the Portfolio as set forth in
Article 4 hereof;
4) For the payment of any expense or liability
incurred by the Portfolio, including but not
limited to the following payments for the
account of the Portfolio: interest, taxes,
management, accounting, transfer agent and
legal fees, and operating expenses of the Fund
whether or not such expenses are to be in
whole or part capitalized or treated as
deferred expenses;
5) For the payment of any dividends on Shares of
the Portfolio declared pursuant to the
governing documents of the Fund;
6) For payment of the amount of dividends
received in respect of securities sold short;
7) For any other proper purpose, but only upon
receipt of, in addition to Proper Instructions
from the Fund on behalf of the Portfolio, a
certified copy of a resolution of the Board of
Directors or of the Executive Committee of the
Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant
Secretary, specifying the amount of such
payment, setting forth the purpose for which
such payment is to be made, declaring such
purpose to be a proper purpose, and naming the
person or persons to whom such payment is to
be made.
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased. Except as specifically stated
otherwise in this Contract, in any and every case
where payment for purchase of domestic securities
12
<PAGE>
for the account of a Portfolio is made by the
Custodian in advance of receipt of the securities
purchased in the absence of specific written
instructions from the Fund on behalf of such
Portfolio to so pay in advance, the Custodian shall
be absolutely liable to the Fund for such
securities to the same extent as if the securities
had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any
time or times in its discretion appoint (and may at
any time remove) any other bank or trust company
which is itself qualified under the Investment
Company Act of 1940, as amended, to act as a
custodian, as its agent to carry out such of the
provisions of this Article 2 as the Custodian may
from time to time direct; provided, however, that
the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities
hereunder.
2.10 Deposit of Fund Assets in U.S. Securities Systems.
The Custodian may deposit and/or maintain
securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange
Commission under Section 17A of the Securities
Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized
by the U.S. Department of the Treasury and certain
federal agencies, collectively referred to herein
as "U.S. Securities System" in accordance with
applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any,
and subject to the following provisions:
1) The Custodian may keep securities of the
Portfolio in a U.S. Securities System provided
that such securities are represented in an
account ("Account") of the Custodian in the
U.S. Securities System which shall not include
any assets of the Custodian other than assets
held as a fiduciary, custodian or otherwise
for customers;
2) The records of the Custodian with respect to
securities of the Portfolio which are
maintained in a U.S. Securities System shall
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<PAGE>
identify by book-entry those securities
belonging to the Portfolio;
3) The Custodian shall pay for securities
purchased for the account of the Portfolio
upon (i) receipt of advice from the U.S.
Securities System that such securities have
been transferred to the Account, and (ii) the
making of an entry on the records of the
Custodian to reflect such payment and transfer
for the account of the Portfolio. The
Custodian shall transfer securities sold for
the account of the Portfolio upon (i) receipt
of advice from the U.S. Securities System that
payment for such securities has been
transferred to the Account, and (ii) the
making of an entry on the records of the
Custodian to reflect such transfer and payment
for the account of the Portfolio. Copies of
all advices from the U.S. Securities System of
transfers of securities for the account of the
Portfolio shall identify the Portfolio, be
maintained for the Portfolio by the Custodian
and be provided to the Fund at its request.
Upon request, the Custodian shall furnish the
Fund on behalf of the Portfolio confirmation
of each transfer to or from the account of the
Portfolio in the form of a written advice or
notice and shall furnish to the Fund on behalf
of the Portfolio copies of daily transaction
sheets reflecting each day's transactions in
the U.S. Securities System for the account of
the Portfolio.
4) The Custodian shall provide the Fund for the
Portfolio with any report obtained by the
Custodian on the U.S. Securities System's
accounting system, internal accounting control
and procedures for safeguarding securities
deposited in the U.S. Securities System;
5) The Custodian shall have received from the
Fund on behalf of the Portfolio the initial or
annual certificate, as the case may be,
required by Article 14 hereof;
6) Anything to the contrary in this Contract
notwithstanding, the Custodian shall be liable
14
<PAGE>
to the Fund for the benefit of the Portfolio
for any loss or damage to the Portfolio
resulting from use of the U.S. Securities
System by reason of any negligence,
misfeasance or misconduct of the Custodian or
any of its agents or of any of its or their
employees or from failure of the Custodian or
any such agent to enforce effectively such
rights as it may have against the U.S.
Securities System; at the election of the
Fund, it shall be entitled to be subrogated to
the rights of the Custodian with respect to
any claim against the U.S. Securities System
or any other person which the Custodian may
have as a consequence of any such loss or
damage if and to the extent that the Portfolio
has not been made whole for any such loss or
damage.
2.11 Fund Assets Held in the Custodian's Direct Paper
System. The Custodian may deposit and/or maintain
securities owned by a Portfolio in the Direct Paper
System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the
Direct Paper System will be effected in the
absence of Proper Instructions from the Fund
on behalf of the Portfolio;
2) The Custodian may keep securities of the
Portfolio in the Direct Paper System only if
such securities are represented in an account
("Account") of the Custodian in the Direct
Paper System which shall not include any
assets of the Custodian other than assets held
as a fiduciary, custodian or otherwise for
customers;
3) The records of the Custodian with respect to
securities of the Portfolio which are
maintained in the Direct Paper System shall
identify by book-entry those securities
belonging to the Portfolio;
4) The Custodian shall pay for securities
purchased for the account of the Portfolio
15
<PAGE>
upon the making of an entry on the records of
the Custodian to reflect such payment and
transfer of securities to the account of the
Portfolio. The Custodian shall transfer
securities sold for the account of the
Portfolio upon the making of an entry on the
records of the Custodian to reflect such
transfer and receipt of payment for the
account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf
of the Portfolio confirmation of each transfer
to or from the account of the Portfolio, in
the form of a written advice or notice, of
Direct Paper on the next business day
following such transfer and shall furnish to
the Fund on behalf of the Portfolio copies of
daily transaction sheets reflecting each day's
transaction in the U.S. Securities System for
the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf
of the Portfolio with any report on its system
of internal accounting control as the Fund may
reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon
receipt of Proper Instructions from the Fund on
behalf of each applicable Portfolio establish and
maintain a segregated account or accounts for and
on behalf of each such Portfolio, into which
account or accounts may be transferred cash and/or
securities, including securities maintained in an
account by the Custodian pursuant to Section 2.10
hereof, (i) in accordance with the provisions of
any agreement among the Fund on behalf of the
Portfolio, the Custodian and a broker-dealer
registered under the Exchange Act and a member of
the NASD (or any futures commission merchant
registered under the Commodity Exchange Act),
relating to compliance with the rules of The
Options Clearing Corporation and of any registered
national securities exchange (or the Commodity
Futures Trading Commission or any registered
contract market), or of any similar organization or
organizations, regarding escrow or other
arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or
16
<PAGE>
government securities in connection with options
purchased, sold or written by the Portfolio or
commodity futures contracts or options thereon
purchased or sold by the Portfolio, (iii) for the
purposes of compliance by the Portfolio with the
procedures required by Investment Company Act
Release No. 10666, or any subsequent release or
releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts
by registered investment companies and (iv) for
other proper corporate purposes, but only, in the
case of clause (iv), upon receipt of, in addition
to Proper Instructions from the Fund on behalf of
the applicable Portfolio, a certified copy of a
resolution of the Board of Directors or of the
Executive Committee signed by an officer of the
Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of
such segregated account and declaring such purposes
to be proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The
Custodian shall execute ownership and other
certificates and affidavits for all federal and
state tax purposes in connection with receipt of
income or other payments with respect to domestic
securities of each Portfolio held by it and in
connection with transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the
domestic securities held hereunder, cause to be
promptly executed by the registered holder of such
securities, if the securities are registered
otherwise than in the name of the Portfolio or a
nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are
to be voted, and shall promptly deliver to the
Portfolio such proxies, all proxy soliciting
materials and all notices relating to such
securities.
2.15 Communications Relating to Portfolio Securities.
Subject to the provisions of Section 2.3, the
Custodian shall transmit promptly to the Fund for
each Portfolio all written information (including,
without limitation, pendency of calls and
maturities of domestic securities and expirations
of rights in connection therewith and notices of
17
<PAGE>
exercise of call and put options written by the
Fund on behalf of the Portfolio and the maturity of
futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers
of the securities being held for the Portfolio.
With respect to tender or exchange offers, the
Custodian shall transmit promptly to the Portfolio
all written information received by the Custodian
from issuers of the securities whose tender or
exchange is sought and from the party (or his
agents) making the tender or exchange offer. If the
Portfolio desires to take action with respect to
any tender offer, exchange offer or any other
similar transaction, the Portfolio shall notify the
Custodian at least three business days prior to the
date on which the Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund
hereby authorizes and instructs the Custodian to
employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the
United States the foreign banking institutions and
foreign securities depositories designated on
Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined in
Section 5 of this Contract, together with a
certified resolution of the Fund's Board of
Directors, the Custodian and the Fund may agree to
amend Schedule A hereto from time to time to
designate additional foreign banking institutions
and foreign securities depositories to act as sub-
custodian. Upon receipt of Proper Instructions, the
Fund may instruct the Custodian to cease the
employment of any one or more such sub-custodians
for maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the
securities and other assets maintained in the
custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph
(c)(1) of Rule 17f-5 under the Investment Company
Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund may
determine to be reasonably necessary to effect the
Portfolio's foreign securities transactions. The
18
<PAGE>
Custodian shall identify on its books as belonging
to the Fund, the foreign securities of the Fund
held by each foreign sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise
be agreed upon in writing by the Custodian and the
Fund, assets of the Portfolios shall be maintained
in a clearing agency which acts as a securities
depository or in a book-entry system for the
central handling of securities located outside of
the United States (each a "Foreign Securities
System") only through arrangements implemented by
the foreign banking institutions serving as sub-
custodians pursuant to the terms hereof (Foreign
Securities Systems and U.S. Securities Systems are
collectively referred to herein as the "Securities
Systems"). Where possible, such arrangements shall
include entry into agreements containing the
provisions set forth in Section 3.5 hereof.
3.4 Holding Securities. The Custodian may hold
securities and other non-cash property for all of
its customers, including the Fund, with a foreign
sub-custodian in a single account that is
identified as belonging to the Custodian for the
benefit of its customers, provided however, that
(i) the records of the Custodian with respect to
securities and other non-cash property of the Fund
which are maintained in such account shall identify
by book-entry those securities and other non-cash
property belonging to the Fund and (ii) the
Custodian shall require that securities and other
non-cash property so held by the foreign sub-
custodian be held separately from any assets of the
foreign sub-custodian or of others.
3.5 Agreements with Foreign Banking Institutions. Each
agreement with a foreign banking institution shall
provide that: (a) the assets of each Portfolio will
not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the
foreign banking institution or its creditors or
agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership
for the assets of each Portfolio will be freely
transferable without the payment of money or value
other than for custody or administration; (c)
adequate records will be maintained identifying the
19
<PAGE>
assets as belonging to each applicable Portfolio;
(d) officers of or auditors employed by, or other
representatives of the Custodian, including to the
extent permitted under applicable law the
independent public accountants for the Fund, will
be given access to the books and records of the
foreign banking institution relating to its actions
under its agreement with the Custodian; and (e)
assets of the Portfolios held by the foreign sub-
custodian will be subject only to the instructions
of the Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon
request of the Fund, the Custodian will use its
best efforts to arrange for the independent
accountants of the Fund to be afforded access to
the books and records of any foreign banking
institution employed as a foreign sub-custodian
insofar as such books and records relate to the
performance of such foreign banking institution
under its agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to
the Fund from time to time, as mutually agreed
upon, statements in respect of the securities and
other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an
identification of entities having possession of the
Portfolio(s) securities and other assets and
advices or notifications of any transfers of
securities to or from each custodial account
maintained by a foreign banking institution for the
Custodian on behalf of each applicable Portfolio
indicating, as to securities acquired for a
Portfolio, the identity of the entity having
physical possession of such securities.
3.8 Transactions in Foreign Custody Account. (a) Except
as otherwise provided in paragraph (b) of this
Section 3.8, the provision of Sections 2.2 and 2.7
of this Contract shall apply, mutatis mutandis to
the foreign securities of the Fund held outside the
United States by foreign sub-custodians. (b)
Notwithstanding any provision of this Contract to
the contrary, settlement and payment for securities
received for the account of each applicable
Portfolio and delivery of securities maintained for
the account of each applicable Portfolio may be
20
<PAGE>
effected in accordance with the customary
established securities trading or securities
processing practices and procedures in the
jurisdiction or market in which the transaction
occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer)
against a receipt with the expectation of receiving
later payment for such securities from such
purchaser or dealer. (c) Securities maintained in
the custody of a foreign sub-custodian may be
maintained in the name of such entity's nominee to
the same extent as set forth in Section 2.3 of this
Contract, and the Fund agrees to hold any such
nominee harmless from any liability as a holder of
record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement
pursuant to which the Custodian employs a foreign
banking institution as a foreign sub-custodian
shall require the institution to exercise
reasonable care in the performance of its duties
and to indemnify, and hold harmless, the Custodian
and each Fund from and against any loss, damage,
cost, expense, liability or claim arising out of or
in connection with the institution's performance of
such obligations. At the election of the Fund, it
shall be entitled to be subrogated to the rights of
the Custodian with respect to any claims against a
foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or
claim if and to the extent that the Fund has not
been made whole for any such loss, damage, cost,
expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be
liable for the acts or omissions of a foreign
banking institution to the same extent as set forth
with respect to sub-custodians generally in this
Contract and, regardless of whether assets are
maintained in the custody of a foreign banking
institution, a foreign securities depository or a
branch of a U.S. bank as contemplated by paragraph
3.13 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism
or any loss where the sub-custodian has otherwise
21
<PAGE>
exercised reasonable care. Notwithstanding the
foregoing provisions of this paragraph 3.10, in
delegating custody duties to State Street London
Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such
delegation, except such loss as may result from (a)
political risk (including, but not limited to,
exchange control restrictions, confiscation,
expropriation, nationalization, insurrection, civil
strife or armed hostilities) or (b) other losses
(excluding a bankruptcy or insolvency of State
Street London Ltd. not caused by political risk)
due to Acts of God, nuclear incident or other
losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable
care.
3.11 Reimbursement for Advances. If the Fund requires
the Custodian to advance cash or securities for any
purpose for the benefit of a Portfolio including
the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event
that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments,
claims or liabilities in connection with the
performance of this Contract, except such as may
arise from its or its nominee's own negligent
action, negligent failure to act or willful
misconduct, any property at any time held for the
account of the applicable Portfolio shall be
security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose
of such Portfolios assets to the extent necessary
to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall
furnish annually to the Fund, during the month of
June, information concerning the foreign sub-
custodians employed by the Custodian. Such
information shall be similar in kind and scope to
that furnished to the Fund in connection with the
initial approval of this Contract. In addition, the
Custodian will promptly inform the Fund in the
event that the Custodian learns of a material
adverse change in the financial condition of a
foreign sub-custodian or any material loss of the
assets of the Fund or in the case of any foreign
22
<PAGE>
sub-custodian not the subject of an exemptive order
from the Securities and Exchange Commission is
notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its
shareholders' equity will decline below $200
million (U.S. dollars or the equivalent thereof) or
that its shareholders' equity has declined below
$200 million (in each case computed in accordance
with generally accepted U.S. accounting
principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set
forth in this Contract, the provisions hereof shall
not apply where the custody of the Portfolios
assets are maintained in a foreign branch of a
banking institution which is a "bank" as defined by
Section 2(a)(5) of the Investment Company Act of
1940 meeting the qualification set forth in Section
26(a) of said Act. The appointment of any such
branch as a sub-custodian shall be governed by
paragraph 1 of this Contract. (b) Cash held for
each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account
established for the Fund with the Custodian's
London branch, which account shall be subject to
the direction of the Custodian, State Street London
Ltd. or both.
3.14 Tax Law. The Custodian shall have no responsibility
or liability for any obligations now or hereafter
imposed on the Fund or the Custodian as custodian
of the Fund by the tax law of the United States of
America or any state or political subdivision
thereof. It shall be the responsibility of the Fund
to notify the Custodian of the obligations imposed
on the Fund or the Custodian as custodian of the
Fund by the tax law of jurisdictions other than
those mentioned in the above sentence, including
responsibility for withholding and other taxes,
assessments or other governmental charges,
certifications and governmental reporting. The sole
responsibility of the Custodian with regard to such
tax law shall be to use reasonable efforts to
assist the Fund with respect to any claim for
exemption or refund under the tax law of
jurisdictions for which the Fund has provided such
information.
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<PAGE>
4. Payments for Sales or Repurchases or Redemptions of
Shares of the Fund
The Custodian shall receive from the distributor for the
Shares or from the Transfer Agent of the Fund and deposit
into the account of the appropriate Portfolio such payments
as are received for Shares of that Portfolio issued or sold
from time to time by the Fund. The Custodian will provide
timely notification to the Fund on behalf of each such
Portfolio and the Transfer Agent of any receipt by it of
payments for Shares of such Portfolio.
From such funds as may be available for the purpose but
subject to the limitations of the Articles of Incorporation
and any applicable votes of the Board of Directors of the
Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available
for payment to holders of Shares who have delivered to the
Transfer Agent a request for redemption or repurchase of
their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is
authorized upon receipt of instructions from the Transfer
Agent to wire funds to or through a commercial bank
designated by the redeeming shareholders. In connection with
the redemption or repurchase of Shares of the Fund, the
Custodian shall honor checks drawn on the Custodian by a
holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the
Custodian in accordance with such procedures and controls as
are mutually agreed upon from time to time between the Fund
and the Custodian.
5. Proper Instructions
Proper Instructions as used throughout this Contract
means a writing signed or initialed by one or more person or
persons as the Board of Directors shall have from time to
time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved,
including a specific statement of the purpose for which such
action is requested. Oral instructions will be considered
Proper Instructions if the Custodian reasonably believes
them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The
Fund shall cause all oral instructions to be confirmed in
writing. Upon receipt of a certificate of the Secretary or
an Assistant Secretary as to the authorization by the Board
of Directors of the Fund accompanied by a detailed
24
<PAGE>
description of procedures approved by the Board of
Directors, Proper Instructions may include communications
effected directly between electro-mechanical or electronic
devices provided that the Board of Directors and the
Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this
Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three-party
agreement which requires a segregated asset account in
accordance with Section 2.12.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express
authority from the Fund on behalf of each applicable
Portfolio:
1) make payments to itself or others for minor
expenses of handling securities or other similar
items relating to its duties under this Contract,
provided that all such payments shall be accounted
for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for
securities in definitive form;
3) endorse for collection, in the name of the
Portfolio, checks, drafts and other negotiable
instruments, and
4) in general, attend to all non-discretionary details
in connection with the sale, exchange,
substitution, purchase, transfer and other dealings
with the securities and property of the Portfolio
except as otherwise directed by the Board of
Directors of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any
instructions, notice, request, consent, certificate or other
instrument or paper believed by it to be genuine and to have
been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote
of the Board of Directors of the Fund as conclusive evidence
(a) of the authority of any person to act in accordance with
such vote or (b) of any determination or of any action by
the Board of Directors pursuant to the Articles of
25
<PAGE>
Incorporation as described in such vote, and such vote may
be considered as in full force and effect until receipt by
the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account
and Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Board
of Directors of the Fund to keep the books of account of
each Portfolio and/or compute the net asset value per share
of the outstanding shares of each Portfolio or, if directed
in writing to do so by the Fund on behalf of the Portfolio,
shall itself keep such books of account and/or compute such
net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio
as described in the Fund's currently effective prospectus
related to such Portfolio and shall advise the Fund and the
Transfer Agent daily of the total amounts of such net income
and, if instructed in writing by an officer of the Fund to
do so, shall advise the Transfer Agent periodically of the
division of such net income among its various components.
The calculations of the net asset value per share and the
daily income of each Portfolio shall be made at the time or
times described from time to time in the Fund's currently
effective prospectus related to such Portfolio.
9. Records
The Custodian shall with respect to each Portfolio
create and maintain all records relating to its activities
and obligations under this Contract in such manner as will
meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31
thereof and Rules 3la-1 and 3la-2 thereunder. All such
records shall be the property of the Fund and shall at all
times during the regular business hours of the Custodian be
open for inspection by duly authorized offficers, employees
or agents of the Fund and employees and agents of the
Securities and Exchange Commission. The Custodian shall, at
the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian
and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and
the Custodian, include certificate numbers in such
tabulations.
26
<PAGE>
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the
Fund on behalf of each applicable Portfolio may from time to
time request, to obtain from year to year favorable opinions
from the Fund's independent accountants with respect to its
activities hereunder in connection with the preparation of
the Fund's Form N-1A, and Form N-SAR or other annual reports
to the Securities and Exchange Commission and with respect
to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each
of the Portfolios at such times as the Fund may reasonably
require, with reports by independent public accountants on
the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts
and options on futures contracts, including securities
deposited and/or maintained in a Securities System, relating
to the services provided by the Custodian under this
Contract; such reports, shall be of sufficient scope and in
sufficient detail, as may reasonably be required by the Fund
to provide reasonable assurance that any material
inadequacies would be disclosed by such examination, and, if
there are no such inadequacies, the reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable
compensation for its services and expenses as Custodian, as
agreed upon from time to time between the Fund on behalf of
each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise
of reasonable care, the Custodian shall not be responsible
for the title, validity or genuineness of any property or
evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in
acting upon any notice, request, consent, certificate or
other instrument reasonably believed by it to be genuine and
to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of
a three-party futures or options agreement. The Custodian
shall be held to the exercise of reasonable care in carrying
out the provisions of this Contract, but shall be kept
27
<PAGE>
indemnified by and shall be without liability to the Fund
for any action taken or omitted by it in good faith without
negligence. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all
matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence
or willful misconduct or the negligence or willful
misconduct of a sub-custodian or agent, the Custodian shall
be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or
circumstances beyond the reasonable control of the Custodian
or any sub-custodian or Securities System or any agent or
nominee of any of the foregoing, including, without
limitation, nationalization or expropriation, imposition of
currency controls or restrictions, the interruption,
suspension or restriction of trading on or the closure of
any securities market, power or other mechanical or
technological failures or interruptions, computer viruses or
communications disruptions, acts of war or terrorism, riots,
revolutions, work stoppages, natural disasters or other
similar events or acts; (ii) errors by the Fund or the
Investment Advisor in their instructions to the Custodian
provided such instructions have been in accordance with this
Contract; (iii) the insolvency of or acts or omissions by a
Securities System; (iv) any delay or failure of any broker,
agent or intermediary, central bank or other commercially
prevalent payment or clearing system to deliver to the
Custodian's sub-custodian or agent securities purchased or
in the remittance or payment made in connection with
securities sold; (v) any delay or failure of any company,
corporation, or other body in charge of registering or
transferring securities in the name of the Custodian, the
Fund, the Custodian's sub-custodians, nominees or agents or
any consequential losses arising out of such delay or
failure to transfer such securities including non-receipt of
bonus, dividends and rights and other accretions or
benefits; (vi) delays or inability to perform its duties due
to any disorder in market infrastructure with respect to any
particular security or Securities System; and (vii) any
provision of any present or future law or regulation or
order of the United States of America, or any state thereof,
or any other country, or political subdivision thereof or of
any court of competent jurisdiction.
The Custodian shall be liable for the acts or omissions
of a foreign banking institution to the same extent as set
28
<PAGE>
forth with respect to sub-custodians generally in this
Contract.
If the Fund on behalf of a Portfolio requires the
Custodian to take any action with respect to securities,
which action involves the payment of money or which action
may, in the opinion of the Custodian, result in the
Custodian or its nominee assigned to the Fund or the
Portfolio being liable for the payment of money or incurring
liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to
take such action, shall provide indemnity to the Custodian
in an amount and form satisfactory to it.
If the Fund requires the Custodian, its affiliates,
subsidiaries or agents, to advance cash or securities for
any purpose (including but not limited to securities
settlements, foreign exchange contracts and assumed
settlement) or in the event that the Custodian or its
nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection
with the performance of this Contract, except such as may
arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property
at any time held for the account of the applicable Portfolio
shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to
utilize available cash and to dispose of such Portfolios
assets to the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect,
special or consequential damages.
14. Effective Period. Termination and Amendment
This Contract shall become effective as of its
execution, shall continue in full force and effect until
terminated as hereinafter provided, may be amended at any
time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing
delivered or mailed, postage prepaid to the other party,
such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a
Portfolio act under Section 2. l 0 hereof in the absence of
receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Directors of the Fund
has approved the initial use of a particular Securities
29
<PAGE>
System by such Portfolio, as required by Rule 17f-4 under
the Investment Company Act of 1940, as amended and that the
Custodian shall not with respect to a Portfolio act under
Section 2.11 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that
the Board of Directors has approved the initial use of the
Direct Paper System by such Portfolio; provided further,
however, that the Fund shall not amend or terminate this
Contract in contravention of any applicable federal or state
regulations, or any provision of the Articles of
Incorporation, and further provided, that the Fund on behalf
of one or more of the Portfolios may at any time by action
of its Board of Directors (i) substitute another bank or
trust company for the Custodian by giving notice as
described above to the Custodian, or (ii) immediately
terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller
of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of
competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of
each applicable Portfolio shall pay to the Custodian such
compensation as may be due as of the date of such
termination and shall likewise reimburse the Custodian for
its costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for the Fund, of one or more of
the Portfolios shall be appointed by the Board of Directors
of the Fund, the Custodian shall, upon termination, deliver
to such successor custodian at the office of the Custodian,
duly endorsed and in the form for transfer, all securities
of each applicable Portfolio then held by it hereunder and
shall transfer to an account of the successor custodian all
of the securities of each such Portfolio held in a
Securities System.
If no such successor custodian shall be appointed, the
Custodian shall, in like manner, upon receipt of a certified
copy of a vote of the Board of Directors of the Fund,
deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with
such vote.
In the event that no written order designating a
successor custodian or certified copy of a vote of the Board
30
<PAGE>
of Directors shall have been delivered to the Custodian on
or before the date when such termination shall become
effective, then the Custodian shall have the right to
deliver to a bank or trust company, which is a "bank" as
defined in the Investment Company Act of 1940, doing
business in Boston, Massachusetts, of its own selection,
having an aggregate capital, surplus, and undivided profits,
as shown by its last published report, of not less than
$25,000,000, all securities, funds and other properties held
by the Custodian on behalf of each applicable Portfolio and
all instruments held by the Custodian relative thereto and
all other property held by it under this Contract on behalf
of each applicable Portfolio and to transfer to an account
of such successor custodian all of the securities of each
such Portfolio held in any Securities System. Thereafter,
such bank or trust company shall be the successor of the
Custodian under this Contract.
In the event that securities, funds and other properties
remain in the possession of the Custodian after the date of
termination hereof owing to failure of the Fund to procure
the certified copy of the vote referred to or of the Board
of Directors to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services
during such period as the Custodian retains possession of
such securities, funds and other properties and the
provisions of this Contract relating to the duties and
obligations of the Custodian shall remain in full force and
effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the
Custodian and the Fund on behalf of each of the Portfolios,
may from time to time agree on such provisions interpretive
of or in addition to the provisions of this Contract as may
in their joint opinion be consistent with the general tenor
of this Contract. Any such interpretive or additional
provisions shall be in a writing signed by both parties and
shall be annexed hereto, provided that no such interpretive
or additional provisions shall contravene any applicable
federal or state regulations or any provision of the
Articles of Incorporation of the Fund. No interpretive or
additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this
Contract.
31
<PAGE>
17. Additional Funds
In the event that the Fund establishes one or more
series of Shares in addition to the Alliance Premier Growth
Institutional Fund, Alliance Quasar Institutional Fund,
Alliance Real Estate Investment Institutional Fund with
respect to which it desires to have the Custodian render
services as custodian under the terms hereof, it shall so
notify the Custodian in writing, and if the Custodian agrees
in writing to provide such services, such series of Shares
shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions
thereof interpreted under and in accordance with laws of The
Commonwealth of Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date
hereof, all prior contracts between the Fund on behalf of
each of the Portfolios and the Custodian relating to the
custody of the Fund's assets.
20. Reproduction of Documents
This Contract and all schedules, exhibits, attachments
and amendments hereto may be reproduced by any photographic,
photostatic, microfilm, micro-card, miniature photographic
or other similar process. The parties hereto all/each agree
that any such reproduction shall be admissible in evidence
as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and
whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement,
facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
21. Shareholder Communications
Securities and Exchange Commission Rule 14b-2 requires
banks which hold securities for the account of customers to
respond to requests by issuers of securities for the names,
addresses and holdings of beneficial owners of securities of
that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In
order to comply with the rule, the Custodian needs the Fund
32
<PAGE>
to indicate whether the Fund authorizes the Custodian to
provide the Fund's name, address, and share position to
requesting companies whose stock the Fund owns. If the Fund
tells the Custodian "no", the Custodian will not provide
this information to requesting companies. If the Fund tells
the Custodian "yes" or do not check either "yes" or "no"
below, the Custodian is required by the rule to treat the
Fund as consenting to disclosure of this information for all
securities owned by the Fund or any funds or accounts
established by the Fund. For the Fund's protection, the Rule
prohibits the requesting company from using the Fund's name
and address for any purpose other than corporate
communications. Please indicate below whether the Fund
consent or object by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the
Fund's name, address, and share positions.
NO [ x ] The Custodian is not authorized to release the
Fund's name, address, and share positions.
33
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
instrument to be executed in its name and behalf by its duly
authorized representative and its seal to be hereunder
affixed as of the day of October, 1997.
ATTEST ALLIANCE INSTITUTIONAL FUND
___________________ By:______________________________
Name:______________ Name:________________________
Title:_______________________
ATTEST STATE STREET BANK AND TRUST COMPANY
___________________ By:______________________________
Name:______________ Ronald E. Logue
Executive Vice President
34
<PAGE>
Schedule A
The following foreign banking institutions and foreign
securities depositories have been approved by the Board of
Directors of Alliance Institutional Funds for use as sub-
custodians for the Fund's securities and other assets:
(Insert banks and securities depositories)
Certified:
__________________________
Fund's Authorized Officer
Date:_____________________
35
00250237.AE6
<PAGE>
ALLIANCE INSTITUTIONAL FUNDS, INC.
TRANSFER AGENCY AGREEMENT
AGREEMENT, dated as of , 1997, between
ALLIANCE INSTITUTIONAL FUNDS, INC., a Maryland corporation
and an open-end investment company registered with the
Securities and Exchange Commission (the "SEC") under the
Investment Company Act of 1940 (the "Investment Company
Act"), having its principal place of business at 1345 Avenue
of Americas, New York, New York 10105 (the "Fund"), and
ALLIANCE FUND SERVICES, INC., a Delaware corporation
registered with the SEC as a transfer agent under the
Securities Exchange Act of 1934, having its principal place
of business at 500 Plaza Drive, Secaucus, New Jersey 07094
("Fund Services"), provides as follows:
WHEREAS, Fund Services has agreed to act as
transfer agent to the Fund for the purpose of recording the
transfer, issuance and redemption of shares of each series
of the shares of common stock of the Fund ("Shares" or
"Shares of a Series"), transferring the Shares, disbursing
dividends and other distributions to shareholders of the
Fund, and performing such other services as may be agreed to
pursuant hereto;
<PAGE>
NOW THEREFORE, for and in consideration of the
mutual covenants and agreements contained herein, the
parties do hereby agree as follows:
SECTION 1. The Fund hereby appoints Fund Services
as its transfer agent, dividend disbursing agent and
shareholder servicing agent for the Shares, and Fund
Services agrees to act in such capacities upon the terms set
forth in this Agreement. Capitalized terms used in this
Agreement and not otherwise defined shall have the meanings
assigned to them in SECTION 30.
SECTION 2.
(a) The Fund shall provide Fund Services with
copies of the following documents:
(1) Specimens of all forms of certificates for
Shares;
(2) Specimens of all account application forms and
other documents relating to Shareholders' accounts;
(3) Copies of each Prospectus;
(4) Specimens of all documents relating to
withdrawal plans instituted by the Fund, as described in
SECTION 16; and
(5) Specimens of all amendments to any of the
foregoing documents.
2
<PAGE>
(b) The Fund shall furnish to Fund Services a
supply of blank Share Certificates for the Shares and, from
time to time, will renew such supply upon Fund Services'
request. Blank Share Certificates shall be signed manually
or by facsimile signatures of officers of the Fund
authorized to sign by law or pursuant to the by-laws of the
Fund and, if required by Fund Services, shall bear the
Fund's seal or a facsimile thereof.
SECTION 3. Fund Services shall make original
issues of Shares in accordance with SECTIONS 13 and 14 and
the Prospectus upon receipt of (i) Written Instructions
requesting the issuance, (ii) a certified copy of a
resolution of the Fund's Directors authorizing the issuance,
(iii) necessary funds for the payment of any original issue
tax applicable to such Shares, and (iv) an opinion of the
Fund's counsel as to the legality and validity of the
issuance, which opinion may provide that it is contingent
upon the filing by the Fund of an appropriate notice with
the SEC, as required by Rule 24f-2 of the Investment Company
Act, as amended from time to time.
SECTION 4. Transfers of Shares shall be registered
and, subject to the provisions of SECTION 10 in the case of
Shares evidenced by Share Certificates, new Share
Certificates shall be issued by Fund Services upon surrender
3
<PAGE>
of outstanding Share Certificates in the form deemed by Fund
Services to be properly endorsed for transfer, which form
shall include (i) all necessary endorsers' signatures
guaranteed by a member firm of a national securities
exchange or a domestic commercial bank or through other
procedures mutually agreed to between the Fund and Fund
Services, (ii) such assurances as Fund Services may deem
necessary to evidence the genuineness and effectiveness of
each endorsement and (iii) satisfactory evidence of
compliance with all applicable laws relating to the payment
or collection of taxes.
SECTION 5. Fund Services shall forward Share
Certificates in "non-negotiable" form by first-class or
registered mail, or by whatever means Fund Services deems
equally reliable and expeditious. While in transit to the
addressee, all deliveries of Share Certificates shall be
insured by Fund Services as it deems appropriate. Fund
Services shall not mail Share Certificates in "negotiable"
form, unless requested in writing by the Fund and fully
indemnified by the Fund to Fund Services' satisfaction.
SECTION 6. In registering transfers of Shares,
Fund Services may rely upon the Uniform Commercial Code as
in effect from time to time in the State in which the Fund
is incorporated or organized or, if appropriate, in the
4
<PAGE>
State of New Jersey; provided, that Fund Services may rely
in addition or alternatively on any other statutes in effect
in the State of New Jersey or in the state under the laws of
which the Fund is incorporated or organized that, in the
opinion of Fund Services' counsel, protect Fund Services and
the Fund from liability arising from (i) not requiring
complete documentation in connection with an issuance or
transfer, (ii) registering a transfer without an adverse
claim inquiry, (iii) delaying registration for purposes of
an adverse claim inquiry or (iv) refusing registration in
connection with an adverse claim.
SECTION 7. Fund Services may issue new Share
Certificates in place of those lost, destroyed or stolen,
upon receiving indemnity satisfactory to Fund Services; and
may issue new Share Certificates in exchange for, and upon
surrender of, mutilated Share Certificates as Fund Services
deems appropriate.
SECTION 8. Unless otherwise directed by the Fund,
Fund Services may issue or register Share Certificates
reflecting the signature, or facsimile thereof, of an
officer who has died, resigned or been removed by the Fund.
The Fund shall file promptly with Fund Services' approval,
adoption or ratification of such action as may be required
by law or by Fund Services.
5
<PAGE>
SECTION 9. Fund Services shall maintain customary
stock registry records for Shares of each Series noting the
issuance, transfer or redemption of Shares and the issuance
and transfer of Share Certificates. Fund Services may also
maintain for Shares of each Series an account entitled
"Unissued Certificate Account," in which Fund Services will
record the Shares, and fractions thereof, issued and
outstanding from time to time for which issuance of Share
Certificates has not been requested. Fund Services is
authorized to keep records for Shares of each Series
containing the names and addresses of record of
Shareholders, and the number of Shares, and fractions
thereof, from time to time owned by them for which no Share
Certificates are outstanding. Each Shareholder will be
assigned a single account number for Shares of each Series,
even though Shares for which Certificates have been issued
will be accounted for separately.
SECTION 10. Fund Services shall issue Share
Certificates for Shares only upon receipt of a written
request from a Shareholder and as authorized by the Fund.
If Shares are purchased or transferred without a request for
the issuance of a Share Certificate, Fund Services shall
merely note on its stock registry records the issuance or
transfer of the Shares and fractions thereof and credit or
6
<PAGE>
debit, as appropriate, the Unissued Certificate Account and
the respective Shareholders' accounts with the Shares.
Whenever Shares, and fractions thereof, owned by
Shareholders are surrendered for redemption, Fund Services
may process the transactions by making appropriate entries
in the stock transfer records, and debiting the Unissued
Certificate Account and the record of issued Shares
outstanding; it shall be unnecessary for Fund Services to
reissue Share Certificates in the name of the Fund.
SECTION 11. Fund Services shall also perform the
usual duties and function required of a stock transfer agent
for a corporation, including but not limited to (i) issuing
Share Certificates as treasury Shares, as directed by
Written Instructions, and (ii) transferring Share
Certificates from one Shareholder to another in the usual
manner. Fund Services may rely conclusively and act without
further investigation upon any list, instruction,
certification, authorization, Share Certificate or other
instrument or paper reasonably believed by it in good faith
to be genuine and unaltered, and to have been signed,
countersigned or executed or authorized by a duly-
authorized person or persons, or by the Fund, or upon the
advice of counsel for the Fund or for Fund Services. Fund
Services may record any transfer of Share Certificates which
7
<PAGE>
it reasonably believes in good faith to have been duly
authorized, or may refuse to record any transfer of Share
Certificates if, in good faith, it reasonably deems such
refusal necessary in order to avoid any liability on the
part of either the Fund or Fund Services.
SECTION 12. Fund Services shall notify the Fund of
any request or demand for the inspection of the Fund's share
records. Fund Services shall abide by the Fund's
instructions for granting or denying the inspection;
provided, however, Fund Services may grant the inspection
without such instructions if it is advised by its counsel
that failure to do so will result in liability to Fund
Services.
SECTION 13. Fund Services shall observe the
following procedures in handling funds received:
(a) Upon receipt at the office designated by the
Fund of any check or other order drawn or endorsed to the
Fund or otherwise identified as being for the account of the
Fund, and, in the case of a new account, accompanied by a
new account application or sufficient information to
establish an account as provided in the Prospectus, Fund
Services shall stamp the transmittal document accompanying
such check or other order with the name of the Fund and the
8
<PAGE>
time and date of receipt and shall forthwith deposit the
proceeds thereof in the custodial account of the Fund.
(b) In the event that any check or other order for
the purchase of Shares is returned unpaid for any reason,
Fund Services shall, in the absence of other instructions
from the Fund, advise the Fund of the returned check and
prepare such documents and information as may be necessary
to cancel promptly any Shares purchased on the basis of such
returned check and any accumulated income dividends and
capital gains distributions paid on such Shares.
(c) As soon as possible after 4:00 p.m., Eastern
time or at such other times as the Fund may specify in
Written or Oral Instructions for any Series (the "Valuation
Time") on each Business Day, Fund Services shall obtain from
the Fund's Adviser a quotation (on which it may conclusively
rely) of the net asset value, determined as of the Valuation
Time on that day. On each Business Day, Fund Services shall
use the net asset value(s) determined by the Fund's Adviser
to compute the number of Shares and fractional Shares to be
purchased and the aggregate purchase proceeds to be
deposited with the Custodian. As necessary but no more
frequently than daily (unless a more frequent basis is
agreed to by Fund Services), Fund Services shall place a
purchase order with the Custodian for the proper number of
9
<PAGE>
Shares and fractional Shares to be purchased and promptly
thereafter shall send written confirmation of such purchase
to the Custodian and the Fund.
SECTION 14. Having made the calculations required
by SECTION 13, Fund Services shall thereupon pay the
Custodian the aggregate net asset value of the Shares
purchased. The aggregate number of Shares and fractional
Shares purchased shall then be issued daily and credited by
Fund Services to the Unissued Certificate Account. Fund
Services shall also credit each Shareholder's separate
account with the number of Shares purchased by such
Shareholder. Fund Services shall mail written confirmation
of the purchase to each Shareholder or the Shareholder's
representative and to the Fund if requested. Each
confirmation shall indicate the prior Share balance, the new
Share balance, the Shares for which Stock Certificates are
outstanding (if any), the amount invested and the price paid
for the newly-purchased Shares.
SECTION 15. Prior to the Valuation Time on each
Business Day, as specified in accordance with SECTION 13,
Fund Services shall process all requests to redeem Shares
and, with respect to each Series, shall advise the Custodian
of (i) the total number of Shares available for redemption
and (ii) the number of Shares and fractional Shares
10
<PAGE>
requested to be redeemed. Upon confirmation of the net
asset value by the Fund's Adviser, Fund Services shall
notify the Fund and the Custodian of the redemption, apply
the redemption proceeds in accordance with SECTION 16 and
the Prospectus, record the redemption in the stock registry
books, and debit the redeemed Shares from the Unissued
Certificates Account and the individual account of the
Shareholder.
In lieu of carrying out the redemption procedures
described in the preceding paragraph, Fund Services may, at
the request of the Fund, sell Shares to the Fund as
repurchases from Shareholders, provided that the sale price
is not less than the applicable redemption price. The
redemption procedures shall then be appropriately modified.
SECTION 16. Fund Services will carry out the
following procedures with respect to Share redemptions:
(a) As to each request received by the Fund from
or on behalf of a Shareholder for the redemption of Shares,
and unless the right of redemption has been suspended as
contemplated by the Prospectus, Fund Services shall, within
seven days after receipt of such redemption request, either
(i) mail a check in the amount of the proceeds of such
redemption to the person designated by the Shareholder or
other person to receive such proceeds or, (ii) in the event
11
<PAGE>
redemption proceeds are to be wired through the Federal
Reserve Wire System or by bank wire pursuant to procedures
described in the Prospectus, cause such proceeds to be wired
in Federal funds to the bank or trust company account
designated by the Shareholder to receive such proceeds.
Fund Services shall also prepare and send a confirmation of
such redemption to the Shareholder. Redemptions in kind
shall be made only in accordance with such Written
Instructions as Fund Services may receive from the Fund.
The requirements as to instruments of transfer and other
documentation, the determination of the appropriate
redemption price and the time of payment shall be as
provided in the Prospectus, subject to such additional
requirements consistent therewith as may be established by
mutual agreement between the Fund and Fund Services. In the
case of a request for redemption that does not comply in all
respects with the requirements for redemption, Fund Services
shall promptly so notify the Shareholder and shall effect
such redemption at the price in effect at the time of
receipt of documents complying with such requirements. Fund
Services shall notify the Fund's Custodian and the Fund on
each Business Day of the amount of cash required to meet
payments made pursuant to the provisions of this paragraph
and thereupon the Fund shall instruct the Custodian to make
12
<PAGE>
available to Fund Services in timely fashion sufficient
funds therefor.
(b) Procedures and standards for effecting and
accepting redemption orders from Shareholders by telephone
or by such check writing service as the Fund may institute
may be established by mutual agreement between Fund Services
and the Fund consistent with the Prospectus.
(c) For purposes of redemption of Shares that have
been purchased by check within fifteen (15) days prior to
receipt of the redemption request, the Fund shall provide
Fund Services with Written Instructions concerning the time
within which such requests may be honored.
(d) Fund Services shall process withdrawal orders
duly executed by Shareholders in accordance with the terms
of any withdrawal plan instituted by the Fund and described
in the Prospectus. Payments upon such withdrawal orders and
redemptions of Shares held in withdrawal plan accounts in
connection with such payments shall be made at such times as
the Fund may determine in accordance with the Prospectus.
(e) The authority of Fund Services to perform its
responsibilities under SECTIONS 15 and 16 with respect to
the Shares of any Series shall be suspended if Fund Services
receives notice of the suspension of the determination of
the net asset value of the Series.
13
<PAGE>
SECTION 17. Upon the declaration of each dividend
and each capital gains distribution by the Fund's Directors,
the Fund shall notify Fund Services of the date of such
declaration, the amount payable per Share, the record date
for determining the Shareholders entitled to payment, the
payment and the reinvestment date price.
SECTION 18. Upon being advised by the Fund of the
declaration of any income dividend or capital gains
distribution on account of its Shares, Fund Services shall
compute and prepare for the Fund records crediting such
distributions to Shareholders. Fund Services shall, on or
before the payment date of any dividend or distribution,
notify the Fund and the Custodian of the estimated amount
required to pay any portion of a dividend or distribution
which is payable in cash, and thereupon the Fund shall, on
or before the payment date of such dividend or distribution,
instruct the Custodian to make available to Fund Services
sufficient funds for the payment of such cash amount. Fund
Services will, on the designated payment date, reinvest all
dividends in additional shares and promptly mail to each
Shareholder at his address of record a statement showing the
number of full and fractional Shares (rounded to three
decimal places) then owned by the Shareholder and the net
asset value of such Shares; provided, however, that if a
14
<PAGE>
Shareholder elects to receive dividends in cash, Fund
Services shall prepare a check in the appropriate amount and
mail it to the Shareholder at his address of record within
five (5) business days after the designated payment date, or
transmit the appropriate amount in Federal funds in
accordance with the Shareholder's agreement with the Fund.
SECTION 19. Fund Services shall prepare and
maintain for the Fund records showing for each Shareholder's
account the following:
A. The name, address and tax identification
number of the Shareholder;
B. The number of Shares of each Series held by
the Shareholder;
C. Historical information including dividends
paid and date and price for all transactions;
D. Any stop or restraining order placed against
such account;
E. Information with respect to the withholding of
any portion of income dividends or capital gains
distributions as are required to be withheld under
applicable law;
F. Any dividend or distribution reinvestment
election, withdrawal plan application, and correspondence
relating to the current maintenance of the account;
15
<PAGE>
G. The certificate numbers and denominations of
any Share Certificates issued to the Shareholder; and
H. Any additional information required by Fund
Services to perform the services contemplated by this
Agreement. Fund Services agrees to make available
upon request by the Fund or the Fund's Adviser and to
preserve for the periods prescribed in Rule 31a-2 of the
Investment Company Act any records related to services
provided under this Agreement and required to be maintained
by Rule 31a-1 of that Act, including:
(i) Copies of the daily transaction register for
each Business Day of the Fund;
(ii) Copies of all dividend, distribution and
reinvestment blotters;
(iii) Schedules of the quantities of Shares of
each Series distributed in each state for purposes of any
state's laws or regulations as specified in Oral or Written
Instructions given to Fund Services from time to time by the
Fund or its agents; and
(iv) Such other information, including Shareholder
lists, and statistical information as may be agreed upon
from time to time by the Fund and Fund Services.
SECTION 20. Fund Services shall maintain those
records necessary to enable the Fund to file, in a timely
16
<PAGE>
manner, form N-SAR (Semi-Annual Report) or any successor
report required by the Investment Company Act or rules and
regulations thereunder.
SECTION 21. Fund Services shall cooperate with the
Fund's independent public accountants and shall take
reasonable action to make all necessary information
available to such accountants for the performance of their
duties.
SECTION 22. In addition to the services described
above, Fund Services will perform other services for the
Fund as may be mutually agreed upon in writing from time to
time, which may include preparing and filing Federal tax
forms with the Internal Revenue Service, and, subject to
supervisory oversight by the Fund's Adviser, mailing Federal
tax information to Shareholders, mailing semi-annual
Shareholder reports, preparing the annual list of
Shareholders, mailing notices of Shareholders' meetings,
proxies and proxy statements and tabulating proxies. Fund
Services shall answer the inquiries of certain Shareholders
related to their share accounts and other correspondence
requiring an answer from the Fund. Fund Services shall
maintain dated copies of written communications from
Shareholders, and replies thereto.
17
<PAGE>
SECTION 23. Nothing contained in this Agreement is
intended to or shall require Fund Services, in any capacity
hereunder, to perform any functions or duties on any day
other than a Business Day. Functions or duties normally
scheduled to be performed on any day which is not a Business
Day shall be performed on, and as of, the next Business Day,
unless otherwise required by law.
SECTION 24. For the services rendered by Fund
Services as described above, the Fund shall pay to Fund
Services an annualized fee at a rate to be mutually agreed
upon from time to time. Such fee shall be prorated for the
months in which this Agreement becomes effective or is
terminated. In addition, the Fund shall pay, or Fund
Services shall be reimbursed for, all out-of-pocket expenses
incurred in the performance of this Agreement, including but
not limited to the cost of stationery, forms, supplies,
blank checks, stock certificates, proxies and proxy
solicitation and tabulation costs, all forms and statements
used by Fund Services in communicating with Shareholders of
the Fund or especially prepared for use in connection with
its services hereunder, specific software enhancements as
requested by the Fund, costs associated with maintaining
withholding accounts (including non-resident alien, Federal
government and state), postage, telephone, telegraph (or
18
<PAGE>
similar electronic media) used in communicating with
Shareholders or their representatives, outside mailing
services, microfiche/microfilm, freight charges and off-site
record storage. It is agreed in this regard that Fund
Services, prior to ordering any form in such supply as it
estimates will be adequate for more than two years' use,
shall obtain the written consent of the Fund. All forms for
which Fund Services has received reimbursement from the Fund
shall be the property of the Fund.
SECTION 25. Fund Services shall not be liable for
any taxes, assessments or governmental charges that may be
levied or assessed on any basis whatsoever in connection
with the Fund or any Shareholder, excluding taxes assessed
against Fund Services for compensation received by it
hereunder.
SECTION 26.
(a) Fund Services shall at all times act in good
faith and with reasonable care in performing the services to
be provided by it under this Agreement, but shall not be
liable for any loss or damage unless such loss or damage is
caused by the negligence, bad faith or willful misconduct of
Fund Services or its employees or agents.
(b) The Fund shall indemnify and hold Fund
Services harmless from all loss, cost, damage and expense,
19
<PAGE>
including reasonable expenses for counsel, incurred by it
resulting from any claim, demand, action or suit in
connection with the performance of its duties hereunder, or
as a result of acting upon any instruction reasonably
believed by it to have been properly given by a duly
authorized officer of the Fund, or upon any information,
data, records or documents provided to Fund Services or its
agents by computer tape, telex, CRT data entry or other
similar means authorized by the Fund; provided that this
indemnification shall not apply to actions or omissions of
Fund Services in cases of its own bad faith, willful
misconduct or negligence, and provided further that if in
any case the Fund may be asked to indemnify or hold Fund
Services harmless pursuant to this Section, the Fund shall
have been fully and promptly advised by Fund Services of all
material facts concerning the situation in question. The
Fund shall have the option to defend Fund Services against
any claim which may be the subject of this indemnification,
and in the event that the Fund so elects it will so notify
Fund Services, and thereupon the Fund shall retain competent
counsel to undertake defense of the claim, and Fund Services
shall in such situations incur no further legal or other
expenses for which it may seek indemnification under this
paragraph. Fund Services shall in no case confess any claim
20
<PAGE>
or make any compromise in any case in which the Fund may be
asked to indemnify Fund Services except with the Fund's
prior written consent.
Without limiting the foregoing:
(i) Fund Services may rely upon the advice of the
Fund or counsel to the Fund or Fund Services, and upon
statements of accountants, brokers and other persons
believed by Fund Services in good faith to be expert in the
matters upon which they are consulted. Fund Services shall
not be liable for any action taken in good faith reliance
upon such advice or statements;
(ii) Fund Services shall not be liable for any
action reasonably taken in good faith reliance upon any
Written Instructions or certified copy of any resolution of
the Fund's Directors, including a Written Instruction
authorizing Fund Services to make payment upon redemption of
Shares without a signature guarantee; provided, however,
that upon receipt of a Written Instruction countermanding a
prior Instruction that has not been fully executed by Fund
Services, Fund Services shall verify the content of the
second Instruction and honor it, to the extent possible.
Fund Services may rely upon the genuineness of any such
document, or copy thereof, reasonably believed by Fund
Services in good faith to have been validly executed;
21
<PAGE>
(iii) Fund Services may rely, and shall be protected
by the Fund in acting, upon any signature, instruction,
request, letter of transmittal, certificate, opinion of
counsel, statement, instrument, report, notice, consent,
order, or other paper or document reasonably believed by it
in good faith to be genuine and to have been signed or
presented by the purchaser, the Fund or other proper party
or parties; and
(d) Fund Services may, with the consent of the
Fund, subcontract the performance of any portion of any
service to be provided hereunder, including with respect to
any Shareholder or group of Shareholders, to any agent of
Fund Services and may reimburse the agent for the services
it performs at such rates as Fund Services may determine;
provided that no such reimbursement will increase the amount
payable by the Fund pursuant to this Agreement; and provided
further, that Fund Services shall remain ultimately
responsible as transfer agent to the Fund.
SECTION 27. The Fund shall deliver or cause
to be delivered over to Fund Services (i) an accurate list
of Shareholders, showing each Shareholder's address of
record, number of Shares of each Series owned and whether
such Shares are represented by outstanding Share
Certificates or by non-certificated Share accounts and (ii)
22
<PAGE>
all Shareholder records, files, and other materials
necessary or appropriate for proper performance of the
functions assumed under this Agreement (collectively
referred to as the "Materials"). The Fund shall indemnify
Fund Services and hold it harmless from any and all
expenses, damages, claims, suits, liabilities, actions,
demands and losses arising out of or in connection with any
error, omission, inaccuracy or other deficiency of such
Materials, or out of the failure of the Fund to provide any
portion of the Materials or to provide any information in
the Fund's possession needed by Fund Services to
knowledgeably perform its functions; provided the Fund shall
have no obligation to indemnify Fund Services or hold it
harmless with respect to any expenses, damages, claims,
suits, liabilities, actions, demands or losses caused
directly or indirectly by acts or omissions of Fund Services
or the Fund's Adviser.
SECTION 28. This Agreement may be amended from
time to time by a written supplemental agreement executed by
the Fund and Fund Services and without notice to or approval
of the Shareholders; provided this Agreement may not be
amended in any manner which would substantially increase the
Fund's obligations hereunder unless the amendment is first
approved by the Fund's Directors, including a majority of
23
<PAGE>
the Directors who are not a party to this Agreement or
interested persons of any such party, at a meeting called
for such purpose, and thereafter is approved by the Fund's
Shareholders if such approval is required under the
Investment Company Act or the rules and regulations
thereunder. The parties hereto may adopt procedures as may
be appropriate or practical under the circumstances, and
Fund Services may conclusively rely on the determination of
the Fund that any procedure that has been approved by the
Fund does not conflict with or violate any requirement of
its Articles of Incorporation or Declaration of Trust, By-
Laws or Prospectus, or any rule, regulation or requirement
of any regulatory body.
SECTION 29. The Fund shall file with Fund Services
a certified copy of each operative resolution of its
Directors authorizing the execution of Written Instructions
or the transmittal of Oral Instructions and setting forth
authentic signatures of all signatories authorized to sign
on behalf of the Fund and specifying the person or persons
authorized to give Oral Instructions on behalf of the Fund.
Such resolution shall constitute conclusive evidence of the
authority of the person or persons designated therein to act
and shall be considered in full force and effect, with Fund
Services fully protected in acting in reliance therein,
24
<PAGE>
until Fund Services receives a certified copy of a
replacement resolution adding or deleting a person or
persons authorized to give Written or Oral Instructions. If
the officer certifying the resolution is authorized to give
Oral Instructions, the certification shall also be signed by
a second officer of the Fund.
SECTION 30. The terms, as defined in this Section,
whenever used in this Agreement or in any amendment or
supplement hereto, shall have the meanings specified below,
insofar as the context will allow.
(a) Business Day: Any day on which the Fund is
open for business as described in the Prospectus.
(b) Custodian: The term Custodian shall mean the
Fund's current custodian or any successor custodian acting
as such for the Fund.
(c) Fund's Adviser: The term Fund's Adviser shall
mean Alliance Capital Management L.P. or any successor
thereto who acts as the investment adviser or manager of the
Fund.
(d) Oral Instructions: The term Oral Instructions
shall mean an authorization, instruction, approval, item or
set of data, or information of any kind transmitted to Fund
Services in person or by telephone, vocal telegram or other
electronic means, by a person or persons reasonably believed
25
<PAGE>
in good faith by Fund Services to be a person or persons
authorized by a resolution of the Directors of the Fund to
give Oral Instructions on behalf of the Fund. Each Oral
Instruction shall specify whether it is applicable to the
entire Fund or a specific Series of the Fund.
(e) Prospectus: The term Prospectus shall mean a
prospectus and related statement of additional information
forming part of a currently effective registration statement
under the Investment Company Act and, as used with the
respect to Shares or Shares of a Series, shall mean the
prospectuses and related statements of additional
information covering the Shares or Shares of the Series.
(f) Securities: The term Securities shall mean
bonds, debentures, notes, stocks, shares, evidences of
indebtedness, and other securities and investments from time
to time owned by the Fund.
(g) Series: The term Series shall mean any series
of Shares of the common stock of the Fund that the Fund may
establish from time to time.
(h) Share Certificates: The term Share
Certificates shall mean the stock certificates for the
Shares.
26
<PAGE>
(i) Shareholders: The term Shareholders shall
mean the registered owners from time to time of the Shares,
as reflected on the stock registry records of the Fund.
(j) Written Instructions: The term Written
Instructions shall mean an authorization, instruction,
approval, item or set of data, or information of any kind
transmitted to Fund Services in original writing containing
original signatures, or a copy of such document transmitted
by telecopy, including transmission of such signature, or
other mechanical or documentary means, at the request of a
person or persons reasonably believed in good faith by Fund
Services to be a person or persons authorized by a
resolution of the Directors of the Fund to give Written
Instruction shall specify whether it is applicable to the
entire Fund or a specific Series of the Fund.
SECTION 31. Fund Services shall not be liable for
the loss of all or part of any record maintained or
preserved by it pursuant to this Agreement or for any delays
or errors occurring by reason of circumstances beyond its
control, including but not limited to acts of civil or
military authorities, national emergencies, fire, flood or
catastrophe, acts of God, insurrection, war, riot, or
failure of transportation, communication or power supply,
except to the extent that Fund Services shall have failed to
27
<PAGE>
use its best efforts to minimize the likelihood of
occurrence of such circumstances or to mitigate any loss or
damage to the Fund caused by such circumstances.
SECTION 32. The Fund may give Fund Services sixty
(60) days and Fund Services may give the Fund (90) days
written notice of the termination of this Agreement, such
termination to take effect at the time specified in the
notice. Upon notice of termination, the Fund shall use its
best efforts to obtain a successor transfer agent. If a
successor transfer agent is not appointed within ninety (90)
days after the date of the notice of termination, the
Directors of the Fund shall, by resolution, designate the
Fund as its own transfer agent. Upon receipt of written
notice from the Fund of the appointment of the successor
transfer agent and upon receipt of Oral or Written
Instructions Fund Services shall, upon request of the Fund
and the successor transfer agent and upon payment of Fund
Services reasonable charges and disbursements, promptly
transfer to the successor transfer agent the original or
copies of all books and records maintained by Fund Services
hereunder and cooperate with, and provide reasonable
assistance to, the successor transfer agent in the
establishment of the books and records necessary to carry
out its responsibilities hereunder.
28
<PAGE>
SECTION 33. Any notice or other communication
required by or permitted to be given in connection with this
Agreement shall be in writing, and shall be delivered in
person or sent by first-class mail, postage prepaid, to the
respective parties.
Notice to the Fund shall be given as follows until
further notice:
Alliance Institutional Funds, Inc.
1345 Avenue of the Americas
New York, New York 10105
Attention: Secretary
Notice to Fund Services shall be given as follows
until further notice:
Alliance Fund Services, Inc.
500 Plaza Drive
Secaucus, New Jersey 07094
SECTION 34. The Fund represents and warrants to
Fund Services that the execution and delivery of this
Agreement by the undersigned officer of the Fund has been
duly and validly authorized by resolution of the Fund's
Directors. Fund Services represents and warrants to the
Fund that the execution and delivery of this Agreement by
the undersigned officer of Fund Services has also been duly
and validly authorized.
SECTION 35. This Agreement may be executed in more
than one counterpart, each of which shall be deemed to be an
29
<PAGE>
original, and shall become effective on the last date of
signature below unless otherwise agreed by the parties.
Unless sooner terminated pursuant to SECTION 32, this
Agreement will continue until and
will continue in effect thereafter for successive 12 month
periods only if such continuance is specifically approved at
least annually by the Directors or by a vote of the
stockholders of the Fund and in either case by a majority of
the Directors who are not parties to this Agreement or
interested persons of any such party, at a meeting called
for the purpose of voting on this Agreement.
SECTION 36. This Agreement shall extend to and
shall bind the parties hereto and their respective
successors and assigns; provided, however, that this
Agreement shall not be assignable by the Fund without the
written consent of Fund Services or by Fund Services without
the written consent of the Fund, authorized or approved by a
resolution of the Fund's Directors. Notwithstanding the
foregoing, either party may assign this Agreement without
the consent of the other party so long as the assignee is an
affiliate, parent or subsidiary of the assigning party and
is qualified to act under the Investment Company Act, as
amended from time to time.
30
<PAGE>
SECTION 38. This Agreement shall be governed by
the laws of the State of New Jersey.
WITNESS the following signatures:
ALLIANCE INSTITUTIONAL FUNDS, INC.
BY: _________________________
John D. Carifa
TITLE: President
ALLIANCE FUND SERVICES, INC.
BY: _________________________
George Hrabovsky
TITLE: President
31
00250237.AB2
<PAGE>
November 14, 1997
[Seward & Kissel Letterhead]
Alliance Institutional Funds, Inc.
1345 Avenue of the Americas
New York, New York 10105
Dear Sirs:
We have acted as counsel for Alliance Institutional Funds,
Inc., a Maryland corporation (the "Company"), in connection with
the organization of the Company, the registration of the Company
under the Investment Company Act of 1940, as amended, and the
registration of an indefinite number of shares of its common
stock, par value $.001 per share (the "Common Stock"), under the
Securities Act of 1933, as amended.
As counsel for the Company we have participated in the
preparation of the Registration Statement on Form N-1A relating
to such shares (the "Registration Statement") and have examined
and relied upon such corporate records of the Company and such
other documents and certificates as to factual matters as we have
deemed to be necessary to render the opinion expressed herein.
Based on such examination, we are of the opinion that:
1. The Company is duly organized and validly
existing as a corporation in good standing under the laws of
the State of Maryland.
2. The shares of Common Stock of the Company to be
offered for sale pursuant to the Registration Statement are,
to the extent of the number of shares authorized to be
issued by the Company in its Charter, duly authorized and,
when sold, issued and paid for as contemplated by the
Registration Statement, will have been validly and legally
issued and will be fully paid and nonassessable shares of
Common Stock of the Company under the laws of the State of
Maryland (assuming that the sale price of each share is not
less than the par value thereof).
As to matters of Maryland law contained in the
foregoing opinion, we have relied on the opinion of Venable,
Baetjer and Howard, LLP of Baltimore, Maryland, dated
<PAGE>
November 13, 1997, a copy of which is included in the
Registration Statement as Exhibit 10(b).
We hereby consent to the filing of this opinion
with the Securities and Exchange Commission as an exhibit to
the Registration Statement and to the reference to our firm
under the caption "General Information--Counsel" in the
Statement of Additional Information included therein.
Very truly yours,
/s/ Seward & Kissel
00250237.AF0
<PAGE>
November 13, 1997
[Venable, Baetjer and Howard, LLP Letterhead]
Seward & Kissel
One Battery Park Plaza
New York, NY 10004
Re: Alliance Institutional Funds, Inc.
Ladies and Gentlemen:
We have acted as special Maryland counsel for Alliance
Institutional Funds, Inc., a Maryland corporation (the
"Company"), in connection with the organization of the Company
and the issuance of shares of its Alliance Premier Growth
Institutional Fund Class I and Class II Common Stock, Alliance
Quasar Institutional Fund Class I and Class II Common Stock, and
Alliance Real Estate Investment Institutional Fund Class I and
Class II Common Stock, par value $.001 per share (each of such
classes of each of such funds of the Company, a "Class," and
collectively, the "Shares").
As special Maryland counsel for the Company, we are
familiar with its Charter and Bylaws. We have examined the
prospectus included in its Registration Statement on Form N-1A,
File Nos. 333-37177; 811-08403 (the "Registration Statement"),
substantially in the form in which it is to become effective (the
"Prospectus"). We have further examined and relied upon a
certificate of the Maryland State Department of Assessments and
Taxation to the effect that the Company is duly incorporated and
existing under the laws of the State of Maryland and is in good
standing and duly authorized to transact business in the State of
Maryland.
We have also examined and relied upon such corporate
records of the Company and other documents and certificates with
respect to factual matters as we have deemed necessary to render
the opinion expressed herein. We have assumed, without
independent verification, the genuineness of all signatures on
documents submitted to us, the authenticity of all documents
submitted to us as originals, and the conformity with originals
of all documents submitted to us as copies.
Based on such examination, we are of the opinion and so
advise you that:
<PAGE>
1. The Company is duly organized and validly existing
as a corporation in good standing under the laws of
the State of Maryland.
2. The Shares of the Company to be offered for sale
pursuant to the Prospectus are, to the extent of
the respective number of Shares of each Class
authorized to be issued by the Company in its
Charter, duly authorized and, when sold, issued and
paid for as contemplated by the Registration
Statement, will have been validly and legally
issued and will be fully paid and nonassessable
under the laws of the State of Maryland .
This letter expresses our opinion with respect to the
Maryland General Corporation Law. It does not extend to the
securities or "blue sky" laws of Maryland, to federal securities
laws or to other laws.
You may rely upon our foregoing opinion in rendering
your opinion to the Company that is to be filed as an exhibit to
the Registration Statement. We consent to the filing of this
opinion as an exhibit to the Registration Statement and to the
reference to us in the Statement of Additional Information
supplementing the Prospectus under the caption "Counsel". We do
not thereby admit that we are "experts" within the meaning of the
Securities Act of 1933 and the regulations thereunder. This
opinion may not be relied upon by any other person or for any
other purpose without our prior written consent.
Very truly yours,
/s/ Venable, Baetjer and
Howard, LLP
00250237.AE9
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Shareholder Services - Statements and Reports" and "General
Information - Independent Auditors" and to the use of our report
dated November 13, 1997, included in this Registration Statement
(Form N-1A No. 333-37177) of Alliance Institutional Funds, Inc.
/s/ Ernst & Young LLP
New York, New York
November 13, 1997
00250237.AF3
<PAGE>
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
November 5, 1997
Alliance Institutional Funds, Inc.
1345 Avenue of the Americas
New York, New York 10105
Gentlemen:
In connection with our purchase of 3,300 shares of
Class I Common Stock of the Alliance Premier Growth Institutional
Fund, 3,300 shares of Class I Common Stock of the Alliance Quasar
Institutional Fund, 3,300 shares of Class I Common Stock of the
Alliance Real Estate Investment Institutional Fund, 33 shares of
Class II Common Stock of the Alliance Premier Growth
Institutional Fund, 33 shares of Class II Common Stock of the
Alliance Quasar Institutional Fund and 34 shares of Class II
Common Stock of the Alliance Real Estate Investment Institutional
Fund of Alliance Institutional Funds, Inc. for an aggregate cash
consideration of One Hundred Thousand Dollars ($100,000), this
will confirm that we are buying such shares for investment for
our account only, and not with a view to reselling or otherwise
distributing them.
Very truly yours,
ALLIANCE CAPITAL MANAGEMENT L.P.
By: Alliance Capital Management
Corporation,
its General Partner
By: /s/ Robert H. Joseph, Jr.
_________________________
Robert H. Joseph, Jr.
Senior Vice President and
Chief Financial Officer
00250237.AD4
<PAGE>
ALLIANCE INSTITUTIONAL FUNDS, INC.
Plan pursuant to Rule 18f-3
under the Investment Company Act of 1940
This Plan (the "Plan") pursuant to Rule 18f-3 under the
Investment Company Act of 1940 (the "Act") of Alliance
Institutional Funds, Inc. (the "Fund") sets forth the general
characteristics of, and the general conditions under which the
Fund may offer, multiple classes of shares of its now existing
and hereafter created portfolios.1 This Plan may be revised or
amended from time to time as provided below.
Class Designations
The Fund2 may from time to time issue one or more of the
following classes of shares: Class I shares and Class II shares.
Each of the two classes of shares will represent interests in the
same portfolio of investments of the Fund and, except as
described herein, shall have the same rights and obligations as
each other class. Each class shall be subject to such investment
minimums and other conditions of eligibility as are set forth in
one or more prospectuses or statements of additional information
through which such shares are issued, as from time to time in
effect (collectively, the "Prospectus").
Class Characteristics
Class I shares are offered at a public offering price
that is equal to their net asset value ("NAV") without any
initial sales charge, contingent deferred sales charge ("CDSC")
or Rule 12b-1 fee.
Class II shares are offered at their NAV, without an
initial sales charge or CDSC and may be subject to a Rule 12b-1
fee, which may include a service fee, as described in the
Prospectus.
____________________
1. This Plan is intended to allow the Fund to offer multiple
classes of shares to the full extent and in the manner
permitted by Rule 18f-3 under the Act (the "Rule"), subject
to the requirements and conditions imposed by the Rule.
2. For purposes of this Plan, when the Fund has existing more
than one portfolio pursuant to which multiple classes of
shares are issued, then references in this Plan to the "Fund"
shall be deemed to refer instead to each portfolio.
<PAGE>
Allocations to Each Class
Expense Allocations
The following expenses shall be allocated, to the extent
practicable, on a class-by-class basis: (i) Rule 12b-1 fees
payable by the Fund to the distributor or principal underwriter
of the Fund's shares (the "Distributor"), and (ii) transfer
agency costs attributable to each class. Subject to the approval
of the Fund's Board of Directors, including a majority of the
independent Directors, the following "Class Expenses" may be
allocated on a class-by-class basis: (a) printing and postage
expenses related to preparing and distributing materials such as
shareholder reports, prospectuses and proxy statements to current
shareholders of a specific class,3 (b) SEC registration fees
incurred with respect to a specific class, (c) blue sky and
foreign registration fees and expenses incurred with respect to a
specific class, (d) the expenses of administrative personnel and
services required to support shareholders of a specific class
(including, but not limited to, maintaining telephone lines and
personnel to answer shareholder inquiries about their accounts or
about the Fund), (e) litigation and other legal expenses relating
to a specific class of shares, (f) Directors' fees or expenses
incurred as a result of issues relating to a specific class of
shares, (g) accounting and consulting expenses relating to a
specific class of shares, (h) any fees imposed pursuant to a non-
Rule 12b-1 shareholder services plan that relate to a specific
class of shares, and (i) any additional expenses, not including
advisory or custodial fees or other expenses related to the
management of the Fund's assets, if these expenses are actually
incurred in a different amount with respect to a class, or if
services are provided with respect to a class that are of a
different kind or to a different degree than with respect to one
or more other classes.
All expenses not now or hereafter designated as Class
Expenses ("Fund Expenses") will be allocated to each class on the
basis of the net asset value of that class in relation to the net
asset value of the Fund.
However, notwithstanding the above, the Fund may
allocate all expenses other than Class Expenses on the basis of
relative net assets (settled shares), as permitted by Rule 18f-
3(c)(2) under the Act.
____________________
3. For Class I shares, the expenses of preparation, printing and
distribution of prospectuses and shareholder reports, as well
as other distribution-related expenses, will be borne by the
investment adviser of the Fund (the "Adviser") or the
Distributor from their own resources.
2
<PAGE>
Waivers and Reimbursements
The Adviser or Distributor may choose to waive or
reimburse Rule 12b-1 fees, transfer agency fees or any Class
Expenses on a voluntary, temporary basis. Such waiver or
reimbursement may be applicable to some or all of the classes and
may be in different amounts for one or more classes.
Income, Gains and Losses
Income, and realized and unrealized capital gains and
losses shall be allocated to each class on the basis of the net
asset value of that class in relation to the net asset value of
the Fund.
Conversion and Exchange Features
Conversion Features
Class I shares of the Fund automatically convert to
Class II shares of the Fund during the calendar month following
the month in which the Fund is informed or otherwise learns that
the beneficial owner of the Class I shares has ceased to
participate in a fee-based program or plan that satisfies the
requirements to purchase Class I shares as described in the
Prospectus or the shareholder is otherwise no longer eligible to
purchase Class I shares as provided in the Prospectus.
The conversion of Class I shares to Class II shares may
be suspended if the opinion of counsel obtained by the Fund that
the conversion does not constitute a taxable event under current
federal income tax law is no longer available. Class I shares
will convert into Class II shares on the basis of the relative
net asset value of the two classes, without the imposition of any
sales load, fee or other charge.
In the event any material increase in payments
authorized under the Rule 12b-1 Plan (or, if presented to
shareholders, any material increase in payments authorized by a
non-Rule 12b-1 shareholder services plan) applicable to Class II
shares is approved by the Class II shareholders, existing Class I
shares will stop converting into Class II shares unless the
Class I shareholders, voting separately as a class, approve the
increase in such payments. Pending approval of such increase, or
if such increase is not approved by the Class I shareholders, the
Directors shall take such action as is necessary to ensure that
existing Class I shares are exchanged or converted into a new
class of shares ("New Class II") identical in all material
respects to Class II shares as existed prior to the
implementation of the increase in payments, no later than such
shares were previously scheduled to convert to Class II shares.
3
<PAGE>
If deemed advisable by the Directors to implement the foregoing,
such action may include the exchange of all existing Class I
shares for a new class of shares ("New Class I") identical to
existing Class I shares, except that New Class I shares shall
convert to New Class II shares. Exchanges or conversions
described in this paragraph shall be effected in a manner that
the Directors reasonably believe will not be subject to federal
income taxation. Any additional cost associated with the
creation, exchange or conversion of New Class I or New Class II
shares shall be borne by the Adviser and the Distributor.
Class I shares sold after the implementation of the fee increase
may convert into Class II shares subject to the higher maximum
payment, provided that the material features of the Class II plan
and the relationship of such plan to the Class I shares are
disclosed in an effective registration statement.
Exchange Features
Shares of each class of a portfolio of the Fund
generally will be permitted to be exchanged only for shares of
the same class of another portfolio of the Fund and for Class A
shares of any other Alliance Mutual Fund. All exchange features
applicable to each class will be described in the Prospectus.
Dividends
Dividends paid by the Fund with respect to its Class I
and Class II shares, to the extent any dividends are paid, will
be calculated in the same manner, at the same time and will be in
the same amount, except that any Rule 12b-1 fee payments relating
to a class of shares will be borne exclusively by that class and
any incremental transfer agency costs or, if applicable, Class
Expenses relating to a class shall be borne exclusively by that
class.
Voting Rights
Each share of a Fund entitles the shareholder of record
to one vote. Each class of shares of the Fund will vote
separately as a class with respect to the Rule 12b-1 plan
applicable to that class and on other matters for which class
voting is required under applicable law. Class I and Class II
shareholders will be considered as owners of separate classes
with respect to voting to approve any material increase in
payments authorized under the Rule 12b-1 plan applicable to
Class II shares.
4
<PAGE>
Responsibilities of the Directors
On an ongoing basis, the Directors will monitor the Fund
for the existence of any material conflicts among the interests
of the classes of shares. The Directors shall further monitor on
an ongoing basis the use of waivers or reimbursement by the
Adviser and the Distributor of expenses to guard against cross-
subsidization between classes. The Directors, including a
majority of the independent Directors, shall take such action as
is reasonably necessary to eliminate any such conflict that may
develop. If a conflict arises, the Adviser and Distributor, at
their own cost, will remedy such conflict up to and including
establishing one or more new registered management investment
companies.
Reports to the Directors
The Adviser and Distributor will be responsible for
reporting any potential or existing conflicts among the classes
of shares to the Directors. In addition, the Directors will
receive quarterly and annual statements concerning distributions
and shareholder servicing expenditures complying with paragraph
(b)(3)(ii) of Rule 12b-1. In the statements, only expenditures
properly attributable to the sale or servicing of a particular
class of shares shall be used to justify any distribution or
service fee charged to that class. The statements, including the
allocations upon which they are based, will be subject to the
review of the independent Directors in the exercise of their
fiduciary duties. At least annually, the Directors shall receive
a report from an expert, acceptable to the Directors, (the
"Expert"), with respect to the methodology and procedures for
calculating the net asset value, dividends and distributions for
the classes, and the proper allocation of income and expenses
among the classes. The report of the Expert shall also address
whether the Fund has adequate facilities in place to ensure the
implementation of the methodology and procedures for calculating
the net asset value, dividends and distributions for the classes,
and the proper allocation of income and expenses among the
classes. The Fund and the Adviser will take immediate corrective
measures in the event of any irregularities reported by the
Expert.
5
<PAGE>
Amendments
The Plan may be amended from time to time in accordance
with the provisions and requirements of Rule 18f-3 under the Act.
Adopted by action of the Board of Directors this ___th day of
[ ], 1997.
By: _____________________
Edmund P. Bergan, Jr.
Secretary
6
00250237.AC3
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below hereby revokes all prior powers granted
by the undersigned to the extent inconsistent herewith and
constitutes and appoints Edmund P. Bergan, Jr. and Domenick
Pugliese, and each of them, to act severally as attorneys-in-fact
and agents, with power of substitution and resubstitution, for
the undersigned in any and all capacities, solely for the purpose
of signing the Registration Statement, and any amendments
thereto, on Form N-1A of Alliance Institutional Funds, Inc. and
filing the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may do or
cause to be done by virtue hereof.
/S/ John D. Carifa
__________________________
John D. Carifa
Dated: November 11, 1997
00250237.AF4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below hereby revokes all prior powers granted
by the undersigned to the extent inconsistent herewith and
constitutes and appoints John D. Carifa, Edmund P. Bergan, Jr.,
and Domenick Pugliese, and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all capacities,
solely for the purpose of signing the Registration Statement, and
any amendments thereto, on Form N-1A of Alliance Institutional
Funds, Inc. and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/S/ David H. Dievler
____________________________
David H. Dievler
Dated: November 11, 1997
00250237.AF4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below hereby revokes all prior powers granted
by the undersigned to the extent inconsistent herewith and
constitutes and appoints John D. Carifa, Edmund P. Bergan, Jr.,
and Domenick Pugliese, and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all capacities,
solely for the purpose of signing the Registration Statement, and
any amendments thereto, on Form N-1A of Alliance Institutional
Funds, Inc. and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/S/ William H. Foulk, Jr.
_______________________________
William H. Foulk, Jr.
Dated: November 11, 1997
00250237.AF4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below hereby revokes all prior powers granted
by the undersigned to the extent inconsistent herewith and
constitutes and appoints John D. Carifa, Edmund P. Bergan, Jr.,
and Domenick Pugliese, and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all capacities,
solely for the purpose of signing the Registration Statement, and
any amendments thereto, on Form N-1A of Alliance Institutional
Funds, Inc. and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/S/ Ruth Block
_________________________
Ruth Block
Dated: November 11, 1997
00250237.AF4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below hereby revokes all prior powers granted
by the undersigned to the extent inconsistent herewith and
constitutes and appoints John D. Carifa, Edmund P. Bergan, Jr.,
and Domenick Pugliese, and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all capacities,
solely for the purpose of signing the Registration Statement, and
any amendments thereto, on Form N-1A of Alliance Institutional
Funds, Inc. and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/S/ John H. Dobkin
_________________________
John H. Dobkin
Dated: November 11, 1997
00250237.AF4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below hereby revokes all prior powers granted
by the undersigned to the extent inconsistent herewith and
constitutes and appoints John D. Carifa, Edmund P. Bergan, Jr.,
and Domenick Pugliese, and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all capacities,
solely for the purpose of signing the Registration Statement, and
any amendments thereto, on Form N-1A of Alliance Institutional
Funds, Inc. and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/S/ Dr. James M. Hester
_________________________
Dr. James M. Hester
Dated: November 11, 1997
00250237.AF4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below hereby revokes all prior powers granted
by the undersigned to the extent inconsistent herewith and
constitutes and appoints John D. Carifa, Edmund P. Bergan, Jr.,
and Domenick Pugliese, and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all capacities,
solely for the purpose of signing the Registration Statement, and
any amendments thereto, on Form N-1A of Alliance Institutional
Funds, Inc. and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/S/ Clifford L. Michel
_________________________
Clifford L. Michel
Dated: November 11, 1997
00250237.AF4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below hereby revokes all prior powers granted
by the undersigned to the extent inconsistent herewith and
constitutes and appoints John D. Carifa, Edmund P. Bergan, Jr.,
and Domenick Pugliese, and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all capacities,
solely for the purpose of signing the Registration Statement, and
any amendments thereto, on Form N-1A of Alliance Institutional
Funds, Inc. and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/S/ Donald J. Robinson
_________________________
Donald J. Robinson
Dated: November 11, 1997
00250237.AF4
