<PAGE>
As filed with the Securities and Exchange
Commission on October 3, 1997
File Nos.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No.
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No.
_______________________________
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)
immediately upon filing pursuant to paragraph (b)
on (date) pursuant to paragraph (b)
<PAGE>
X 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 purpose of this Registration Statement is to register the
Registrant under the Investment Company Act of 1940, to register
the shares of the Registrant under the Securities Act of 1933 and
to declare pursuant to Section 24(f) of the Investment Company
Act of 1940 and Rule 24f-2 thereunder that an indefinite number
of its securities is being registered by this Registration
Statement.
The Registrant hereby amends this Registrant 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
--------
Institutional Funds
-------------------
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
Prospectus and Application
[ ], 1997
-Alliance Premier Growth Institutional Fund
-Alliance Quasar Institutional Fund
-Alliance Real Estate Investment
Institutional Fund
Alliance Institutional Funds, Inc. (the "Company") provides a selection of
equity investment alternatives to institutional investors and high net worth
individuals seeking 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.
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
ADVISER
ALLIANCE CAPITAL MANAGEMENT L.P.
1345 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10105
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 $199
billion in assets under management as of September 30, 1997. Alliance provides
investment management services to employee benefit plans for 29 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.
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. 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 $[ ] 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 $[ ] 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."
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>
- --------------------------------------------------------------------------------
Expense Information
- --------------------------------------------------------------------------------
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>
Management fees(a) .90% .90% After 1 year $ $
12b-1 fees None .30% After 3 years $ $
Other expenses (b) .00% .05%
---- ----
Total fund
operating expenses (c)(d) .90% 1.25%
==== =====
Quasar Institutional Fund Class I Class II Class I Class II
------- -------- ------- --------
Management fees 1.00% 1.00% After 1 year $ $
12b-1 fees None .30% After 3 years $ $
Other expenses (b) .20% .20%
---- -----
Total fund
operating expenses (c)(d) 1.20% 1.50%
===== =====
Real Estate Investment
Institutional Fund Class I Class II Class I Class II
------- -------- ------- --------
Management fees .90% .90% After 1 year $ $
12b-1 fees None .30% After 3 years $ $
Other expenses (b) .10% .10%
---- ----
Total fund
operating expenses (c)(d) 1.00% 1.30%
===== =====
</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, based on a fixed dollar amount charged to
the Fund for each shareholder's account. 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, other expenses would have been, for
Class I and Class II, respectively __% and __% for Premier Growth
Institutional Fund, __% and__% for Quasar Institutional Fund and __% and__%
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, total fund operating
expenses would have been, for Class I and Class II, respectively __% and __%
for Premier Growth Institutional Fund, __% and __% for Quasar Institutional
Fund and __% and __% 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>
- --------------------------------------------------------------------------------
Glossary
- --------------------------------------------------------------------------------
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>
- --------------------------------------------------------------------------------
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
5
<PAGE>
ready market, but not more than 10% of its total assets may 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 125 companies of sufficient size and quality to merit
consideration for investment by the Fund. In implementing the Fund's research
and investment process, Alliance will avail itself of the consulting services of
Koll Investment Management, a division of Koll Real Estate Services ("Koll"), a
national real estate investment and property manager that oversees a 2,000
property portfolio. As consultant to Alliance, Koll provides access to a
proprietary model (Koll's National Real Estate Index) that analyzes the
approximately 11,000 properties owned by these companies. Using proprietary
databases and algorithms, Koll analyzes local market rent, expense and occupancy
trends, market specific transaction pricing, demographic and economic trends,
and leading indicators of real estate supply such as building permits. Over 400
asset-type specific geographic markets are analyzed and ranked on a relative
scale by Koll in compiling its REIT Score database. The relative attractiveness
of these real estate industry companies is similarly ranked based on the
composite rankings of the properties they own. See
6
<PAGE>
"Management of the Fund--Consultant to Adviser" for more information about Koll.
Once the universe of real estate industry companies has been distilled through
the market research process, Koll's local market presence provides the
capability to perform site specific inspections of key properties. This analysis
examines specific property location, condition, and sub-market trends. Koll's
use of locally based real estate professionals provides Alliance with a window
on the operations of the portfolio companies as information gathered can
immediately be put in the context of local market events. Only those companies
whose specific property portfolios reflect the promise of their general markets
will be considered for initial and continued investment by the Fund.
Alliance further screens the universe of real estate industry companies by using
rigorous financial models and by engaging in regular contact with management of
targeted companies. Each management's strategic plan and ability to execute the
plan are determined and analyzed. Alliance will make extensive use of Koll's
network of industry analysts in order to assess trends in tenant industries.
This information is then used to further interpret management's strategic plans.
Financial ratio analysis is used to isolate those companies with the ability to
make value-added acquisitions. This information is combined with property market
trends and used to project future earnings potential.
Alliance believes that this process will result in a portfolio that will consist
of Real Estate Equity Securities of companies that own assets in the most
desirable markets across the country, diversified geographically and by property
type.
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 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
7
<PAGE>
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"
interest shares of beneficial interest in REMIC trusts although the Fund does
not intend to invest in residual interests.
8
<PAGE>
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
9
<PAGE>
specified price on a specified date. The purchaser of a futures contract on an
index agrees to take or make delivery of an 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
10
<PAGE>
commitment basis to limit its exposure to falling prices. In periods of falling
interest rates and rising bond prices, a Fund might sell a security in its
portfolio and purchase the same or a similar security on a when-issued or
forward commitment basis, thereby obtaining the benefit of currently higher cash
yields. However, if Alliance were to forecast incorrectly the direction of
interest rate movements, 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. 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 risks in lending portfolio securities, as
with other extensions of credit, consist of possible loss of rights in the
collateral should the borrower fail financially. In determining whether 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. REAL ESTATE INVESTMENT FUND will not lend
portfolio assets in excess of 25% of the value of its total assets.
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
11
<PAGE>
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 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 __% for PREMIER GROWTH FUND, __% for QUASAR FUND and __% for REAL ESTATE
INVESTMENT FUND. These portfolio turnover rates are greater than those of most
other investment companies, including those which emphasize capital appreciation
as a basic policy. 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
12
<PAGE>
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 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
13
<PAGE>
laws; costs resulting from the clean-up of, and liability to third parties for
damages resulting from, environmental problems; casualty or condemnation losses;
uninsured damages from floods, earthquakes or other natural disasters;
limitations on and variations in rents; and changes in interest rates. To the
extent that assets underlying the Fund's investments are concentrated
geographically, by property type or in certain other respects, the Fund may be
subject to certain of the foregoing risks to 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.
14
<PAGE>
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 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
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 $[ ]
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 $[ ]
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.
15
<PAGE>
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. 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.
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 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
16
<PAGE>
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")*
Thomas G. Kamp since 1997-- Associated with
Vice President of ACMC Alliance since
1993; prior
thereto Founder
and President
of Premier
Computer
Corporation
Principal occupation
during the past
Fund Employee; year; title five years
- -------------------------------------------------------------------------------
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 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 $[199] billion
(of which approximately $[59] 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 52 registered investment companies managed by Alliance
comprising [110] 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 29 of the Fortune 100 companies.
ACMC, the sole general partner of, and the owner of a 1% general partnership
interest in, Alliance, is an indirect wholly-owned subsidiary of The Equitable
Life Assurance Society of the United States ("Equitable"), one of the largest
life insurance companies in the United States, which is a wholly-owned
subsidiary of The Equitable Companies Incorporated, a holding company controlled
by AXA, a French insurance holding company. Certain information concerning the
ownership and control of Equitable by AXA is set forth in each Fund's Statement
of Additional Information under "Management of the Fund."
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
17
<PAGE>
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 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 $______ billion
for Alliance Premier Growth Fund, $______ million for Alliance Quasar Fund and
$______ million for Alliance Real Estate Investment Fund. The performance data
for each of the Retail Funds is net of actual fees incurred by those Funds for
the relevant periods.
Year ended 5 Years ended 10 Years ended
9/30/97 9/30/97 9/30/97*
Premier Growth Fund............... ___% ___% ___%
Quasar Fund....................... ___% ___% ___%
Real Estate
Investment Fund................... ___% ___% ___%
- ---------------
* Inception dates for PREMIER GROWTH FUND--9/28/92 and REAL ESTATE INVESTMENT
FUND--10/[ ]/96.
Performance of Similarly Managed Portfolios--PREMIER GROWTH FUND. In addition to
managing the assets of PREMIER GROWTH FUND, Mr. Harrison has ultimate
responsibility for the management of 36 portfolios 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 FUND, except for the ability of PREMIER GROWTH 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 to which PREMIER GROWTH
FUND, as 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 and cumulatively through
September 30, 1997. As of September 30, 1997, the assets in the Historical
Portfolios totaled approximately $[11.2] billion and the average size of an
institutional account in the Historical Portfolio was $[311] million. Each
Historical Portfolio has a nearly identical composition of individual investment
holdings and related percentage weightings.
The performance data is gross of advisory fees charged to those accounts. Total
returns would be lower if advisory fees had been taken into account. The
performance data includes the cost of brokerage commissions, but excludes
custodial fees, transfer agency costs and other administrative expenses that
will be payable by PREMIER GROWTH FUND and will result in a higher expense ratio
for PREMIER GROWTH FUND. Expenses associated with the distribution of Class A,
Class B and Class C shares of PREMIER GROWTH FUND in accordance with the plan
adopted by PREMIER GROWTH FUND'S Board of Directors pursuant to Rule 12b-1 of
the 1940 Act ("distribution fees") are also excluded. See "Expense Information."
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 month 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. The Russell 1000 Growth Index reflects changes in
market prices, but excludes investment income.
To the extent PREMIER GROWTH 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
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 FUND 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 FUND'S performance relative to the
index would be reduced by PREMIER GROWTH FUND'S expenses, including brokerage
commissions, advisory fees,
18
<PAGE>
distribution fees, custodial fees, transfer agency costs and other
administrative expenses as well as by the impact on PREMIER GROWTH 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 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
Russell Lipper
Historical S&P 500 1000 Growth
Portfolios Index Growth Index Fund Index
Total Return Total Return Total Return Total Return
------------ ------------ ------------ ------------
Year ended:
December 31, 1996..... 23.23 22.96 23.12 17.48
December 31, 1995**... 41.12 37.58 37.19 32.65
December 31, 1994..... (3.85) 1.32 2.66 (1.57)
December 31, 1993..... 11.62 10.08 2.90 11.98
December 31, 1992..... 13.27 7.62 5.00 7.63
December 31, 1991..... 40.19 30.47 41.16 35.20
December 31, 1990..... (0.57) (3.10) (0.26) (5.00)
December 31, 1989..... 40.08 31.69 35.92 28.60
December 31, 1988..... 11.96 16.61 11.27 15.80
December 31, 1987..... 9.57 5.25 5.31 1.00
December 31, 1986..... 28.60 18.67 15.36 15.90
December 31, 1985..... 38.68 31.73 32.85 30.30
December 31, 1984..... (2.33) 6.27 (.95) (2.80)
December 31, 1983..... 21.95 22.56 15.98 22.30
December 31, 1982..... 29.23 21.55 20.46 20.20
December 31, 1981..... (0.10) (4.92) (11.31) (8.40)
December 31, 1980..... 52.10 32.50 39.57 37.30
December 31, 1979..... 31.99 18.61 23.91 27.40
Cumulative total return for
the period January 1,
1979 to September 30, 1997
- ------------------------------------------------------------------------
* 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.
** During this period, the Historical Portfolios differed from PREMIER
GROWTH FUNd in that PREMIER GROWTH FUND invested a portion (4.54%) of
its net assets in warrants on equity securities in which the Historical
Portfolios were unable, by their investment restrictions, to purchase.
In lieu of warrants, the Historical Portfolios acquired the common stock
upon which the warrants were based. During this period, PREMIER GROWTH
FUND'S total return, at net asset value, was 46.87%.
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.
Average Annual Total Returns
-------------------------------------------------
Russell Lipper
Historical S&P 500 1000 Growth
Portfolios Index Growth Index Fund Index
---------- ------ ------------ ----------
Three years................ 29.17 28.83 29.88 23.10
Five years................. 21.15 19.76 18.96 17.20
Ten years.................. 16.66 14.63 14.57 12.90
Since January 1, 1979..... 20.55 17.07 16.30 15.79
CONSULTANT TO ALLIANCE WITH RESPECT TO INVESTMENT IN REAL ESTATE SECURITIES
Alliance, with respect to investment in real estate securities, has retained
Koll Investment Management, a division of Koll Real Estate Services, a national
real estate property and investment manager which oversees a [2,000] property
portfolio consisting of client assets approximating [184] million square feet.
Koll will make available to Alliance the Koll National Real Estate Index, which
gathers, analyzes and publishes targeted research data for the [65] largest U.S.
markets, based on a variety of public-sector and private-sector sources as well
as Koll's proprietary database of approximately [50,000] property transactions
representing over $[250] billion of investment property. As a consultant, Koll
provides to Alliance, at Alliance's expense, such in-depth information regarding
the real-estate market, the factors influencing regional valuations and analysis
of recent transactions in office, retail, industrial and multi-family properties
as Alliance shall from time to time request. Koll will not furnish investment
advice or make recommendations regarding the purchase or sale of securities by
the Fund nor will it be responsible for making investment decisions involving
Fund assets.
Koll is one of the largest fee-based property management firms in the United
States as well as one of the largest publishers of real estate research, with
approximately [2,800] employees nationwide. Koll will provide Alliance with
exclusive access to its REIT Score model which ranks approximately [115] REITs
based on the relative attractiveness of the property markets in which they own
real estate. This model scores the approximately [11,000] individual properties
owned by these companies. REIT Score is in turn based on Koll's National Real
Estate Index which gathers, analyzes and publishes targeted research data for
the [65] largest U.S. real estate markets based on a variety of public- and
private-sector sources as well Koll's proprietary database of [50,000]
commercial property transactions representing over [$250] billion of investment
property and over [2,000] tracked properties which report rent and expense data
quarterly. Koll has previously provided access to its REIT Score model results
primarily to the institutional market through subscriptions. The model is no
longer provided to any research publications and the Fund is currently the only
mutual fund available to retail investors that has access to Koll's REIT Score
model.
19
<PAGE>
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 it 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, a portion of the distributions paid to REAL ESTATE INVESTMENT FUND
and subsequently distributed to shareholders may be a nontaxable return of
capital.
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 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
20
<PAGE>
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 of REAL ESTATE INVESTMENT FUND 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 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.
21
<PAGE>
- --------------------------------------------------------------------------------
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 , 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 their 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>
SUBSCRIPTION APPLICATION
- --------------------------------------------------------------------------------
THE ALLIANCE INSTITUTIONAL FUNDS
(see instructions at the front of the application)
- --------------------------------------------------------------------------------
1. Your Account Registration (Please Print)
- --------------------------------------------------------------------------------
[ ] INDIVIDUAL OR JOINT ACCOUNT
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Owner's Name (First Name) (MI) (Last Name)
[ ][ ][ ][-][ ][ ][ ][ ][-][ ][ ][ ][ ][ ][ ]
Social Security Number (Required to open account)
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Joint Owner's Name* (First Name) (MI) (Last Name)
*Joint Tenants with right of survivorship unless Alliance Fund Services is
informed otherwise.
[ ] GIFT/TRANSFER TO A MINOR
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Custodian-One Name Only (Fist Name) (MI) (Last Name)
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Minor (First Name) (MI) (Last Name)
[ ][ ][ ][-][ ][ ][ ][ ][-][ ][ ][ ][ ][ ][ ]
Minor's Social Security Number (Required to open account) Under the State
of ________(Minor's Residence) Uniform Gifts/Transfer to Minor's Act
[ ] TRUST ACCOUNT
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Name of Trustee
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Name of Trust
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Name of Trust (cont'd)
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Trust Dated Tax ID or Social Security Number (Required
to open account)
[ ] OTHER
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Name of Corporation, Partnership, Investment Retirement Plan, or other
Entity
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Tax ID Number Trustee Name (Retirement Plans only)
- --------------------------------------------------------------------------------
2. Your Address
- --------------------------------------------------------------------------------
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Street
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
City State Zip Code
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
If Non-U.S., Specify Country
[ ][ ][ ][-][ ][ ][ ][ ][-][ ][ ][ ] [ ][ ][ ][-][ ][ ][ ][ ][-][ ][ ][ ]
Daytime Phone Evening Phone
I am a: [ ] U.S. Citizen [ ] Non-Resident Alien [ ] Resident Alien [ ] Other
[ ]
For Alliance Use Only
[ ]
<PAGE>
- --------------------------------------------------------------------------------
3. Your Initial Investment
- --------------------------------------------------------------------------------
The minimum initial investment is $2 million, which may be placed in any one or
more of the Funds.
I hereby subscribe for shares of the following Alliance Institutional Fund(s)
and elect distribution options as indicated.
Dividend and Capital Gain Distribution Options:
R REINVEST DISTRIBUTIONS into my fund account.
- - ----------------------
C SEND MY DISTRIBUTIONS IN CASH to the address I have provided in Section 2.
- - -----------------------------
(Complete Section 4D for direct deposit to your bank account. Complete
Section 4E for payment to a third party).
D DIRECT MY DISTRIBUTIONS TO ANOTHER FUND. Complete the appropriate portion of
- - ---------------------------------------
Section 4A to direct your distributions (dividends and capital gains) to
another Fund.
- ----------------------
BROKER/DEALER USE ONLY
WIRE CONFIRM #
- ----------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
MAKE ALL CHECKS PAYABLE TO: CLASS OF SHARES DISTRIBUTIONS OPTIONS CIRCLE
ALLIANCE FUND SERVICES
- -----------------------------------------------------------------------------------------------------
ALLIANCE FUND NAME CLASS I CLASS II DIVIDENDS CAPITAL GAINS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premier Growth Institutional Fund $ $ ( ) R C D R C D
Quasar Institutional Fund $ $ R C D R C D
Real Estate Investment
Institutional Fund $ $ R C D R C D
TOTAL INVESTMENT $ $
</TABLE>
<PAGE>
MY SOCIAL SECURITY (TAX INDENTIFICATION) NUMBER IS: [ ][ ][ ][ ][ ][ ][ ][ ][ ]
- --------------------------------------------------------------------------------
4. Your Shareholder Options
- --------------------------------------------------------------------------------
A. PURCHASES AND REDEMPTIONS VIA EFT
You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund
Services, Inc. in a recorded conversation to purchase, redeem or exchange
shares for your account. Purchase and redemption requests will be processed
via electronic funds tranfer (EFT) to and from your bank account.
Instructions: o Review the information in the Prospectus about telephone
transaction services.
o If you select the telephone purchase or redemption
privilege, you must write "VOID" across the face of a check
from the bank account you wish to use and attach it to
Section 4B of this application.
PURCHASES AND REDEMPTIONS VIA EFT
[ ] I hereby authorize Alliance Fund services, Inc. to effect the purchase
and/or redemption of Fund shares for my account according to my
telephone instructions or telephone instructions from my Broker/Agent,
and to withdraw money or credit money for such shares via EFT from the
bank account I have selected. In the case of shares purchased by check,
redemption proceeds may not be made available until the fund is
reasonably assured that the check has cleared, normally 15 calendar days
after the purchase date.
B. BANK INFORMATION
This bank account information will be used for:
[ ]Distributions (Section 3)
[ ]Telephone Transactions (Section 4A)
Please attach a voided check:
- --------------------------------------------------------------------------------
TAPE PREPRINTED VOIDED CHECK HERE.
We Cannot Establish These Services Without it.
- --------------------------------------------------------------------------------
Your bank must be a member of the National Automated Clearing House Association
(NACHA) in order to have EFT transactions processed to your fund account. For
EFT transactions, the fund requires signatures of bank account owners exactly as
they appear on bank records.
C. THIRD PARTY PAYMENT DETAILS
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Name
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Address-Line 1
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Address-Line 2
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Address-Line 3
<PAGE>
- --------------------------------------------------------------------------------
5. Shareholder Authorization This section MUST be completed
- --------------------------------------------------------------------------------
TELEPHONE EXCHANGES AND REDEMPTIONS BY CHECK
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an authorized
employee of an investment dealer or agent requesting a redemption or exchange on
my behalf. (NOTE: Telephone exchanges may only be processed between accounts
that have identical registrations.) Telephone redemption checks will only be
mailed to the name and address of record; and the address must have no change
within the last 30 days. The maximum telephone redemption amount is $50,000.
This service can be enacted once every 30 days.
[ ] I do not elect the telephone exchange service.
[ ] I do not elect the telephone redemption by check service.
I certify under penalty of perjury that the number shown in Section 1 of this
form is my correct tax identification number or social security number and that
I have not been notified that this account is subject to backup withholding.
By selecting any of the above telephone privileges, I agree that neither the
Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund Services,
Inc. or other Fund Agent will be liable for any loss, injury, damage or expense
as a result of acting upon telephone instructions purporting to be on my behalf,
that the Fund reasonably believes to be genuine, and that neither the Fund nor
any such party will be responsible for the authenticity of such telephone
instructions. I understand that any or all of these privileges may be
discontinued by me or the Fund at any time. I understand and agree that the Fund
reserves the right to refuse any telephone instructions and that my investment
dealer or agent reserves the right to refuse to issue any telephone instructions
I may request.
For non-residents only: Under penalties of perjury, I certify that to the best
of my knowledge and belief, I qualify as a foreign person as indicated in
Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certificate required to avoid backup withholding.
- ------------------------- ----------------
Signature Date
- ------------------------- ---------------- ----------------------------
Signature Date Acceptance Date
- --------------------------------------------------------------------------------
Dealer/Agent Authorization For selected Dealers or Agents ONLY.
- --------------------------------------------------------------------------------
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee the
signature(s) set forth in Section 5, as well as the legal capacity of the
shareholder.
- -------------------------------------- ----------------------------------------
Dealer/Agent Firm Authorized Signature
- -------------------------------------- -------- ---------------------------
Representative First Name MI Last Name
- --------------------------------------------------------------------------------
Representative Number
- --------------------------------------------------------------------------------
Branch Office Address
- --------------------------------------------------------------------------------
City State Zip Code
( )
- --------------------------------------------------------------------------------
Branch Number Branch Phone
<PAGE>
Alliance Subscription Application
- --------------------------------------------------------------------------------
Alliance Institutional Funds
Premier Growth Quasar Institutional Real Estate Investment
Institutional Fund Fund Institutional Fund
- --------------------------------------------------------------------------------
INFORMATION AND INSTRUCTIONS
- --------------------------------------------------------------------------------
To Open Your New Alliance Account...
<TABLE>
<S> <C>
Please complete the application and mail it to: For certified or overnight
Alliance Fund Services, Inc. deliveries, send to:
P.O. Box 1520 Alliance Fund Services, Inc.
Secaucus, New Jersey 07096-1520 500 Plaza Drive
Secaucus, New Jersey 07094
</TABLE>
[Section 1] Your Account Registration (Required)
Complete one of the available choices. To ensure proper tax reporting to the
IRS:
Individuals, Joint Tenants and Gift/Transfer to a Minor:
o Indicate your name(s) exactly as it appears on your social security card.
Trust/Other:
o Indicate the name of the entity exactly as it appeared on the notice you
received from the IRS when your Employer Identification number was
assigned.
[Section 2] Your Address (Required)
Complete in full.
[Section 3] Your Initial Investment (Required)
For each fund in which you are investing: 1) Write the dollar amount of your
initial purchase and the class of shares 2) Circle a distribution option for
your dividends 3) Circle a distribution option for your capital gains. All
distributions (dividends and capital gains) will be reinvested into your fund
account unless you direct otherwise. If you want distributions sent directly to
your bank account, then you must complete Section 4B and attach a voided check
for that account. If you want your distributions sent to a third party you must
complete Section 4C.
[Section 4] Your Shareholder Options (Complete only those options you want)
A. Telephone Transactions via EFT - Complete this option if you would like to be
able to transact via telephone between your fund account and your bank
account.
B. Bank Information - If you have elected any options that involve transactions
between your bank account and your fund account or have elected cash
distribution options and would like the payments sent to your bank account,
please tape a voided check of the account you wish to use to this section of
the application.
C. Third Party Payment Details - If you have chosen cash distributions and would
like the payments sent to a person and/or address other than those provided
in section 1 or 2, complete this option.
[Section 5] Shareholder Authorization (Required)
All owners must sign. If it is a custodial, corporate, or trust account, the
custodian, an authorized officer, or the trustee respectively must sign.
IF WE CAN ASSIST YOU IN ANY WAY, PLEASE DO NOT HESITATE TO CALL US AT:
(800) 221-5672.
<PAGE>
(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
[ ], 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. Copies of the Prospectus may be
obtained by contacting Alliance Fund Services, Inc. at the
address or the "For Literature" telephone numbers 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 ACCOUNTS 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
_________________________________________________________________
Alliance Institutional Funds, Inc. (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
3
<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
4
<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 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, it will not engage in options
in the over-the-counter market if such options are available on
an exchange, it will only transact in over-the-counter options
with major broker-dealer and financial institutions whom the
Adviser considers creditworthy, it will only engage in
8
<PAGE>
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, 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, the Fund prohibits the
purchase or retention of the securities of any issuer if its
officers, directors or adviser owning beneficially more than one-
half of one percent of the securities of each issuer together own
beneficially more than five percent of such securities, any
securities transaction effected through an affiliated broker-
dealer will be fair and reasonable in compliance with Rule 17e-1
under the 1940 Act, the Fund 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
of the securities subject to such option. In addition, the
writer of the call gives up the gain possibility of the stock
9
<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. 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
period, the price of the shares declined by an amount in excess
of the premium paid and commissions payable on exercise. It
10
<PAGE>
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.
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
11
<PAGE>
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 100%, it could, under some
conditions, exceed 100%. A 100% annual turnover rate would occur,
for example, if all of the stocks in the Fund's portfolio were
replaced once 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 particular issuer's
securities from the Fund's portfolio. A high portfolio turnover
rate will cause the Fund to realize short-term capital gains or
losses on the sale of certain securities and, correspondingly,
12
<PAGE>
greater brokerage commission expenses than would a lower rate,
which expenses are 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;
(j) purchase the securities of any other
investment company or investment trust, except when such
13
<PAGE>
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 New York Stock
Exchange listed company with principal offices at 1345 Avenue of
the Americas, New York, New York 10105, has been retained under
an investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision and control of the Board of Directors.
14
<PAGE>
The Adviser is a leading international investment
manager supervising client accounts with assets as of
September 30, 1997 of more than $199 billion (of which more than
$71 billion represented the assets of investment companies). The
Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies,
foundations and endowment funds, and included as of September 30,
1997, 29 of the FORTUNE 100 companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,450
employees who operated out of domestic offices and the offices of
subsidiaries in Istanbul, London, Mumbai, Paris, Sao Paolo,
Sydney, Tokyo, Toronto, Bahrain, Luxembourg and Singapore. The
54 registered investment companies comprising 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"), a holding company controlled by
AXA-UAP, a French insurance holding company. As of March 1,
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 ("Units"). As of March 31, 1997, approximately 34% and
9% of the Units were owned by the public and employees of the
Adviser and its subsidiaries, respectively, including an employee
of the Adviser who serves as a Director of the Fund.
As of March 1, 1997, AXA-UAP and its subsidiaries owned
60.7% of the issued and outstanding shares of the capital stock
of ECI. ECI is a public company with shares traded on the
Exchange. AXA-UAP, a French company, is the 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, on March 1,
1997, 22.5% of the issued ordinary shares (representing 33.0% of
15
<PAGE>
the voting power) of AXA-UAP were controlled directly and
indirectly by Finaxa, a French holding company. As of March 1,
1997, 61.4% of the shares (representing 72.0% of the voting
power) of Finaxa were owned by four French mutual insurance
companies (the "Mutuelles AXA") (one of which, AXA Assurances
I.A.R.D. Mutuelle, owned 34.9% of the shares, representing 40.0%
of the voting power), and 23.7% of the shares of Finaxa
(representing 14.6% of the voting power) were owned by Banque
Paribas, a French bank ("Paribas"). Including the ordinary
shares owned by Finaxa, on March 1, 1997, the Mutuelles AXA
directly or indirectly controlled 26.0% of the issued ordinary
shares (representing 38.1% of the voting power) of AXA-UAP.
Acting as a group, the Mutuelles AXA control AXA-UAP and Finaxa.
In November 1996, AXA offered (the "Exchange Offer") to
acquire 100% of the ordinary shares ("UAP Shares") of FF10 each
of Compagnie UAP, a societe anonyme organized under the laws of
France ("UAP"), in exchange for ordinary shares ("Shares") and
Certificates of Guaranteed Value ("Certificates") of AXA. Each
UAP shareholder that tendered UAP Shares in the Exchange Offer
received two Shares and two Certificates for every five UAP
Shares so tendered. On January 24, 1997, AXA acquired 91.37% of
the outstanding UAP Shares. AXA-UAP currently intends to merge
(the "Merger") with UAP at some future date in 1997. It is
anticipated that approximately 11,706,826 additional Shares will
be issued in connection with the Merger to UAP shareholders who
did not tender UAP Shares in the Exchange Offer. If the Merger
had been completed at March 1, 1997, Finaxa would have
beneficially owned (directly and indirectly) approximately 21.7%
of the Shares (representing approximately 32.0% of the voting
power), and the Mutuelles AXA would have controlled (directly or
indirectly through their interest in Finaxa) 25.1% of the issued
ordinary shares (representing 36.8% of the voting power) of AXA-
UAP. On January 17, 1997, AXA announced its intention to redeem
its outstanding 6% Bonds (the "Bonds"). Between February 14,
1997 and May 14, 1997, holders of the Bonds had the option to
convert each Bond into 5.15 Shares. On May 15, 1997, each Bond
still outstanding was redeemed into cash at FF1,285 plus FF9.29
accrued interest. Finaxa converted the Bonds it had owned into
2,153,308 Shares. After giving effect to the conversion of all
outstanding Bonds into Shares and to the Merger as if it had been
completed at March 1, 1997, Finaxa would have beneficially owned
(directly and indirectly) approximately 21.4% of the Shares
(representing 31.3% of the voting power), and the Mutuelles AXA
would have controlled (directly or indirectly through their
interest in Finaxa) 24.7% of the issued ordinary shares
(representing 36.0% of the voting power) of AXA-UAP.
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
16
<PAGE>
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 [ ],
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 [ ], 1997, and by the [Company's] [Fund's] initial
shareholder on [ ], 1997.
The Advisory Agreement will remain in force for
successive twelve-month periods (computed from each [ ] 1),
provided that such continuance is approved at least annually by a
vote of a majority of the Fund's outstanding voting securities 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
17
<PAGE>
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
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
18
<PAGE>
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
[TO BE INSERTED]
Officers
[TO BE INSERTED]
The aggregate compensation paid by the [Company] to each
of the Directors during its fiscal year ended [ ], 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"), 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.
19
<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
Alliance Fund which the to which the
Aggregate Complex, Director is a Director is a
Compensation Including the Director or Director or
Name of Director from the Fund Fund Trustee Trustee
As of [ ], 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.
_________________________________________________________________
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 [ ], 1997, and by the Fund's initial
shareholder on [ ], 1997.
20
<PAGE>
The Agreement became effective on [ ], 1997.
The Agreement will continue in effect for successive twelve-month
periods (computed from each [ ] 1), provided, however, that
such continuance is specifically approved at least 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.
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].
21
<PAGE>
_________________________________________________________________
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 $[ ] million in assets, (iii) by investment
management 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 the relative
of such person, or (3) the estate of any person listed in (a)
through (d) or the 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
22
<PAGE>
established by the Principal Underwriter, and (ii) Employee Plans
that have at least $[ ] 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.
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
23
<PAGE>
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,
although such shares remain in the shareholder's account on the
books of the Fund.
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
24
<PAGE>
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
shares does not constitute a taxable event under federal income
25
<PAGE>
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 II 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
26
<PAGE>
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
period, of shares for which no stock certificates have been
27
<PAGE>
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
responsible for transmitting the request to the Principal
28
<PAGE>
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
be received by Alliance Fund Services, Inc. by 4:00 p.m. Eastern
29
<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.
30
<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 prospectusfor 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 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
31
<PAGE>
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
Section 401(k) plans ("qualified plans"), under which annual tax-
32
<PAGE>
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] [Fund's] independent [auditors]
[accountants], [ ], 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 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
33
<PAGE>
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.
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.
34
<PAGE>
_________________________________________________________________
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
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
35
<PAGE>
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
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
36
<PAGE>
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.
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.
37
<PAGE>
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
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
38
<PAGE>
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
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.
39
<PAGE>
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
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
40
<PAGE>
permit an affiliated person of a registered investment company
(such as the [Company] [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.
_________________________________________________________________
GENERAL INFORMATION
_________________________________________________________________
Capitalization
The Company is a Maryland corporation organized on
[ ], 1997. The authorized capital stock of the
Company consists of [ ] shares, of which [ ]
shares are Class I shares of the Fund and [ ] 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.
41
<PAGE>
Custodian
[ ], acts as custodian for the securities and
cash 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, [ ] 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] [Accountants]
[ ], New York, New York, has been appointed
as independent [auditors] [accountants] for the [Company] [Fund].
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.
42
<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 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.
43
<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
00250237.AB3
<PAGE>
(LOGO) ALLIANCE INSTITUTIONAL FUND, 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
[ ], 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. 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
_______________________________________________________________
Alliance Institutional Funds, Inc. (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.
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
5
<PAGE>
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. (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
6
<PAGE>
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
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 200% during the current fiscal year. A
200% annual turnover rate would occur, for example, if all the
stocks in the Fund's portfolio were replaced twice within a
period of one year. A portfolio turnover rate approximating 200%
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
7
<PAGE>
operations of any predecessors, and any equity securities of
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 New York Stock
Exchange listed company with principal offices at 1345 Avenue of
the Americas, New York, New York 10105, has been retained under
an investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision and control of the Board of Directors.
The Adviser is a leading international investment
manager supervising client accounts with assets as of
September 30, 1997 of more than $199 billion (of which more than
$71 billion represented the assets of investment companies). The
Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies,
foundations and endowment funds, and included as of September 30,
1997, 29 of the FORTUNE 100 companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,450
employees who operated out of domestic offices and the offices of
subsidiaries in Istanbul, London, Mumbai, Paris, Sao Paolo,
Sydney, Tokyo, Toronto, Bahrain, Luxembourg and Singapore. The
[54] registered investment companies comprising [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"), a holding company controlled by
AXA-UAP, a French insurance holding company. As of March 1,
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
10
<PAGE>
Adviser ("Units"). As of March 31, 1997, approximately 34% and
9% of the Units were owned by the public and employees of the
Adviser and its subsidiaries, respectively, including an employee
of the Adviser who serves as a Director of the Fund.
As of March 1, 1997, AXA-UAP and its subsidiaries owned
60.7% of the issued and outstanding shares of the capital stock
of ECI. ECI is a public company with shares traded on the
Exchange. AXA-UAP, a French company, is the 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, on March 1,
1997, 22.5% of the issued ordinary shares (representing 33.0% of
the voting power) of AXA-UAP were controlled directly and
indirectly by Finaxa, a French holding company. As of March 1,
1997, 61.4% of the shares (representing 72.0% of the voting
power) of Finaxa were owned by four French mutual insurance
companies (the "Mutuelles AXA") (one of which, AXA Assurances
I.A.R.D. Mutuelle, owned 34.9% of the shares, representing 40.0%
of the voting power), and 23.7% of the shares of Finaxa
(representing 14.6% of the voting power) were owned by Banque
Paribas, a French bank ("Paribas"). Including the ordinary
shares owned by Finaxa, on March 1, 1997, the Mutuelles AXA
directly or indirectly controlled 26.0% of the issued ordinary
shares (representing 38.1% of the voting power) of AXA-UAP.
Acting as a group, the Mutuelles AXA control AXA-UAP and Finaxa.
In November 1996, AXA offered (the "Exchange Offer") to
acquire 100% of the ordinary shares ("UAP Shares") of FF10 each
of Compagnie UAP, a societe anonyme organized under the laws of
France ("UAP"), in exchange for ordinary shares ("Shares") and
Certificates of Guaranteed Value ("Certificates") of AXA. Each
UAP shareholder that tendered UAP Shares in the Exchange Offer
received two Shares and two Certificates for every five UAP
Shares so tendered. On January 24, 1997, AXA acquired 91.37% of
the outstanding UAP Shares. AXA-UAP currently intends to merge
(the "Merger") with UAP at some future date in 1997. It is
anticipated that approximately 11,706,826 additional Shares will
be issued in connection with the Merger to UAP shareholders who
did not tender UAP Shares in the Exchange Offer. If the Merger
had been completed at March 1, 1997, Finaxa would have
beneficially owned (directly and indirectly) approximately 21.7%
11
<PAGE>
of the Shares (representing approximately 32.0% of the voting
power), and the Mutuelles AXA would have controlled (directly or
indirectly through their interest in Finaxa) 25.1% of the issued
ordinary shares (representing 36.8% of the voting power) of AXA-
UAP. On January 17, 1997, AXA announced its intention to redeem
its outstanding 6% Bonds (the "Bonds"). Between February 14,
1997 and May 14, 1997, holders of the Bonds had the option to
convert each Bond into 5.15 Shares. On May 15, 1997, each Bond
still outstanding was redeemed into cash at FF1,285 plus FF9.29
accrued interest. Finaxa converted the Bonds it had owned into
2,153,308 Shares. After giving effect to the conversion of all
outstanding Bonds into Shares and to the Merger as if it had been
completed at March 1, 1997, Finaxa would have beneficially owned
(directly and indirectly) approximately 21.4% of the Shares
(representing 31.3% of the voting power), and the Mutuelles AXA
would have controlled (directly or indirectly through their
interest in Finaxa) 24.7% of the issued ordinary shares
(representing 36.0% of the voting power) of AXA-UAP.
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
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
Investment Advisory Contract, the Fund pays the Adviser a
quarterly fee on the first business day of January, April, July
12
<PAGE>
and October equal to .25 of 1% (approximately 1% on an annualized
basis) of the net assets of the Fund at the end of the preceding
quarter.
The Advisory Agreement became effective on [ ],
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 [ ], 1997, and by the [Company's] [Fund's] initial
shareholder on [ ], 1997.
The Advisory Agreement will remain in force for
successive twelve-month periods (computed from each [ ] 1),
provided that such continuance is approved at least annually by a
vote of a majority of the Fund's outstanding voting securities 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
13
<PAGE>
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.
Directors
[TO BE INSERTED]
14
<PAGE>
Officers
[TO BE INSERTED]
The aggregate compensation paid by the [Company] to each
of the Directors during its fiscal year ended [ ], 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"), 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
Alliance Fund which the to which the
Aggregate Complex, Director is a Director is a
Compensation Including the Director or Director or
Name of Director from the Fund Fund Trustee Trustee
As of [ ], 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.
_________________________________________________________________
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
15
<PAGE>
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 [ ], 1997, and by the Fund's initial
shareholder on [ ], 1997.
The Agreement became effective on [ ], 1997.
The Agreement will continue in effect for successive twelve-month
periods (computed from each [ ] 1), provided, however, that
such continuance is specifically approved at least 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
16
<PAGE>
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 $[ ] million in assets, (iii) by investment
management 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 the relative
of such person, or (3) the estate of any person listed in (a)
through (d) or the relative of such person, if such shares are
purchased for investment purposes (such shares may not be resold
17
<PAGE>
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 $[ ] 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
18
<PAGE>
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
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.
19
<PAGE>
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.
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.
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
20
<PAGE>
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 II 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.
21
<PAGE>
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.
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
22
<PAGE>
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
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
23
<PAGE>
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.
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.
24
<PAGE>
_________________________________________________________________
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.
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
25
<PAGE>
-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.
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
26
<PAGE>
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 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,
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
27
<PAGE>
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
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.
28
<PAGE>
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] [Fund's] independent [auditors]
[accountants], [ ], 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
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.
29
<PAGE>
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 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
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
30
<PAGE>
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%)
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
31
<PAGE>
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
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
32
<PAGE>
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.
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.
33
<PAGE>
_______________________________________________________________
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
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
34
<PAGE>
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.
_______________________________________________________________
GENERAL INFORMATION
_______________________________________________________________
Capitalization
The Company is a Maryland corporation organized on
[ ], 1997. The authorized capital stock of the
Company consists of [ ] shares, of which [ ]
35
<PAGE>
shares are Class I shares of the Fund and [ ] 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
[ ], acts as custodian for the securities and
cash 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, [ ] 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.
36
<PAGE>
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] [Accountants]
[ ], New York, New York, has been appointed
as independent [auditors] [accountants] for the [Company] [Fund].
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
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. ("Lipper")
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. The Fund has been ranked by
Lipper in the category known as "small company growth".
37
<PAGE>
Additional Information
Any shareholder inquiries may be directed to the
shareholder's broker or to AFS 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 Securities and Exchange
Commission or may be examined, without charge, at the offices of
the Commission in Washington, D.C.
38
00250237.AB3
<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
[ ], 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. Copies of the Prospectus may be
obtained by contacting Alliance Fund Services, Inc. at the
address or the "For Literature" telephone numbers 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
_______________________________________________________________
Alliance Institutional Funds, Inc. (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 New York Stock
Exchange listed company with principal offices at 1345 Avenue of
the Americas, New York, New York 10105, has been retained under
an investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
10
<PAGE>
management and investment program of the Fund under the
supervision and control of the Board of Directors.
The Adviser is a leading international investment
manager supervising client accounts with assets as of
September 30, 1997 of more than $199 billion (of which more than
$71 billion represented the assets of investment companies). The
Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies,
foundations and endowment funds, and included as of September 30,
1997, 29 of the FORTUNE 100 companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,450
employees who operated out of domestic offices and the offices of
subsidiaries in Istanbul, London, Mumbai, Paris, Sao Paolo,
Sydney, Tokyo, Toronto, Bahrain, Luxembourg and Singapore. The
[54] registered investment companies comprising [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"), a holding company controlled by
AXA-UAP, a French insurance holding company. As of March 1,
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 ("Units"). As of March 31, 1997, approximately 34% and
9% of the Units were owned by the public and employees of the
Adviser and its subsidiaries, respectively, including an employee
of the Adviser who serves as a Director of the Fund.
As of March 1, 1997, AXA-UAP and its subsidiaries owned
60.7% of the issued and outstanding shares of the capital stock
of ECI. ECI is a public company with shares traded on the
Exchange. AXA-UAP, a French company, is the 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.
11
<PAGE>
Based on information provided by AXA-UAP, on March 1,
1997, 22.5% of the issued ordinary shares (representing 33.0% of
the voting power) of AXA-UAP were controlled directly and
indirectly by Finaxa, a French holding company. As of March 1,
1997, 61.4% of the shares (representing 72.0% of the voting
power) of Finaxa were owned by four French mutual insurance
companies (the "Mutuelles AXA") (one of which, AXA Assurances
I.A.R.D. Mutuelle, owned 34.9% of the shares, representing 40.0%
of the voting power), and 23.7% of the shares of Finaxa
(representing 14.6% of the voting power) were owned by Banque
Paribas, a French bank ("Paribas"). Including the ordinary
shares owned by Finaxa, on March 1, 1997, the Mutuelles AXA
directly or indirectly controlled 26.0% of the issued ordinary
shares (representing 38.1% of the voting power) of AXA-UAP.
Acting as a group, the Mutuelles AXA control AXA-UAP and Finaxa.
In November 1996, AXA offered (the "Exchange Offer") to
acquire 100% of the ordinary shares ("UAP Shares") of FF10 each
of Compagnie UAP, a societe anonyme organized under the laws of
France ("UAP"), in exchange for ordinary shares ("Shares") and
Certificates of Guaranteed Value ("Certificates") of AXA. Each
UAP shareholder that tendered UAP Shares in the Exchange Offer
received two Shares and two Certificates for every five UAP
Shares so tendered. On January 24, 1997, AXA acquired 91.37% of
the outstanding UAP Shares. AXA-UAP currently intends to merge
(the "Merger") with UAP at some future date in 1997. It is
anticipated that approximately 11,706,826 additional Shares will
be issued in connection with the Merger to UAP shareholders who
did not tender UAP Shares in the Exchange Offer. If the Merger
had been completed at March 1, 1997, Finaxa would have
beneficially owned (directly and indirectly) approximately 21.7%
of the Shares (representing approximately 32.0% of the voting
power), and the Mutuelles AXA would have controlled (directly or
indirectly through their interest in Finaxa) 25.1% of the issued
ordinary shares (representing 36.8% of the voting power) of AXA-
UAP. On January 17, 1997, AXA announced its intention to redeem
its outstanding 6% Bonds (the "Bonds"). Between February 14,
1997 and May 14, 1997, holders of the Bonds had the option to
convert each Bond into 5.15 Shares. On May 15, 1997, each Bond
still outstanding was redeemed into cash at FF1,285 plus FF9.29
accrued interest. Finaxa converted the Bonds it had owned into
2,153,308 Shares. After giving effect to the conversion of all
outstanding Bonds into Shares and to the Merger as if it had been
completed at March 1, 1997, Finaxa would have beneficially owned
(directly and indirectly) approximately 21.4% of the Shares
(representing 31.3% of the voting power), and the Mutuelles AXA
would have controlled (directly or indirectly through their
interest in Finaxa) 24.7% of the issued ordinary shares
(representing 36.0% of the voting power) of AXA-UAP.
12
<PAGE>
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 [ ],
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 [ ], 1997, and by the [Company's] [Fund's] initial
shareholder on [ ], 1997.
The Advisory Agreement will remain in force for
successive twelve-month periods (computed from each [ ] 1),
provided that such continuance is approved at least annually by a
vote of a majority of the Fund's outstanding voting securities 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.
13
<PAGE>
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
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.,
14
<PAGE>
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
[TO BE INSERTED]
Officers
[TO BE INSERTED]
The aggregate compensation paid by the [Company] to each
of the Directors during its fiscal year ended [ ], 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"), 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.
15
<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
Alliance Fund which the to which the
Aggregate Complex, Director is a Director is a
Compensation Including the Director or Director or
Name of Director from the Fund Fund Trustee Trustee
As of [ ], 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.
_________________________________________________________________
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 [ ], 1997, and by the Fund's initial
shareholder on [ ], 1997.
16
<PAGE>
The Agreement became effective on [ ], 1997.
The Agreement will continue in effect for successive twelve-month
periods (computed from each [ ] 1), provided, however, that
such continuance is specifically approved at least 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.
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].
17
<PAGE>
_________________________________________________________________
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 $[ ] million in assets, (iii) by investment
management 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 the relative
of such person, or (3) the estate of any person listed in (a)
through (d) or the 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 Koll Real Estate Services.
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
18
<PAGE>
established by the Principal Underwriter, and (ii) Employee Plans
that have at least $[ ] 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.
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
19
<PAGE>
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,
although such shares remain in the shareholder's account on the
books of the Fund.
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
20
<PAGE>
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
shares does not constitute a taxable event under federal income
21
<PAGE>
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 II 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
22
<PAGE>
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
period, of shares for which no stock certificates have been
23
<PAGE>
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
responsible for transmitting the request to the Principal
24
<PAGE>
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
be received by Alliance Fund Services, Inc. by 4:00 p.m. Eastern
25
<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.
26
<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, as applicable, for the Alliance
Mutual Fund whose shares are being acquired. An exchange is
effected through the redemption of the shares tendered for
exchange and the purchase of shares being acquired at their
respective net asset values as next determined following receipt
by the 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
27
<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
28
<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] [Fund's] independent [auditors]
[accountants], [ ], 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.
29
<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.
30
<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
31
<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
32
<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 quarterly and to
distribute realized capital gains, if any, annually. There is no
fixed dividend rate and there can be no assurance that the Fund
will pay any dividends. The amount of any dividend or
distribution paid on shares of the Fund must necessarily depend
upon the realization of income and capital gains from the Fund's
investments.
Sales and Redemptions. Any gain or loss arising from a
sale or redemption of Fund shares generally will be capital gain
or loss except in the case of a dealer or a financial
institution, and will be long-term capital gain or loss if such
shareholder has held such shares for more than one year at the
time of the sale or redemption; otherwise it will be short-term
capital gain or loss. 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
33
<PAGE>
shareholder's risk of loss is offset by means of options, short
sales or similar transactions is not counted.
Any loss realized by a shareholder on a sale or exchange
of shares of the Fund will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30
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.
34
<PAGE>
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
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
35
<PAGE>
execution. The Adviser is authorized under the Advisory
Agreement to place brokerage business with such brokers and
dealers. The use of brokers who supply supplemental research and
analysis and other services may result in the payment of higher
commissions than those available from other brokers and dealers
who provide only the execution of portfolio transactions. In
addition, the supplemental research and analysis and other
services that may be obtained from brokers and dealers through
which brokerage transactions are affected may be useful to the
Adviser in connection with advisory clients other than the Fund.
Investment decisions for the Fund are made independently
from those for other investment companies and other advisory
accounts managed by the Adviser. It may happen, on occasion,
that the same security is held in the portfolio of the Fund and
one or more of such other companies or accounts. Simultaneous
transactions are likely when several funds or accounts are
managed by the same Adviser, particularly when a security is
suitable for the investment objectives of more than one of such
companies or accounts. When two or more companies or accounts
managed by the Adviser are simultaneously engaged in the purchase
or sale of the same security, the transactions are allocated to
the respective companies or accounts both as to amount and price,
in accordance with a method deemed equitable to each company or
account. In some cases this system may adversely affect the
price paid or received by the Fund or the size of the position
obtainable for the Fund.
Allocations are made by the officers of the Fund or of
the Adviser. Purchases and sales of portfolio securities are
determined by the Adviser and are placed with broker-dealers by
the order department of the Adviser.
The extent to which commissions that will be charged by
broker-dealers selected by the Fund may reflect an element of
value for research cannot presently be determined. To the extent
that research services of value are provided by broker-dealers
with or through whom the Fund places portfolio transactions, the
Adviser may be relieved of expenses which it might otherwise
bear. Research services furnished by broker-dealers could be
useful and of value to the Adviser in servicing its other clients
as well as the Fund; but, on the other hand, certain research
services obtained by the Adviser as a result of the placement of
portfolio brokerage of other clients could be useful and of value
to it in serving the Fund. Consistent with the Conduct Rules of
the National Association of Securities Dealers, Inc. and subject
to seeking best execution, the Fund may consider sales of shares
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.
36
<PAGE>
The Fund may from time to time place orders for the
purchase or sale of securities (including listed call options)
with Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"),
an affiliate of the Adviser, and with brokers which may have
their transactions cleared or settled, or both, by the Pershing
Division of DLJ for which DLJ may receive a portion of the
brokerage commissions. In such instances, the placement of
orders with such brokers would be consistent with the Fund's
objective of obtaining best execution and would not be dependent
upon the fact that DLJ is an affiliate of the Adviser.
_______________________________________________________________
GENERAL INFORMATION
_______________________________________________________________
Capitalization
The Company is a Maryland corporation organized on
[ ], 1997. The authorized capital stock of the
Company consists of [ ] shares, of which [ ]
shares are Class I shares of the Fund and [ ] 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.
37
<PAGE>
Custodian
[ ], acts as custodian for the securities and
cash 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, [ ] 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] [Accountants]
[ ], New York, New York, has been appointed
as independent [auditors] [accountants] for the [Company] [Fund].
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.
38
<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 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
Securities and Exchange Commission under the Securities Act of
1933. Copies of the Registration Statement may be obtained at a
reasonable charge from the Securities and Exchange Commission or
may be examined, without charge, at the offices of the Securities
and Exchange Commission in Washington, D.C.
39
00250237.AB3
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits.
(a) Financial Statements
No financial statements are included in this
Registration Statement since, on the date of filing, the
Registrant, being a newly organized corporation, has no assets or
known liabilities and has sold no shares of common stock. Prior
to the effective date of this Registration Statement, the
necessary financial statements will be filed by amendment hereto.
(b) Exhibits
(1) Copy of Articles of Incorporation - filed herewith.
(2) Copy of By-Laws of the Registrant - filed herewith.
(3) Not applicable.
(4) Not applicable.
(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 Registrant.*
____________________
* To be filed in a subsequent pre-effective amendment.
C-1
<PAGE>
(c) Form of Selected Agent Agreement between
Alliance Fund Distributors, Inc. and selected agents making
available shares of Registrant.*
(7) Not applicable.
(8) Copy of proposed Custodian Contract between the
Registrant and [ ].*
(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 Accountants.*
(12) Not applicable.
(13) Investment representation letter of Alliance
Capital Management L.P.*
(14) Not applicable.
(15) Rule 12b-1 Plan.*
(16) Schedule for computation of performance
quotations.**
(18) Rule 18f-3 Plan.*
ITEM 25. Persons Controlled by or under Common Control with
Registrant.
None. The Registrant is a recently organized
corporation and has no outstanding shares of common stock.
___________________________
* To be filed in a subsequent pre-effective amendment
** To be filed in a post-effective amendment.
C-2
<PAGE>
ITEM 26. Number of Holders of Securities.
None. The Registrant is a recently organized
corporation and has not issued any securities as of the
date of this Registration Statement.
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 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.
Alliance Real Estate Investment Fund, Inc.
C-5
<PAGE>
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 Secretary
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 Assistant Secretary
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 [ ] the
Registrant's custodian, [ ]. 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.SIGNATURES
C-11
<PAGE>
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 3rd day of October, 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 October 3, 1997
______________________ President
John D. Carifa
(2) Principal Financial
and Accounting Officer:
/s/ Mark D. Gersten Treasurer October 3, 1997
_____________________ and Chief
Mark D. Gersten Financial
Officer
(3) Sole Director:
/s/ Edmund P. Bergan, Jr.
_________________________ October 3, 1997
Edmund P. Bergan, Jr.
C-12
<PAGE>
Index To Exhibits
(1) Articles of Incorporation
(2) By-Laws of the Registrant
C-13
00250237.AB3
<PAGE>
ARTICLES OF INCORPORATION
OF
ALLIANCE INSTITUTIONAL FUNDS, INC.
FIRST: (1) The name of the incorporator is William
E. Schwartz.
(2) The incorporator's post office address is
One Battery Park Plaza, New York, New York 10004.
(3) The incorporator is over eighteen years
of age.
(4) The incorporator is forming the
corporation named in these Articles of Incorporation under the
general laws of the State of Maryland.
SECOND: The name of the corporation (hereinafter
called the Corporation) is Alliance Institutional Funds, Inc.
THIRD: (1) The purposes for which the Corporation is
formed are to conduct, operate and carry on the business of an
investment company.
(2) The Corporation may engage in any other
business and shall have all powers conferred upon or permitted to
corporations by the Maryland General Corporation Law.
FOURTH: The post office address of the principal
office of the Corporation within the State of Maryland is 32
South Street, Baltimore, Maryland 21202 in care of The
Corporation Trust, Incorporated. The resident agent of the
Corporation in the State of Maryland is The Corporation Trust,
Incorporated, 32 South Street, Baltimore, Maryland 21202, a
Maryland corporation.
FIFTH: (1) The total number of shares of capital
stock which the Corporation shall have authority to issue is
eighteen billion (18,000,000,000), all of which shall be Common
Stock having a par value of one-tenth of one cent ($.001) per
<PAGE>
share and an aggregate par value of eighteen million dollars
($18,000,000), classified initially as follows:
Class I Class II
Name of Series Common Stock Common Stock
Alliance Premier 3,000,000,000 3,000,000,000
Growth Institutional
Fund
Alliance Quasar 3,000,000,000 3,000,000,000
Institutional Fund
Alliance Real 3,000,000,000 3,000,000,000
Estate Investment
Institutional Fund
Alliance Premier Growth Institutional Fund, Alliance Quasar
Institutional Fund and Alliance Real Estate Investment
Institutional Fund and any other portfolio hereafter established
are each referred to herein as a "Series."
(2) As more fully set forth hereafter, the
assets and liabilities and the income and expenses of each class
of the Corporation's stock shall be determined separately from
those of each other class of the Corporation's stock, and,
accordingly, the net asset value, the dividends and distributions
payable to holders, and the amounts distributable in the event of
liquidation or dissolution of the Corporation to holders of
shares of the Corporation's stock may vary from class to class.
(3) Except as otherwise provided herein, all
consideration received by the Corporation for the issuance or
sale of shares of a class of the Corporation's stock, together
with all funds derived from any investment and reinvestment
thereof, shall irrevocably belong to that class for all purposes,
subject only to any automatic conversion of one class of stock
into another, as hereinafter provided for, and the rights of
creditors, and shall be so recorded upon the books of account of
the Corporation, and are herein referred to as "assets belonging
to" such class.
(4) The assets belonging to each class shall
be charged with the liabilities of the Corporation in respect of
such class and with such class' share of the general liabilities
of the Corporation, in the latter case in the proportion that the
net asset value of such class bears to the net asset value of all
classes or as otherwise determined by the Board of Directors in
accordance with law. The determination of the Board of Directors
shall be conclusive as to the allocation of liabilities,
including accrued expenses and reserves, to a class.
2
<PAGE>
(5) The assets attributable to the Class I
Common Stock of a Series and the assets attributable to the Class
II Common Stock of any such Series shall be invested in the same
investment portfolio of the Corporation, and notwithstanding the
foregoing provisions of paragraphs (3) and (4) of this Article
FIFTH, the allocation of investment income, capital gains,
expenses and liabilities of the Corporation and of any Series
among the classes of Common Stock of each Series shall be
determined by the Board of Directors in a manner that is
consistent with the Investment Company Act of 1940, the rules and
regulations thereunder, and the interpretations thereof, in each
case as from time to time amended, modified or superseded. The
determination of the Board of Directors shall be conclusive as to
the allocation of investment income, capital gains, expenses and
liabilities (including accrued expenses and reserves), and assets
to a particular class or classes.
(6) Shares of each class of stock shall be
entitled to such dividends or distributions, in stock or in cash
or both, as may be declared from time to time by the Board of
Directors with respect to such class. Specifically, and without
limiting the generality of the foregoing, the dividends and the
distributions of investment income and capital gains with respect
to the different Series and with respect to the Class I Common
Stock of a Series and the Class II Common Stock of that Series
may vary with respect to each such Series and class to reflect
differing allocations of the income and expenses of the
Corporation and the Series among the holders of the classes and
any resultant differences between the net asset values per share
of the classes, to such extent and for such purposes as the Board
of Directors may deem appropriate. The Board of Directors may
provide that dividends shall be payable only with respect to
those shares of stock that have been held of record continuously
by the stockholder for a specified period, not to exceed 72
hours, prior to the record date of the dividend.
(7) Except as provided below, on each matter
submitted to a vote of the stockholders, each holder of stock
shall be entitled to one vote for each share standing in his or
her name on the books of the Corporation. Subject to any
applicable requirements of the Investment Company Act of 1940, as
from time to time in effect, or rules or orders of the Securities
and Exchange Commission or any successor thereto, or other
applicable law, all holders of shares of stock shall vote as a
single class except with respect to any matter which affects only
one or more (but less than all) classes of stock, in which case
only the holders of shares of the classes affected shall be
entitled to vote. Without limiting the generality of the
foregoing, and subject to any applicable requirements of the
Investment Company Act of 1940, as from time to time in effect,
or rules or orders of the Securities and Exchange Commission or
3
<PAGE>
any successor thereto, or other applicable law, the holders of
each of the Class I Common Stock and Class II Common Stock of
each Series shall have, respectively, with respect to any matter
submitted to a vote of stockholders (i) exclusive voting rights
with respect to any such matter that only affects the class of
Common Stock of which they are holders, including, without
limitation, the provisions of any distribution plan adopted by
the Corporation pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (a "Plan") with respect to the class of which
they are holders and (ii) no voting rights with respect to the
provisions of any Plan that affects one or more of such other
classes of Common Stock, but not the class of which they are
holders, or with respect to any other matter that does not affect
the class of Common Stock of which they are holders.
(8) In the event of the liquidation or
dissolution of the Corporation, stockholders of each class of the
Corporation's stock shall be entitled to receive, as a class, out
of the assets of the Corporation available for distribution to
stockholders, but other than general assets not attributable to
any particular class of stock, the assets attributable to the
class less the liabilities allocated to that class; and the
assets so distributable to the stockholders of any class of stock
shall be distributed among such stockholders in proportion to the
number of shares of the class held by them and recorded on the
books of the Corporation. In the event that there are any
general assets not attributable to any particular class of stock,
and such assets are available for distribution, the distribution
shall be made to the holders of all classes in proportion to the
net asset value of the respective classes or as otherwise
determined by the Board of Directors.
(9) (a) Each holder of stock may
require the Corporation to redeem all or any part of the stock
owned by that holder, upon request to the Corporation or its
designated agent, at the net asset value of the shares of stock
next determined following receipt of the request in a form
approved by the Corporation and accompanied by surrender of the
certificate or certificates for the shares, if any, less the
amount of any applicable redemption charge or deferred sales
charge or other amount imposed by the Board of Directors (to the
extent consistent with applicable law). The Board of Directors
may establish procedures for redemption of stock.
(b) The proceeds of the redemption of a
share (including a fractional share) of any class of capital
stock of the Corporation shall be reduced by the amount of any
contingent deferred sales charge, redemption fee or other amount
payable on such redemption pursuant to the terms of issuance of
such share.
4
<PAGE>
(c) (i) The term "Minimum Amount" when
used herein shall mean two hundred dollars ($200) unless
otherwise fixed by the Board of Directors from time to time,
provided that the Minimum Amount may not in any event exceed one
hundred million dollars ($100,000,000). The Board of Directors
may establish differing Minimum Amounts for categories of holders
of stock based on such criteria as the Board of Directors may
deem appropriate.
(ii) If the net asset value of the
shares of a class of stock held by a stockholder shall be less
than the Minimum Amount then in effect with respect to the
category of holders in which the stockholder is included, the
Corporation may redeem all of those shares, upon notice given to
the holder in accordance with paragraph (iii) of this
subsection (c), to the extent that the Corporation may lawfully
effect such redemption under the laws of the State of Maryland.
(iii) The notice referred to in
paragraph (ii) of this subsection (c) shall be in writing
personally delivered or deposited in the mail, at least thirty
days (or such other number of days as may be specified from time
to time by the Board of Directors) prior to such redemption. If
mailed, the notice shall be addressed to the stockholder at his
post office address as shown on the books of the Corporation, and
sent by first class mail, postage prepaid. The price for shares
acquired by the Corporation pursuant to this subsection (c) shall
be an amount equal to the net asset value of such shares, subject
to the terms of paragraph (9)(b) of this Article FIFTH.
(d) Payment by the Corporation for
shares of stock of the Corporation surrendered to it for
redemption shall be made by the Corporation within seven days of
such surrender out of the funds legally available therefor,
provided that the Corporation may suspend the right of the
stockholders to redeem shares of stock and may postpone the right
of those holders to receive payment for any shares when permitted
or required to do so by applicable statutes or regulations.
Payment of the aggregate price of shares surrendered for
redemption may be made in cash or, at the option of the
Corporation, wholly or partly in such portfolio securities of the
Corporation as the Corporation shall select.
(10) At such times as may be determined by the
Board of Directors (or with the authorization of the Board of
Directors, by the officers of the Corporation) in accordance with
the Investment Company Act of 1940, applicable rules and
regulations thereunder and applicable rules and regulations of
the National Association of Securities Dealers, Inc. and from
time to time reflected in the registration statement of the
Corporation (the "Corporation's Registration Statement"), shares
5
<PAGE>
of a particular class of stock of the Corporation or certain
shares of a particular class of stock of any Series of the
Corporation may be automatically converted into shares of another
class of stock of such Series of the Corporation based on the
relative net asset values of such classes at the time of
conversion, subject, however, to any conditions of conversion
that may be imposed by the Board of Directors (or with the
authorization of the Board of Directors, by the officers of the
Corporation) and reflected in the Corporation's Registration
Statement. The terms and conditions of such conversion may vary
within and among the classes to the extent determined by the
Board of Directors (or with the authorization of the Board of
Directors, by the officers of the Corporation) and set forth in
the Corporation's Registration Statement.
(11) For the purpose of allowing the net
asset value per share of a class of the Corporation's stock to
remain constant, the Corporation shall be entitled to declare and
pay and/or credit as dividends daily the net income (which may
include or give effect to realized and unrealized gains and
losses, as determined in accordance with the Corporation's
accounting and portfolio valuation policies) of the Corporation
attributable to the assets attributable to that class. If the
amount so determined for any day is negative, the Corporation
shall be entitled, without the payment of monetary compensation
but in consideration of the interest of the Corporation and its
stockholders in maintaining a constant net asset value per share
of that class, to redeem pro rata from all the holders of record
of shares of that class at the time of such redemption (in
proportion to their respective holdings thereof) sufficient
outstanding shares of that class, or fractions thereof, as shall
permit the net asset value per share of that class to remain
constant.
(12) The Corporation may issue shares of
stock in fractional denominations to the same extent as its whole
shares, and shares in fractional denominations shall be shares of
stock having proportionately to the respective fractions
represented thereby all the rights of whole shares, including,
without limitation, the right to vote, the right to receive
dividends and distributions, and the right to participate upon
liquidation of the Corporation, but excluding any right to
receive a stock certificate representing fractional shares.
(13) No stockholder shall be entitled to any
preemptive right other than as the Board of Directors may
establish.
SIXTH: The initial number of directors of the
Corporation shall be one. The number of directors of the
Corporation may be changed pursuant to the By-Laws of the
6
<PAGE>
Corporation. The name of the person who shall act as director of
the Corporation until the first annual meeting or until his
successor is chosen and qualified is Edmund P. Bergan, Jr.
SEVENTH: The following provisions are inserted for the
purpose of defining, limiting and regulating the powers of the
Corporation and of the Board of Directors and stockholders.
(1) In addition to its other powers explicitly or
implicitly granted under these Articles of Incorporation, by law
or otherwise, the Board of Directors of the Corporation:
(a) is expressly authorized to make, alter,
amend or repeal the By-Laws of the Corporation;
(b) may from time to time determine whether,
to what extent, at what times and places, and under what
conditions and regulations the accounts and books of the
Corporation, or any of them, shall be open to the inspection of
the stockholders, and no stockholder shall have any right to
inspect any account, book or document of the Corporation except
as conferred by statute or as authorized by the Board of
Directors of the Corporation;
(c) is empowered to authorize, without
stockholder approval, the issuance and sale from time to time of
shares of stock of any class of the Corporation whether now or
hereafter authorized and securities convertible into shares of
stock of the Corporation of any class or classes, whether now or
hereafter authorized, for such consideration as the Board may
deem advisable.
(d) is authorized to classify or to
reclassify, from time to time, any unissued shares of stock of
the Corporation, whether now or hereafter authorized, by setting,
changing or eliminating the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms and conditions of or rights to require
redemption of the stock. The provisions of these Articles of
Incorporation (including those in Article FIFTH hereof) shall
apply to each class of stock unless otherwise provided by the
Board of Directors prior to issuance of any shares of that class;
and
(e) is authorized to adopt procedures for
determination of and to maintain constant the net asset value of
shares of any class of the Corporation's stock.
(2) Notwithstanding any provision of the Maryland
General Corporation Law requiring a greater proportion than a
majority of the votes of all classes or of any class of the
7
<PAGE>
Corporation's stock entitled to be cast in order to take or
authorize any action, any such action may be taken or authorized
upon the concurrence of a majority of the aggregate number of
votes entitled to be cast thereon subject to any applicable
requirements of the Investment Company Act of 1940, as from time
to time in effect, or rules or orders of the Securities and
Exchange Commission or any successor thereto.
(3) The presence in person or by proxy of the
holders of shares entitled to cast one-third of the votes
entitled to be cast (without regard to class) shall constitute a
quorum at any meeting of the stockholders, except with respect to
any matter which, under applicable statutes or regulatory
requirements, requires approval by a separate vote of one or more
classes of stock, in which case the presence in person or by
proxy of the holders of shares entitled to cast one-third of the
votes entitled to be cast by each class entitled to vote as a
class on the matter shall constitute a quorum.
(4) Any determination made in good faith by or
pursuant to the direction of the Board of Directors, as to the
amount of the assets, debts, obligations, or liabilities of the
Corporation as to the amount of any reserves or charges set up
and the propriety thereof, as to the time of or purpose for
creating such reserves or charges, as to the use, alteration or
cancellation of any reserves or charges (whether or not any debt,
obligation, or liability for which such reserves or charges shall
have been created shall be then or thereafter required to be paid
or discharged), as to the value of or the method of valuing any
investment owned or held by the Corporation, as to market value
or fair value of any investment or fair value of any other asset
of the Corporation, as to the allocation of any asset of the
Corporation to a particular class or classes of the Corporation's
stock, as to the charging of any liability of the Corporation to
a particular class or classes of the Corporation's stock, as to
the number of shares of the Corporation outstanding, as to the
estimated expense to the Corporation in connection with purchases
of its shares, as to the ability to liquidate investments in
orderly fashion, or as to any other matters relating to the
issue, sale, redemption or other acquisition or disposition of
investments or shares of the Corporation, shall be final and
conclusive and shall be binding upon the Corporation and all
holders of its shares, past, present and future, and shares of
the Corporation are issued and sold on the condition and
understanding that any and all such determinations shall be
binding as aforesaid.
EIGHTH: (1) To the full extent that limitations on
the liability of directors and officers are permitted by the
Maryland General Corporation Law, no director or officer of the
Corporation shall have any liability to the Corporation or its
8
<PAGE>
stockholders for money damages. This limitation on liability
applies to events occurring at the time a person serves as a
director or officer of the Corporation whether or not that person
is a director or officer at the time of any proceeding in which
liability is asserted.
(2) The Corporation shall indemnify and
advance expenses to its currently acting and its former directors
to the full extent that indemnification of directors is permitted
by the Maryland General Corporation Law. The Corporation shall
indemnify and advance expenses to its officers to the same extent
as its directors and may do so to such further extent as is
consistent with law. The Board of Directors may by By-Law,
resolution or agreement make further provision for
indemnification of directors, officers, employees and agents to
the full extent permitted by the Maryland General Corporation
Law.
(3) No provision of this Article shall be
effective to protect or purport to protect any director or
officer of the Corporation against any liability to the
Corporation or its stockholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of his or her office.
(4) References to the Maryland General
Corporation Law in this Article are to that law as from time to
time amended. No amendment to the Charter of the Corporation
shall affect any right of any person under this Article based on
any event, omission or proceeding prior to the amendment.
NINTH: The Corporation reserves the right to amend,
alter, change or repeal any provision contained in its Charter in
the manner now or hereafter prescribed by the laws of the State
of Maryland, including any amendment which alters the contract
rights, as expressly set forth in the Charter, of any outstanding
stock, and all rights conferred upon stockholders herein are
granted subject to this reservation.
9
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the
incorporator of the Corporation, has adopted and signed these
Articles of Incorporation and does hereby acknowledge that the
adoption and signing are his act.
/s/ William E. Schwartz
_______________________________
William E. Schwartz
Dated: October 3, 1997
10
00250237.AA4
<PAGE>
BY-LAWS
OF
ALLIANCE INSTITUTIONAL FUNDS, INC.
________________
ARTICLE I
Offices
Section 1. Principal Office in Maryland. The
Corporation shall have a principal office in the City of
Baltimore, State of Maryland.
Section 2. Other Offices. The Corporation may have
offices also at such other places within and without the State of
Maryland as the Board of Directors may from time to time
determine or as the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meeting. Meetings of stockholders
shall be held at such place, either within the State of Maryland
or at such other place within the United States, as shall be
fixed from time to time by the Board of Directors.
Section 2. Annual Meetings. Annual meetings of
stockholders shall be held on a date fixed from time to time by
the Board of Directors not less than ninety nor more than one
hundred twenty days following the end of each fiscal year of the
Corporation, for the election of directors and the transaction of
any other business within the powers of the Corporation;
<PAGE>
provided, however, that the Corporation shall not be required to
hold an annual meeting in any year in which the election of
directors is not required to be acted on by stockholders under
the Investment Company Act of 1940.
Section 3. Notice of Annual Meeting. Written or
printed notice of the annual meeting, stating the place, date and
hour thereof, shall be given to each stockholder entitled to vote
thereat and each other stockholder entitled to notice thereof not
less than ten nor more than ninety days before the date of the
meeting.
Section 4. Special Meetings. Special meetings of
stockholders may be called by the chairman, the president or by
the Board of Directors and shall be called by the secretary upon
the written request of holders of shares entitled to cast not
less than twenty-five percent of all the votes entitled to be
cast at such meeting. Such request shall state the purpose or
purposes of such meeting and the matters proposed to be acted on
thereat. In the case of such request for a special meeting, upon
payment by such stockholders to the Corporation of the estimated
reasonable cost of preparing and mailing a notice of such
meeting, the secretary shall give the notice of such meeting.
The secretary shall not be required to call a special meeting to
consider any matter which is substantially the same as a matter
acted upon at any special meeting of stockholders held within the
preceding twelve months unless requested to do so by holders of
2
<PAGE>
shares entitled to cast not less than a majority of all votes
entitled to be cast at such meeting. Notwithstanding the
foregoing, special meetings of stockholders for the purpose of
voting upon the question of removal of any director or directors
of the Corporation shall be called by the secretary upon the
written request of holders of shares entitled to cast not less
than ten percent of all the votes entitled to be cast at such
meeting.
Section 5. Notice of Special Meeting. Written or
printed notice of a special meeting of stockholders, stating the
place, date, hour and purpose thereof, shall be given by the
secretary to each stockholder entitled to vote thereat and each
other stockholder entitled to notice thereof not less than ten
nor more than ninety days before the date fixed for the meeting.
Section 6. Business of Special Meetings. Business
transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice thereof.
Section 7. Quorum. The holders of shares entitled to
cast one-third of the votes entitled to be cast thereat, present
in person or represented by proxy, shall constitute a quorum at
all meetings of the stockholders for the transaction of business,
except with respect to any matter which, under applicable
statutes or regulatory requirements, requires approval by a
separate vote of one or more classes of stock, in which case the
presence in person or by proxy of the holders of one-third of the
3
<PAGE>
shares of stock of each class required to vote as a class on the
matter shall constitute a quorum.
Section 8. Voting. When a quorum is present at any
meeting, the affirmative vote of a majority of the votes cast,
or, with respect to any matter requiring a class vote, the
affirmative vote of a majority of the votes cast of each class
entitled to vote as a class on the matter, shall decide any
question brought before such meeting (except that directors may
be elected by the affirmative vote of a plurality of the votes
cast), unless the question is one upon which by express provision
of the Investment Company Act of 1940, as from time to time in
effect, or other statutes or rules or orders of the Securities
and Exchange Commission or any successor thereto or of the
Articles of Incorporation a different vote is required, in which
case such express provision shall govern and control the decision
of such question.
Section 9. Proxies. Each stockholder shall at every
meeting of stockholders be entitled to one vote in person or by
proxy for each share of the stock having voting power held by
such stockholder, but no proxy shall be voted after eleven months
from its date, unless otherwise provided in the proxy.
Section 10. Record Date. In order that the Corporation
may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, to
express consent to corporate action in writing without a meeting,
4
<PAGE>
or to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may
fix, in advance, a record date which shall be not more than
ninety days and, in the case of a meeting of stockholders, not
less than ten days prior to the date on which the particular
action requiring such determination of stockholders is to be
taken. In lieu of fixing a record date, the Board of Directors
may provide that the stock transfer books shall be closed for a
stated period, but not to exceed, in any case, twenty days. If
the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of or to vote at a
meeting of stockholders, such books shall be closed for at least
ten days immediately preceding such meeting. If no record date
is fixed and the stock transfer books are not closed for the
determination of stockholders: (1) The record date for the
determination of stockholders entitled to notice of, or to vote
at, a meeting of stockholders shall be at the close of business
on the day on which notice of the meeting of stockholders is
mailed or the day thirty days before the meeting, whichever is
the closer date to the meeting; and (2) The record date for the
determination of stockholders entitled to receive payment of a
dividend or an allotment of any rights shall be at the close of
business on the day on which the resolution of the Board of
5
<PAGE>
Directors, declaring the dividend or allotment of rights, is
adopted, provided that the payment or allotment date shall not be
more than sixty days after the date of the adoption of such
resolution.
Section 11. Inspectors of Election. The directors, in
advance of any meeting, may, but need not, appoint one or more
inspectors to act at the meeting or any adjournment thereof. If
an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an
inspector fails to appear or act, the vacancy may be filled by
appointment made by the directors in advance of the meeting or at
the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take
and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best
of his ability. The inspectors, if any, shall determine the
number of shares outstanding and the voting power of each, the
shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate
all votes, ballots or consents, determine the result, and do such
acts as are proper to conduct the election or vote with fairness
to all stockholders. On request of the person presiding at the
6
<PAGE>
meeting or any stockholder, the inspector or inspectors, if any,
shall make a report in writing of any challenge, question or
matter determined by him or them and execute a certificate of any
fact found by him or them.
Section 12. Informal Action by Stockholders. Except to
the extent prohibited by the Investment Company Act of 1940, as
from time to time in effect, or rules or orders of the Securities
and Exchange Commission or any successor thereto, any action
required or permitted to be taken at any meeting of stockholders
may be taken without a meeting if a consent in writing, setting
forth such action, is signed by all the stockholders entitled to
vote on the subject matter thereof and any other stockholders
entitled to notice of a meeting of stockholders (but not to vote
thereat) have waived in writing any rights which they may have to
dissent from such action, and such consent and waiver are filed
with the records of the Corporation.
Section 13. Adjournment. Any meeting of the
stockholders may be adjourned from time to time, without notice
other than by announcement at the meeting at which the
adjournment was taken. In the absence of a quorum, the
stockholders present in person or by proxy, by majority vote of
those present and without notice other than by announcement at
the meeting, may adjourn the meeting from time to time as
provided for in this Section 13 of Article II. At any adjourned
meeting at which a quorum shall be present, any action may be
7
<PAGE>
taken that could have been taken at the meeting originally
called. A meeting of the stockholders may not be adjourned
without further notice to a date more than 120 (one hundred and
twenty) days after the original record date determined pursuant
to Section 10 of this Article II.
ARTICLE III
Board of Directors
Section 1. Number of Directors. The number of
directors constituting the entire Board of Directors (which
initially was fixed at one in the Corporation's Articles of
Incorporation) may be increased or decreased from time to time by
the vote of a majority of the entire Board of Directors within
the limits permitted by law but at no time may be more than
twenty, but the tenure of office of a director in office at the
time of any decrease in the number of directors shall not be
affected as a result thereof. The directors shall be elected to
hold offices at the annual meeting of stockholders, except as
provided in Section 2 of this Article, and each director shall
hold office until the next annual meeting of stockholders or
until his successor is elected and qualified. Any director may
resign at any time upon written notice to the Corporation. Any
director may be removed, either with or without cause, at any
meeting of stockholders duly called and at which a quorum is
present by the affirmative vote of the majority of the votes
entitled to be cast thereon, and the vacancy in the Board of
8
<PAGE>
Directors caused by such removal may be filled by the
stockholders at the time of such removal. Directors need not be
stockholders.
Section 2. Vacancies and Newly-Created Directorships.
Any vacancy occurring in the Board of Directors for any cause
other than by reason of an increase in the number of directors
may be filled by a majority of the remaining members of the Board
of Directors although such majority is less than a quorum. Any
vacancy occurring by reason of an increase in the number of
directors may be filled by a majority of the entire Board of
Directors then in office. A director elected by the Board of
Directors to fill a vacancy shall be elected to hold office until
the next annual meeting of stockholders or until his successor is
elected and qualifies.
Section 3. Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the
Board of Directors which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by
statute or by the Articles of Incorporation or by these By-Laws
conferred upon or reserved to the stockholders.
Section 4. Meetings. The Board of Directors of the
Corporation or any committee thereof may hold meetings, both
regular and special, either within or without the State of
Maryland. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time
9
<PAGE>
to time be determined by the Board of Directors. Special
meetings of the Board of Directors may be called by the chairman,
the president or by two or more directors. Notice of special
meetings of the Board of Directors shall be given by the
secretary to each director at least three days before the meeting
if by mail or at least 24 hours before the meeting if given in
person or by telephone or by telegraph. The notice need not
specify the business to be transacted.
Section 5. Quorum and Voting. During such times when
the Board of Directors shall consist of more than one director, a
quorum for the transaction of business at meetings of the Board
of Directors shall consist of two of the directors in office at
the time but in no event shall a quorum consist of less than one-
third of the entire Board of Directors. The action of a majority
of the directors present at a meeting at which a quorum is
present shall be the action of the Board of Directors. If a
quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 6. Committees. The Board of Directors may
appoint from among its members an executive committee and other
committees of the Board of Directors, each committee to be
composed of two or more of the directors of the Corporation. The
Board of Directors may delegate to such committees any of the
10
<PAGE>
powers of the Board of Directors except those which may not by
law be delegated to a committee. Such committee or committees
shall have the name or names as may be determined from time to
time by resolution adopted by the Board of Directors. Unless the
Board of Directors designates one or more directors as alternate
members of any committee, who may replace an absent or
disqualified member at any meeting of the committee, the members
of any such committee present at any meeting and not disqualified
from voting may, whether or not they constitute a quorum, appoint
another member of the Board of Directors to act at the meeting in
the place of any absent or disqualified member of such committee.
At meetings of any such committee, a majority of the members or
alternate members of such committee shall constitute a quorum for
the transaction of business and the act of a majority of the
members or alternate members present at any meeting at which a
quorum is present shall be the act of the committee.
Section 7. Minutes of Committee Meetings. The
committees shall keep regular minutes of their proceedings.
Section 8. Informal Action by Board of Directors and
Committees. Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if a written consent thereto is signed
by all members of the Board of Directors or of such committee, as
the case may be, and such written consent is filed with the
minutes of proceedings of the Board of Directors or committee,
11
<PAGE>
provided, however, that such written consent shall not constitute
approval of any matter which pursuant to the Investment Company
Act of 1940 and the rules thereunder requires the approval of
directors by vote cast in person at a meeting.
Section 9. Meetings by Conference Telephone. The
members of the Board of Directors or any committee thereof may
participate in a meeting of the Board of Directors or committee
by means of a conference telephone or similar communications
equipment by means of which all persons participating in the
meeting can hear each other at the same time and such
participation shall constitute presence in person at such
meeting, provided, however, that such participation shall not
constitute presence in person with respect to matters which
pursuant to the Investment Company Act of 1940 and the rules
thereunder require the approval of directors by vote cast in
person at a meeting.
Section 10. Fees and Expenses. The directors may be
paid their expenses of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors, a stated salary as director or
such other compensation as the Board of Directors may approve.
No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be
12
<PAGE>
allowed like reimbursement and compensation for attending
committee meetings.
ARTICLE IV
Notices
Section 1. General. Notices to directors and
stockholders mailed to them at their post office addresses
appearing on the books of the Corporation shall be deemed to be
given at the time when deposited in the United States mail.
Section 2. Waiver of Notice. Whenever any notice is
required to be given under the provisions of the statutes, of the
Articles of Incorporation or of these By-Laws, a waiver thereof
in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be
deemed the equivalent of notice and such waiver shall be filed
with the records of the meeting. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting
except when the person attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction
of any business because the meeting is not lawfully called or
convened.
ARTICLE V
Officers
Section 1. General. The officers of the Corporation
shall be chosen by the Board of Directors at its first meeting
after each annual meeting of stockholders and shall be a chairman
13
<PAGE>
of the Board of Directors, a president, a secretary and a
treasurer. The Board of Directors may choose also such vice
presidents and additional officers or assistant officers as it
may deem advisable. Any number of offices, except the offices of
president and vice president and chairman and vice president, may
be held by the same person. No officer shall execute,
acknowledge or verify any instrument in more than one capacity if
such instrument is required by law to be executed, acknowledged
or verified by two or more officers.
Section 2. Other Officers and Agents. The Board of
Directors may appoint such other officers and agents as it
desires who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
Section 3. Tenure of Officers. The officers of the
Corporation shall hold office at the pleasure of the Board of
Directors. Each officer shall hold his office until his
successor is elected and qualifies or until his earlier
resignation or removal. Any officer may resign at any time upon
written notice to the Corporation. Any officer elected or
appointed by the Board of Directors may be removed at any time by
the Board of Directors when, in its judgment, the best interests
of the Corporation will be served thereby. Any vacancy occurring
in any office of the Corporation by death, resignation, removal
or otherwise shall be filled by the Board of Directors.
14
<PAGE>
Section 4. Chairman of the Board of Directors. The
chairman of the Board of Directors shall preside at all meetings
of the stockholders and of the Board of Directors. He shall be
the chief executive officer and shall have general and active
management of the business of the Corporation and shall see that
all orders and resolutions of the Board of Directors are carried
into effect. He shall be ex officio a member of all committees
designated by the Board of Directors except as otherwise
determined by the Board of Directors. He shall execute bonds,
mortgages and other contracts requiring a seal, under the seal of
the Corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
Section 5. President. The president shall act under
the direction of the chairman and in the absence or disability of
the chairman shall perform the duties and exercise the powers of
the chairman. He shall perform such other duties and have such
other powers as the chairman or the Board of Directors may from
time to time prescribe. He shall execute on behalf of the
Corporation, and may affix the seal or cause the seal to be
affixed to, all instruments requiring such execution except to
the extent that signing and execution thereof shall be expressly
delegated by the Board of Directors to some other officer or
agent of the Corporation.
15
<PAGE>
Section 6. Vice Presidents. The vice presidents shall
act under the direction of the chairman and in the absence or
disability of the president shall perform the duties and exercise
the powers of the president. They shall perform such other
duties and have such other powers as the chairman or the Board of
Directors may from time to time prescribe. The Board of
Directors may designate one or more executive vice presidents or
may otherwise specify the order of seniority of the vice
presidents and, in that event, the duties and powers of the
president shall descend to the vice presidents in the specified
order of seniority.
Section 7. Secretary. The secretary shall act under
the direction of the chairman. Subject to the direction of the
chairman he shall attend all meetings of the Board of Directors
and all meetings of stockholders and record the proceedings in a
book to be kept for that purpose and shall perform like duties
for the committees designated by the Board of Directors when
required. He shall give, or cause to be given, notice of all
meetings of stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be
prescribed by the chairman or the Board of Directors. He shall
keep in safe custody the seal of the Corporation and shall affix
the seal or cause it to be affixed to any instrument requiring
it.
16
<PAGE>
Section 8. Assistant Secretaries. The assistant
secretaries in the order of their seniority, unless otherwise
determined by the chairman or the Board of Directors, shall, in
the absence or disability of the secretary, perform the duties
and exercise the powers of the secretary. They shall perform
such other duties and have such other powers as the chairman or
the Board of Directors may from time to time prescribe.
Section 9. Treasurer. The treasurer shall act under
the direction of the chairman. Subject to the direction of the
chairman he shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts
and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to
the credit of the Corporation in such depositories as may be
designated by the Board of Directors. He shall disburse the
funds of the Corporation as may be ordered by the chairman or the
Board of Directors, taking proper vouchers for such
disbursements, and shall render to the chairman and the Board of
Directors, at its regular meetings, or when the Board of
Directors so requires, an account of all his transactions as
treasurer and of the financial condition of the Corporation.
Section 10. Assistant Treasurers. The assistant
treasurers in the order of their seniority, unless otherwise
determined by the chairman or the Board of Directors, shall, in
the absence or disability of the treasurer, perform the duties
17
<PAGE>
and exercise the powers of the treasurer. They shall perform
such other duties and have such other powers as the chairman or
the Board of Directors may from time to time prescribe.
ARTICLE VI
Certificates of Stock
Section 1. General. Every holder of stock of the
Corporation who has made full payment of the consideration for
such stock shall be entitled upon request to have a certificate,
signed by, or in the name of the Corporation by, the chairman,
the president or a vice president and countersigned by the
treasurer or an assistant treasurer or the secretary or an
assistant secretary of the Corporation, certifying the number
and, if additional shares of stock should be authorized, the
class of whole shares of stock owned by him in the Corporation.
Section 2. Fractional Share Interests. The Corporation
may issue fractions of a share of stock. Fractional shares of
stock shall have proportionately to the respective fractions
represented thereby all the rights of whole shares, including the
right to vote, the right to receive dividends and distributions
and the right to participate upon liquidation of the Corporation,
excluding, however, the right to receive a stock certificate
representing such fractional shares.
Section 3. Signatures on Certificates. Any of or all
the signatures on a certificate may be a facsimile. In case any
officer who has signed or whose facsimile signature has been
18
<PAGE>
placed upon a certificate shall cease to be such officer before
such certificate is issued, it may be issued with the same effect
as if he were such officer at the date of issue. The seal of the
Corporation or a facsimile thereof may, but need not, be affixed
to certificates of stock.
Section 4. Lost, Stolen or Destroyed Certificates. The
Board of Directors may direct a new certificate or certificates
to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of any affidavit of that
fact by the person claiming the certificate or certificates to be
lost, stolen or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate
or certificates, or his legal representative, to give the
Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corporation with
respect to the certificate or certificates alleged to have been
lost, stolen or destroyed.
Section 5. Transfer of Shares. Upon request by the
registered owner of shares, and if a certificate has been issued
to represent such shares upon surrender to the Corporation or a
transfer agent of the Corporation of a certificate for shares of
stock duly endorsed or accompanied by proper evidence of
19
<PAGE>
succession, assignment or authority to transfer, it shall be the
duty of the Corporation, if it is satisfied that all provisions
of the Articles of Incorporation, of the By-Laws and of the law
regarding the transfer of shares have been duly complied with, to
record the transaction upon its books, issue a new certificate to
the person entitled thereto upon request for such certificate,
and cancel the old certificate, if any.
Section 6. Registered Owners. The Corporation shall be
entitled to recognize the person registered on its books as the
owner of shares to be the exclusive owner for all purposes
including voting and dividends, and the Corporation shall not be
bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as
otherwise provided by the laws of Maryland.
ARTICLE VII
Miscellaneous
Section 1. Reserves. There may be set aside out of any
funds of the Corporation available for dividends such sum or sums
as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet
contingencies, or for such other purpose as the Board of
Directors shall think conducive to the interest of the
Corporation, and the Board of Directors may modify or abolish any
such reserve.
20
<PAGE>
Section 2. Dividends. Dividends upon the stock of the
Corporation may, subject to the provisions of the Articles of
Incorporation and of applicable law, be declared by the Board of
Directors at any time. Dividends may be paid in cash, in
property or in shares of the Corporation's stock, subject to the
provisions of the Articles of Incorporation and of applicable
law.
Section 3. Capital Gains Distributions. The amount and
number of capital gains distributions paid to the stockholders
during each fiscal year shall be determined by the Board of
Directors. Each such payment shall be accompanied by a statement
as to the source of such payment, to the extent required by law.
Section 4. Checks. All checks or demands for money and
notes of the Corporation shall be signed by such officer or
officers or such other person or persons as the Board of
Directors may from time to time designate.
Section 5. Fiscal Year. The fiscal year of the
Corporation shall be fixed by resolution of the Board of
Directors.
Section 6. Seal. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal, Maryland." The seal
may be used by causing it or a facsimile thereof to be impressed
or affixed or in another manner reproduced.
21
<PAGE>
Section 7. Insurance Against Certain Liabilities. The
Corporation shall not bear the cost of insurance that protects or
purports to protect directors and officers of the Corporation
against any liabilities to the Corporation or its security
holders to which any such director or officer would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office.
ARTICLE VIII
Indemnification
Section 1. Indemnification of Directors and Officers.
The Corporation shall indemnify its directors to the full extent
that indemnification of directors is permitted by the Maryland
General Corporation Law. The Corporation shall indemnify its
officers to the same extent as its directors and to such further
extent as is consistent with law. The Corporation shall
indemnify its directors and officers who while serving as
directors or officers also serve at the request of the
Corporation as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint
venture, trust, other enterprise or employee benefit plan to the
full extent consistent with law. The indemnification and other
rights provided by this Article shall continue as to a person who
has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a
22
<PAGE>
person. This Article shall not protect any such person against
any liability to the Corporation or any stockholder thereof to
which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office ("disabling
conduct").
Section 2. Advances. Any current or former director or
officer of the Corporation seeking indemnification within the
scope of this Article shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by
him in connection with the matter as to which he is seeking
indemnification in the manner and to the full extent permissible
under the Maryland General Corporation Law. The person seeking
indemnification shall provide to the Corporation a written
affirmation of his good faith belief that the standard of conduct
necessary for indemnification by the Corporation has been met and
a written undertaking to repay any such advance if it should
ultimately be determined that the standard of conduct has not
been met. In addition, at least one of the following additional
conditions shall be met: (a) the person seeking indemnification
shall provide a security in form and amount acceptable to the
Corporation for his undertaking; (b) the Corporation is insured
against losses arising by reason of the advance; or (c) a
majority of a quorum of directors of the Corporation who are
neither "interested persons" as defined in Section 2(a)(19) of
23
<PAGE>
the Investment Company Act of 1940, as amended, nor parties to
the proceeding ("disinterested non-party directors"), or
independent legal counsel, in a written opinion, shall have
determined, based on a review of facts readily available to the
Corporation at the time the advance is proposed to be made, that
there is reason to believe that the person seeking
indemnification will ultimately be found to be entitled to
indemnification.
Section 3. Procedure. At the request of any person
claiming indemnification under this Article, the Board of
Directors shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law, whether the
standards required by this Article have been met.
Indemnification shall be made only following: (a) a final
decision on the merits by a court or other body before whom the
proceeding was brought that the person to be indemnified was not
liable by reason of disabling conduct or (b) in the absence of
such a decision, a reasonable determination, based upon a review
of the facts, that the person to be indemnified was not liable by
reason of disabling conduct by (i) the vote of a majority of a
quorum of disinterested non-party directors or (ii) an
independent legal counsel in a written opinion.
Section 4. Indemnification of Employees and Agents.
Employees and agents who are not officers or directors of the
Corporation may be indemnified, and reasonable expenses may be
24
<PAGE>
advanced to such employees or agents, as may be provided by
action of the Board of Directors or by contract, subject to any
limitations imposed by the Investment Company Act of 1940.
Section 5. Other Rights. The Board of Directors may
make further provision consistent with law for indemnification
and advance of expenses to directors, officers, employees and
agents by resolution, agreement or otherwise. The
indemnification provided by this Article shall not be deemed
exclusive of any other right, with respect to indemnification or
otherwise, to which those seeking indemnification may be entitled
under any insurance or other agreement or resolution of
stockholders or disinterested directors or otherwise. The rights
provided to any person by this Article shall be enforceable
against the Corporation by such person who shall be presumed to
have relied upon it in serving or continuing to serve as a
director, officer, employee, or agent as provided above.
Section 6. Amendments. References in this Article are
to the Maryland General Corporation Law and to the Investment
Company Act of 1940 as from time to time amended. No amendment
of these By-laws shall affect any right of any person under this
Article based on any event, omission or proceeding prior to the
amendment.
25
<PAGE>
ARTICLE IX
Amendments
The Board of Directors shall have the power to make,
alter and repeal By-laws of the Corporation.
26
00250237.AA5
