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This is filed pursuant to Rule 497(c).
File Nos. 333-37177 and 811-08403.
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Alliance Institutional Funds Prospectus and Application
March 1, 1999
o Alliance Premier Growth Institutional
Fund
o Alliance Quasar Institutional Fund
o Alliance Real Estate Investment
Institutional Fund
Alliance Institutional Funds, Inc. provides a selection of equity investment
alternatives to institutional and other investors through qualifying programs
who seek capital growth or high total return.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
Alliance Capital [LOGO]
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TABLE OF CONTENTS
Page
RISK/RETURN SUMMARY ................................................... 3
Alliance Premier Growth Institutional Fund ............................ 4
Alliance Quasar Institutional Fund .................................... 5
Alliance Real Estate Investment Institutional Fund .................... 6
Summary of Principal Risks ............................................ 7
FEES AND EXPENSES OF THE FUNDS ........................................ 8
GLOSSARY .............................................................. 9
DESCRIPTION OF THE FUNDS .............................................. 9
Investment Objectives and Policies .................................... 9
Description of Investment Practices ................................... 12
Additional Risk Considerations ........................................ 16
MANAGEMENT OF THE FUNDs ............................................... 18
PURCHASE AND SALE OF SHARES ........................................... 21
How The Funds Value Their Shares ...................................... 21
How To Buy Shares ..................................................... 21
How To Exchange Shares ................................................ 21
How To Sell Shares .................................................... 21
DIVIDENDS, DISTRIBUTIONS AND TAXES .................................... 22
DISTRIBUTION ARRANGEMENTS ............................................. 23
GENERAL INFORMATION ................................................... 24
FINANCIAL HIGHLIGHTS .................................................. 25
The Funds' investment adviser is Alliance Capital Management L.P., a global
investment manager providing diversified services to institutions and
individuals through a broad line of investments including more than 100 mutual
funds.
RISK/RETURN SUMMARY
The following is a summary of certain key information about the Alliance
Institutional Funds. You will find additional information about each Fund,
including a detailed description of the risks of an investment in each Fund,
after this Summary.
The Risk/Return Summary describes the Funds' objectives, principal investment
strategies, principal risks and fees. Each Fund's Summary page includes a short
discussion of some of the principal risks of investing in that Fund. A further
discussion of these and other risks is on page 7.
More detailed descriptions of the Funds including the risks associated with
investing in the Funds, can be found further back in this Prospectus. Please be
sure to read this additional information BEFORE you invest. Each of the Funds
may at times use certain types of investment derivatives such as options,
futures, and forwards. The use of these techniques involve special risks that
are discussed in this Prospectus.
The Risk/Return Summary includes a table for each Fund that is more than 1 year
old showing its average annual returns and a bar chart showing its annual
returns. The table and bar chart provide an indication of the historical risk of
an investment in each Fund by showing:
o how the Fund's average annual returns for one year and over the life of
the Fund compare to those of a broad-based securities market index; and
o changes in the Fund's performance from year to year over the life of the
Fund.
A Fund's past performance, of course, does not necessarily indicate how it will
perform in the future.
Other important things for you to note:
o You may lose money by investing in the Funds.
o An investment in the Funds is not a deposit in a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
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Alliance Premier Growth Institutional Fund
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OBJECTIVE:
The Fund's investment objective is long-term growth of capital by investing
predominantly in equity securities of a limited number of large, carefully
selected, high-quality U.S companies that are judged likely to achieve superior
earnings growth.
PRINCIPAL INVESTMENT STRATEGIES:
The Fund invests primarily in equity securities of U.S. companies. Unlike most
equity funds, the Fund focuses on a relatively small number of intensively
researched companies. Alliance selects the Fund's investments from a research
universe of more than 600 companies that have strong management, superior
industry positions, excellent balance sheets and superior earnings growth
prospects.
Normally, the Fund invests in about 40-50 companies, with the 25 most highly
regarded of these companies usually constituting approximately 70% of the Fund's
net assets.
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.
Through this approach, Alliance seeks to gain positive returns in good markets
while providing some measure of protection in poor markets. The Fund also may
invest up to 20% of its net assets in convertible securities.
Among the principal risks of investing in the Fund is market risk. Because the
Fund invests in a smaller number of securities than many other equity funds,
your investment has the risk that changes in the value of a single security may
have a more significant effect, either negative or positive, on the Fund's net
asset value.
There is no performance table or bar chart for the Fund because it has not
completed a full calendar year of operations.
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Alliance Quasar Institutional Fund
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OBJECTIVE:
The Fund's investment objective is growth of capital by pursuing aggressive
investment policies. Current income is incidental to the Fund's objective.
PRINCIPAL INVESTMENT STRATEGIES:
The Fund generally invests in a widely diversified portfolio spread among many
industries that offer the possibility of above-average earnings growth. The Fund
currently emphasizes investment in smaller-cap companies. The Fund invests in
well-known and established companies and in new and unseasoned companies. The
Fund can invest in equity securities of any company and industry and in any type
of security with potential for capital appreciation. 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 capabilities and practices. The Fund also may
invest in non-convertible bonds, preferred stocks, and foreign securities.
Among the principal risks of investing in the Fund is market risk. Investments
in smaller companies tend to be more volatile than investments in large-cap or
mid-cap companies. To the extent the Fund invests in non-convertible bonds,
preferred stocks, and foreign stocks, your investment has interest rate risk,
credit risk, currency risk and foreign risk.
There is no performance table or bar chart for the Fund because it has not
completed a full calendar year of operations.
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Alliance Real Estate Investment Institutional Fund
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OBJECTIVE:
The Fund's investment objective is total return from long-term growth of capital
and income principally through investing in equity securities of companies that
are primarily engaged in or related to the real estate industry.
PRINCIPAL INVESTMENT STRATEGIES:
The Fund invests primarily in equity securities of real estate investment trusts
or "REITs" and other real estate industry companies. The Fund invests in real
estate companies that Alliance believes have strong property fundamentals and
management teams. The Fund seeks to invest in real estate companies whose
underlying portfolios are diversified geographically and by property type. The
Fund may invest up to 35% of its total assets in mortgage-backed securities,
which are securities that directly or indirectly represent participations in, or
are collateralized by and payable from, mortgage loans secured by real property.
Among the principal risks of investing in the Fund are market risk, interest
rate risk and credit risk. Because the Fund invests a substantial portion of its
assets in the real estate market, it has many of the same risks as direct
ownership of real estate including the risk that the value of real estate could
decline due to a variety of factors affecting the real estate market. In
addition, REITs are dependent on the capability of their managers, may have
limited diversification, and could be significantly affected by changes in tax
laws. The Fund's investments in mortgage-backed securities have prepayment risk,
which is the risk that mortgage loans will be prepaid when interest rates
decline and the Fund will have to reinvest in securities with lower interest
rates. This risk causes mortgage-backed securities to have significantly greater
price and yield volatility than traditional fixed-income securities.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
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Since
1 Year Inception*
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Class I -19.37% -17.22%
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Class II -19.76% -17.62%
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S&P 500 Index 28.60% 28.60%
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The average annual total returns in the performance table are for the periods
ended December 31, 1998.
* Inception Dates 12/9/97 for Class I and Class II shares. Index return from
12/31/97.
BAR CHART
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The annual return in the bar chart is for the Fund's Class I shares.
n/a n/a n/a n/a n/a n/a n/a n/a n/a -19.73
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89 90 91 92 93 94 95 96 97 98
Calendar Year End
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best Quarter was down -0.12%, 1st quarter, 1998; and
Worst Quarter was down -11.70%, 3rd quarter, 1998.
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SUMMARY OF PRINCIPAL RISKS
The value of your investment in a Fund will change with changes in the values of
that Fund's investments. Many factors can affect those values. In this Summary,
we describe the principal risks that may affect a Fund's portfolio as a whole.
All Funds could be subject to additional principal risks because the types of
investments made by each Fund can change over time. This Prospectus has
additional descriptions of types of investments that appear in bold type in the
discussions under DESCRIPTION OF INVESTMENT PRACTICES or ADDITIONAL RISK
CONSIDERATIONS. These sections also include more information about the Funds,
their investments, and related risks.
MARKET RISK
This is the risk that the value of a Fund's investments will fluctuate as the
stock or bond markets fluctuate and that prices overall will decline over short
or longer-term periods. All of the Alliance Institutional Funds are subject to
market risk.
SECTOR RISK
This is the risk of investments in a particular industry sector. Market or
economic factors affecting that industry sector could have a major effect on the
value of a Fund's investments. Alliance Real Estate Investment Institutional
Fund is particularly subject to this risk.
CAPITALIZATION RISK
This is the risk of investments in small-capitalization companies. Investments
in small-cap companies tend to be more volatile than investments in large-cap or
mid-cap companies. A Fund's investments in smaller capitalization stocks may
have additional risks because these companies often have limited product lines,
markets, or financial resources. Alliance Quasar Institutional Fund is
particularly subject to this risk.
INTEREST RATE RISK
This is the risk that changes in interest rates will affect the value of a
Fund's investments in income-producing, fixed-income (i.e. debt) securities.
Increases in interest rates may cause the value of a Fund's investments to
decline and this decrease in value may not be offset by higher interest rate
income. Interest rate risk is applicable to Funds that invest in fixed-income
securities and is greater for those Alliance Institutional Funds that invest a
substantial portion of their assets in fixed-income securities.
Alliance Real Estate Investment Institutional Fund has more exposure to interest
rate risk because it invests in real estate industry companies and in
mortgage-backed securities.
MANAGEMENT RISK
Each Alliance Institutional Fund is subject to management risk because it is an
actively managed investment portfolio. Alliance will apply its investment
techniques and risk analyses in making investment decisions for the Funds, but
there is no guarantee that its decisions will produce the intended result.
FOCUSED PORTFOLIO RISK
Alliance Premier Growth Institutional Fund, which invests in a limited number of
companies, may have more risk because changes in the value of a single security
may have a more significant effect, either negative or positive, on the Fund's
net asset value.
CREDIT RISK
This is the risk that the issuer of a security or the other party to an
over-the-counter transaction will be unable or unwilling to make timely payments
of interest or principal, or to otherwise honor its obligations. The degree of
risk for a particular security may be reflected in its credit rating. Credit
risk is applicable to Funds that invest in fixed-income securities.
CURRENCY RISK
This is the risk that fluctuations in the exchange rates between the U.S. Dollar
and foreign currencies may negatively affect the value of a Fund's investments.
Funds with foreign securities are subject to this risk.
FOREIGN RISK
This is the risk of investments in issuers located in foreign countries. All
Funds with foreign securities are subject to this risk. Fund's investing in
foreign securities may experience more rapid and extreme changes in value than
Funds with investments solely in securities of U.S. companies. This is because
the securities markets of many foreign countries are relatively small, with a
limited number of companies representing a small number of industries.
Additionally, foreign securities issuers are usually not subject to the same
degree of regulation as U.S. issuers. Reporting, accounting, and auditing
standards of foreign countries differ, in some cases significantly, from U.S.
standards. Also, nationalization, expropriation or confiscatory taxation,
currency blockage, or political changes or diplomatic developments could
adversely affect a Fund's investments in a foreign country. In the event of
nationalization, expropriation, or other confiscation, a Fund could lose its
entire investment.
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FEES AND EXPENSES OF THE FUNDS
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This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
Maximum sales charge imposed on purchases None
Sales charge imposed on dividend reinvestments None
Deferred sales charge None
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) and
EXAMPLES
The Examples are to help you compare the cost of investing in the Fund with the
cost of investing in other funds. They assume that you invest $10,000 in each
Fund for the time periods indicated and then redeem all your shares at the end
of those periods. They also assume that your investment has a 5% return each
year, that the Fund's operating expenses stay the same and that all dividends
and distributions are reinvested. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
Operating Expenses Examples
- -------------------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C>
Premier Growth
Institutional Fund Class I Class II Class I Class II
------- ------- ------- -------
Management fees 1.00% 1.00% After 1 year $ 92 $ 132
12b-1 fees None .30% After 3 years $ 287 $ 412
Other expenses 1.29% 1.35% After 5 years $ 498 $ 713
----- ---- After 10 years $1108 $1568
Total fund operating
expenses 2.29% 2.65%
===== ====
Waiver and/or Expense
Reimbursement (a) (1.39)% (1.35)%
Net Expenses .90% 1.30%
===== ====
Quasar Institutional Fund Class I Class II Class I Class II
------- ------- ------- -------
Management fees 1.00% 1.00% After 1 year $ 122 $ 137
12b-1 fees None .05% After 3 years $ 381 $ 428
Other expenses 2.82% 3.57% After 5 years $ 660 $ 739
----- ---- After 10 years $1455 $1624
Total fund operating
expenses 3.82% 4.62%
===== ====
Waiver and/or Expense
Reimbursement (a) (2.62)% (3.27)%
Net Expenses 1.20% 1.35%
===== ====
Real Estate Investment
Institutional Fund Class I Class II Class I Class II
------- ------- ------- -------
Management fees .90% .90% After 1 year $ 102 $ 143
12b-1 fees None .30% After 3 years $ 318 $ 443
Other expenses 2.19% 2.39% After 5 years $ 552 $ 766
----- ---- After 10 years $1225 $1680
Total fund operating
expenses 3.09% 3.59%
===== ====
Waiver and/or Expense
Reimbursement (a) (2.09)% (2.19)%
Net Expenses 1.00% 1.40%
===== ====
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</TABLE>
(a) Reflects Alliance's contractual waiver of a portion of its advisory fee
and/or reimbursement of a portion of the Fund's operating expenses.
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GLOSSARY
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This Prospectus uses the following terms.
TYPES OF SECURITIES
Convertible securities are fixed-income securities that are convertible into
common stock.
Debt securities are bonds, debentures, notes, bills, loans, other direct debt
instruments, and other fixed, floating, and variable rate debt obligations, but
do not include convertible securities.
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.
Fixed-income securities are debt securities and dividend-paying preferred
stocks, including floating rate and variable rate instruments.
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.
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 of
the Securities Act.
U.S. Government securities are securities issued or guaranteed by the United
States Government, its agencies or instrumentalities.
RATING AGENCIES AND RATED SECURITIES
Duff & Phelps is Duff & Phelps Credit Rating Co.
Fitch is Fitch IBCA, Inc.
Moody's is Moody's Investors Service, Inc.
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.
S&P is Standard & Poor's Ratings Services.
S&P 500 is S&P's 500 Composite Stock Index, a widely recognized unmanaged index
of market activity.
OTHER
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
Commission is the Securities and Exchange Commission.
Exchange is the New York Stock Exchange.
Securities Act is the Securities Act of 1933, as amended.
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DESCRIPTION OF THE FUNDS
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This section of the Prospectus provides a more complete description of each
Fund's investment objectives, principal strategies and principal risks. Of
course, there can be no assurance that any Fund will achieve its investment
objective.
Please note that:
o Additional discussion of the Funds' investments, including the risks of
the investments, can be found in the discussion under Description of
Investment Practices following this section.
o The description of the principal risks for a Fund may include risks
described in the Summary of Principal Risks above. Additional information
about the risks of investing in a Fund can be found in the discussion
under Additional Risk Considerations.
o Additional descriptions of each Fund's strategies, investments and risks
can be found in the Fund's Statement of Additional Information or SAI.
o Except as noted, (i) the Funds' investment objectives are "fundamental"
and cannot be changed without a shareholder vote, and (ii) the Funds'
investment policies are not fundamental and thus can be changed without a
shareholder vote.
INVESTMENT OBJECTIVES AND POLICIES
Alliance Premier Growth Institutional Fund
Alliance Premier Growth Institutional 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. 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. A U.S. company is a company that is organized under United
States law, has its principal office in the United States and issues equity
securities that are traded
9
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principally in the United States. Normally, about 40-50 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. The Fund is designed for those
seeking to accumulate capital over time with less volatility than that
associated with investment in smaller companies.
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 included in the S&P 500 Index.
The Fund also may:
o invest up to 20% of its net assets in convertible securities;
o invest up to 5% of its net assets in rights or warrants;
o invest up to 15% of its total assets in foreign securities;
o purchase and sell exchange-traded index options and stock index futures
contracts; and
o write covered exchange-traded call options on its securities of up to 15%
of its total assets, and purchase and sell exchange-traded call and put
options on common stocks written by others of up to, for all options, 10%
of its total assets.
Because the Fund invests in a smaller number of securities than many other
equity funds, your investment has the risk that changes in the value of a single
security may have a more significant effect, either negative or positive, on the
Fund's net asset value.
Alliance Quasar Institutional Fund
Alliance Quasar Institutional Fund seeks growth of capital by pursuing
aggressive investment policies. The Fund invests for capital appreciation and
only incidentally for current income. The Fund's practice of selecting
securities based on the possibility of appreciation cannot, of course, ensure
against a 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 for the
Fund, 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 can periodically
invest in the securities of companies that are expected to appreciate due to
a development particularly or uniquely applicable to that company regardless of
general business conditions or movements of the market as a whole.
The Fund also may:
o make short sales of securities against the box, but not more than 15% of
its net assets may be deposited on short sales; and
o write covered call options of up to 15% of its total assets and purchase
and sell put and call options written by others of up to, for all options,
10% of its total assets.
Investments in smaller companies may have more risk because they tend to be more
volatile than the overall stock market. The Fund's investments in
non-convertible bonds, preferred stocks and foreign stocks may have credit risk
and foreign risk.
Alliance Real Estate Investment Institutional Fund
Alliance Real Estate Investment Institutional Fund seeks a total return 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.
The Fund normally invests at least 65% of its total assets in equity securities
of real estate investment trusts, or 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 in these
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properties. The Fund invests in equity securities that include 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 certificates ("REMICs") and collateralized mortgage
obligations ("CMOs") and (b) short-term investments. These securities are
described below.
In selecting 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 that 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 that 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.
The 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 performance of Real Estate Equity
Securities. Value and management further distinguishes 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. 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.
To implement the Fund's research and investment process, Alliance has retained
the consulting services of CB Richard Ellis, Inc. ("CBRE"), a publicly held
company and the largest real estate services company in the United States.
CBRE's business includes real estate brokerage, property and facilities
management, and real estate finance and investment advisory activities. The
universe of property-owning real estate industry firms consists of approximately
142 companies of sufficient size and quality to merit consideration for
investment by the Fund. As consultant to Alliance, CBRE provides access to its
proprietary model, REIT-Score, which analyzes the approximately 18,000
properties owned by these 142 companies. Using proprietary databases and
algorithms, CBRE analyzes local market rent, expenses, occupancy trends, market
specific transaction pricing, demographic and economic trends, and leading
indicators of real estate supply such as building permits. Over 1,000 asset-type
specific geographic markets are analyzed and ranked on a relative scale by CBRE
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.
Once the universe of real estate industry companies has been distilled through
the market research process, CBRE's local market presence provides the
capability to perform site specific inspections of key properties. This analysis
examines specific location, condition, and sub-market trends. CBRE's use of
locally based real estate professionals provides Alliance with a window on the
operations of the portfolio companies as information can immediately be put in
the context of local market events. Only those companies whose specific property
portfolios reflect the promise of their general markets will be considered for
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 makes extensive use of CBRE's network
of industry analysts in order to assess trends in tenant industries. This
information is then used to further evaluate 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.
The Fund may invest in short-term investments including: corporate commercial
paper and other short-term commercial obligations, in each case rated or issued
by companies with
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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 rated, of equivalent credit quality as determined
by Alliance. The Fund expects that it will not retain a debt security that is
downgraded below BBB or Baa or, if not rated, determined by Alliance to have
undergone similar credit quality deterioration, subsequent to purchase by the
Fund.
The Fund also may:
o invest up to 15% of its net assets in convertible securities;
o enter into forward commitments;
o enter into standby commitment agreements for up to 25% of its assets at
the time of commitment;
o 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;
o invest up to 10% of its net assets in rights or warrants;
o make loans of portfolio securities of up to 25% of its total assets; and
o enter into repurchase agreements of up to seven days' duration.
Because the Fund invests a substantial portion of its assets in the real estate
market, it is subject to many of the same risks involved in direct ownership of
real estate. For example, the value of real estate could decline due to a
variety of factors affecting the real estate market generally, such as
overbuilding, increases in interest rates, or declines in rental rates. In
addition, REITs are dependent on the capability of their managers, may have
limited diversification, and could be significantly affected by changes in tax
laws.
The Fund's investments in mortgage-backed securities have prepayment risk, which
is the risk that mortgage loans will be repaid when interest rates decline and
the Fund will have to reinvest in securities with lower interest rates. This
risk causes mortgage-backed securities to have significantly greater price and
yield volatility than traditional fixed-income securities. The Fund's
investments in REMICs, CMOs, and other types of mortgage-backed securities may
be subject to special risks that are described under "Description of Investment
Practices".
DESCRIPTION OF INVESTMENT PRACTICES
This section describes the Funds' investment practices and associated risks.
Unless otherwise noted, a Fund's use of any of these practices was specified in
the previous section.
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.
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.
The use of forward commitments enables a Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling prices.
In periods of falling interest rates and rising bond prices, a Fund 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. If, however, 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
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opportunity to invest money at favorable rates or to dispose of securities at
favorable prices.
Illiquid Securities. The Funds will limit their investments in illiquid
securities to 15% of their net assets, except the limit is 10% for Alliance
Quasar Institutional Fund. 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. Alliance will monitor the
illiquidity of a Fund's investments in such securities. Except with respect to
Alliance Quasar Institutional Fund, Rule 144A securities will not be treated as
"illiquid" for purposes of this limit on investments.
A Fund that invests in securities for which there is no ready market may
therefore not be able to readily sell such securities. Such securities are
unlike securities that are traded in the open market and can be expected to be
sold immediately if the market is adequate. The sale price of illiquid
securities may be lower or higher than Alliance's most recent estimate of their
fair value. Generally, less public information is available about the issuers of
such securities than about companies whose securities are traded on an
exchange. 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.
Loans of Portfolio Securities. The risk in lending portfolio securities, as with
other extensions of credit, consists of the possible loss of rights in the
collateral should the borrower fail financially. In determining whether to lend
securities to a particular borrower, Alliance will consider all relevant facts
and circumstances, including the creditworthiness of the borrower. While
securities are on loan, the borrower will pay the Fund any income from the
securities. The Fund may invest any cash collateral in portfolio securities and
earn 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.
Mortgage-Backed Securities and Associated Risks. Interest and principal payments
(including prepayments) on the mortgages underlying mortgage-backed securities
are passed through to the holders of the securities. As a result of the
pass-through of prepayments of principal on the underlying securities,
mortgage-backed securities are often subject to more rapid prepayment of
principal than their stated maturity would indicate. Prepayments occur when the
mortgagor on a mortgage prepays the remaining principal before the mortgage's
scheduled maturity date. Because the prepayment characteristics of the
underlying mortgages vary, it is impossible to predict accurately the realized
yield or average life of a particular issue of pass-through certificates.
Prepayments are important because of their effect on the yield and price of the
mortgage-backed securities. During periods of declining interest rates,
prepayments can be expected to accelerate and a Fund that invests in these
securities would be required to reinvest the proceeds at the lower interest
rates then available. Conversely, during periods of rising interest rates, a
reduction in prepayments may increase the effective maturity of the securities,
subjecting them to a greater risk of decline in market value in response to
rising interest rates. In addition, prepayments of mortgages underlying
securities purchased at a premium could result in capital losses.
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. Alliance Real Estate Investment
Institutional Fund may invest in guaranteed mortgage pass-through securities
that 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
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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. Alliance Real Estate Investment Institutional
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.
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.
Options on Securities. 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.
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. 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.
Options on Securities Indices. An option on a securities index is similar to an
option on a security except that, rather than the right to take or make delivery
of a security at a specified price, an option on a securities index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing level of the chosen index is greater than (in the case of a call) or
less than (in the case of a put) the exercise price of the option.
Futures Contracts and Options on Futures Contracts. A "sale" of a futures
contract means the acquisition of a contractual obligation to deliver the
securities or foreign currencies or other commodity called for by the contract
at a specified price on a specified date. A "purchase" of a futures contract
means the incurring of an obligation to acquire the securities, foreign
currencies or other commodity called for by the contract at a specified price on
a specified date. The purchaser of a futures contract on an index agrees to take
or make delivery of an 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.
A Fund will purchase options on futures contracts written or purchased that are
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.
Alliance Premier Growth Institutional 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 or 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.
Repurchase Agreements. All of the Funds may enter into 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
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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.
Rights and Warrants. A Fund will invest in rights or warrants only if Alliance
deems the underlying equity securities themselves appropriate 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 of these factors. If
the market price of the underlying security is below the exercise price of 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.
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. 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. Certain special federal income
tax considerations may apply to short sales entered into by a Fund.
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.
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.
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.
General. The successful use of the investment practices described above draws
upon Alliance's special skills and experience with respect to such instruments
and usually depends on Alliance's ability to forecast price movements, interest
rates or currency exchange rate movements correctly. Should interest rates,
prices, or exchange rates move unexpectedly, a Fund may not achieve the
anticipated benefits of the transactions or may realize losses and thus be in a
worse position than if such strategies had not been used. Unlike many
exchange-traded futures contracts and options on futures contracts, there are no
daily price fluctuation limits for 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 for 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. In
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addition, a Fund's ability to engage in options and futures transactions may be
limited by tax considerations.
Portfolio Turnover. The portfolio turnover rate for each Fund is included in the
Financial Highlights section. The Funds are actively managed and, in some cases
in response to market conditions, a Fund's portfolio turnover rate may exceed
100%. A higher rate of portfolio turnover increases brokerage and other
expenses, which must be borne by the Fund and its shareholders. Higher portfolio
turnover also may result in the realization of substantial net short-term
capital gains, which, when distributed, are taxable to shareholders.
Temporary Defensive Position. For temporary defensive purposes, each Fund may
reduce its position in equity securities and invest in, without limit, 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 also may include
short-term, foreign-currency denominated securities of the type mentioned above
issued by foreign governmental entities, companies, and supranational
organizations. While the Funds are investing for temporary defensive purposes,
they may not meet their investment objective.
ADDITIONAL RISK CONSIDERATIONS
Investment in certain of the Funds involves the special risk considerations
described below.
Foreign Securities. 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 foreign
securities may experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in equity securities of U. S.
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. 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 that 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 also could be adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation, as well as by the application
of other restrictions on investment. Investing in local markets may require a
Fund to adopt special procedures that may involve additional costs to a Fund.
These factors may affect the liquidity of a Fund's investments in any country
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 and the
Fund's investments. 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 Alliance Real Estate Investment Institutional
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
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risks include, among others: possible declines in the value of real estate;
risks related to general and local economic conditions; possible lack of
availability of mortgage funds; overbuilding; extended vacancies of properties;
increases in competition, property taxes and operating expenses; changes in
zoning laws; costs resulting from the clean-up of, and liability to third
parties for damages resulting from, environmental problems; casualty or
condemnation losses; uninsured damages from floods, earthquakes or other natural
disasters; limitations on and variations in rents; and changes in interest
rates. To the 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 these risks to a greater extent.
In addition, if Alliance Real Estate Investment Institutional 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. 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, and
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 500 Index.
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 Alliance Real Estate Investment Institutional 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.
Fixed-Income Securities. The value of each Fund's shares will fluctuate with the
value of its investments. The value of each Fund's investments in fixed-income
securities will change as the general level of interest rates fluctuates. During
periods of falling interest rates, the values of fixed-income securities
generally rise. Conversely, during periods of rising interest rates, the values
of fixed-income securities generally decline.
Under normal market conditions, the average dollar-weighted maturity of a Fund's
portfolio of debt or other fixed-income securities is expected to vary between
one year or less and 30 years in the case of all Funds that invest in such
securities. In periods of increasing interest rates, each of the Funds may, to
the extent it holds mortgage-backed securities, be subject to the
17
<PAGE>
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.
Year 2000. Many computer systems and applications in use today process
transactions using two-digit date fields for the year of the transaction, rather
than the full four digits. If these systems are not modified or replaced,
transactions occurring after 1999 could be processed as year "1900," which could
result in processing inaccuracies and computer system failures. This is commonly
known as the Year 2000 problem. Should any of the computer systems employed by
the Funds' major service providers fail to process Year 2000 related information
properly, that could have a significant negative impact on the Funds' operations
and the services that are provided to the Funds' shareholders. In addition, to
the extent that the operations of issuers of securities held by the Funds are
impaired by the Year 2000 problem, or prices of securities held by the Funds
decline as a result of real or perceived problems relating to the Year 2000, the
value of the Funds' shares may be materially affected.
With respect to the Year 2000, the Funds have been advised that Alliance, each
Fund's investment adviser, Alliance Fund Distributors, Inc. ("AFD"), each Fund's
principal underwriter, and Alliance Fund Services, Inc. ("AFS"), each Fund's
registrar, transfer agent and dividend disbursing agent (collectively,
"Alliance") began to address the Year 2000 issue several years ago in connection
with the replacement or upgrading of certain computer systems and applications.
During 1997, Alliance began a formal Year 2000 initiative, which established a
structured and coordinated process to deal with the Year 2000 issue. Alliance
reports that it has completed its assessment of the Year 2000 issues on its
domestic and international computer systems and applications. Currently,
management of Alliance expects that the required modifications for the majority
of its significant systems and applications that will be in use on January 1,
2000, will be completed and tested in early 1999. Full integration testing of
these systems and testing of interfaces with third-party suppliers will continue
through 1999. At this time, management of Alliance believes that the costs
associated with resolving this issue will not have a material adverse effect on
its operations or on its ability to provide the level of services it currently
provides to the Funds.
The Funds and Alliance have been advised by the Funds' custodian that it is also
in the process of reviewing its systems with the same goals. As of the date of
this Prospectus, the Funds and Alliance have no reason to believe that the
custodian will be unable to achieve these goals.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Each Fund's Adviser is Alliance Capital Management, L.P., 1345 Avenue of the
Americas, New York, New York 10105. Alliance is a leading international
investment manager supervising client accounts with assets as of December 31,
1998 totaling more than $286 billion (of which approximately $118 billion
represented the assets of investment companies). Alliance's clients are
primarily major corporate employee benefit funds, public employee retirement
systems, investment companies, foundations and endowment funds. The 54
registered investment companies managed by Alliance comprising 118 separate
investment portfolios currently have over 3.5 million shareholder accounts. As
of December 31, 1998, Alliance was an investment manager of employee benefit
plan assets for 35 of the FORTUNE 100 companies.
Fee as
percentage of
average daily Fiscal
Fund net assets* Year Ending
- -------- -------------- ------------
Alliance Premier
Growth Institutional 0.00% 10/31/98
Alliance Quasar
Institutional.... 0.00% 10/31/98
Alliance Real Estate
Investment
Institutional.... 0.00% 10/31/98
- --------------------------------------------------------------------------------
* Fees are stated net of waivers and/or reimbursements. See the "Fee Table"
at the beginning of the Prospectus for more information about fee waivers.
In connection with investments in real estate securities, Alliance has, at its
expense, retained as a consultant CB Richard Ellis, Inc. ("CBRE"). CBRE is a
publicly held company and the largest real estate services company in the United
States, comprised of real estate brokerage, property and facilities management,
and real estate finance, and investment advisory services.
PORTFOLIO MANAGER
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 for the Fund, and each person's principal
occupation during the past five years.
18
<PAGE>
Principal Occupation
During the Past
Fund Employee; Year; Title Five (5) Years*
- --------------------------------------------------------------------------------
Alliance Premier Alfred Harrison; since Associated with
Growth Institutional inception--Vice Chairman Alliance
Fund of Alliance Capital
Management Corporation
(ACMC)**
Alliance Quasar Alden M. Stewart since 1994 Associated with
Institutional Fund --Executive Vice President Alliance
of ACMC
Randall E. Haase since 1994 Associated with
--Senior Vice President Alliance
of ACMC
Alliance Real Estate Daniel G. Pine; since 1996 Associated with
Investment --Senior Vice President Alliance since 1996;
Institutional Fund of ACMC prior thereto, Senior
Vice President of
Desai Capital
Management
David Kruth; since 1997 Associated with
--Vice President of ACMC Alliance since 1997;
prior thereto, Senior
Vice President of
Yarmouth Group
- --------------------------------------------------------------------------------
* Unless indicated otherwise, persons associated with Alliance have been
employed in a portfolio management, research or investment capacity.
** The sole general partner of Alliance.
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. These Funds
are Alliance Premier Growth Fund, Alliance Quasar Fund and Alliance Real Estate
Investment Fund (each, a "Retail Fund"). Each Fund is managed by the same
investment personnel, in the identical investment style and following the same
investment strategy, as its corresponding Retail Fund. Set forth below is
performance data for each of the Retail Funds for the 1, 5 and 10 year (or since
inception) periods through December 31, 1998. As of December 31, 1998, the net
assets in the corresponding Retail Funds totaled approximately $6.5 billion for
Alliance Premier Growth Fund, $1.9 billion for Alliance Quasar Fund, and $350
million for Alliance Real Estate Investment Fund. The following performance data
for the Retail Funds is net of actual fees incurred by those Funds for the
relevant periods and is based on each Fund's Class A shares with imposition of
the maximum 4.25% sales charge.
Year 5 Years 10 Years
ended ended ended
Retail Funds 12/31/98 12/31/98 12/31/98
-------------------------------
Alliance Premier
Growth Fund .................... 42.97% 26.65% 24.38%*
Alliance Quasar Fund ............. -8.64 14.23% 11.84%
Alliance Real Estate
Investment Fund ................ -23.59% 5.43%* --
- --------------------------------------------------------------------------------
* Inception dates for Alliance Premier Growth Fund--September 28, 1992 and
Alliance Real Estate Investment Fund--October 1, 1996.
Performance of Similarly Managed Portfolios--Alliance Premier Growth
Institutional Fund. In addition to managing the assets of Alliance Premier
Growth Institutional Fund, Mr. Harrison has ultimate responsibility for the
management of discretionary tax-exempt accounts of institutional clients managed
as described below without significant client-imposed restrictions ("Historical
Portfolios"). These accounts have substantially the same investment objectives
and policies and are managed in accordance with essentially the same investment
strategies and techniques as those for Alliance Premier Growth Institutional
Fund, except for the ability of Alliance Premier Growth Institutional Fund to
use futures and options as hedging tools and to invest in warrants. The
Historical Portfolios also are not subject to certain limitations,
diversification requirements and other restrictions imposed under the 1940 Act
and the Code to which Alliance Premier Growth Insitutional 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 Alliance relating to the
Historical Portfolios for each of the nineteen full calendar years during which
Mr. Harrison has managed the Historical Portfolios as an employee of Alliance
and cumulatively through December 31, 1998. As of December 31, 1998, the assets
in the Historical Portfolios totaled approximately $15.9 billion and the average
size of an institutional account in the Historical Portfolio was $529 million.
Each Historical Portfolio has a nearly identical composition of investment
holdings and related percentage weightings.
The performance data is net of all fees (including brokerage commissions)
charged to those accounts. The performance data is computed in accordance with
standards formulated by the Association of Investment Management and Research
and has not been adjusted to reflect any fees that will be payable by Alliance
Premier Growth Institutional Fund, which are higher than the fees imposed on the
Historical Portfolio and will result in a higher expense ratio and lower returns
for Alliance Premier Growth Institutional Fund. Expenses associated with the
distribution of Class I and Class II shares of Alliance Premier Growth
Institutional Fund in accordance with the plan adopted by Alliance Premier
Growth Institutional Fund's Board of Directors pursuant to Rule 12b-1 under 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.
Alliance has calculated the investment performance of the Historical Portfolios
on a trade-date basis. Dividends have been accrued at the end of the month and
cash flows weighted daily. Composite investment performance for all portfolios
has been determined on an asset weighted basis. New accounts are included in the
composite investment performance computations at the beginning of the quarter
following the initial contribution. The 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
19
<PAGE>
recognized, unmanaged index of market activity based upon the aggregate
performance of a selected portfolio of publicly traded common stocks, including
monthly adjustments to reflect the reinvestment of dividends and other
distributions. The S&P 500 Index reflects the total return of securities
comprising the Index, including changes in market prices as well as accrued
investment income, which is presumed to be reinvested. The Russell 1000 universe
of securities is compiled by Frank Russell Company and is segmented into two
style indices, based on the capitalization-weighted median book-to-price ratio
of each of the securities. At each reconstitution, the Russell 1000 constituents
are ranked by their book-to-price ratio. Once so ranked, the breakpoint for the
two styles is determined by the median market capitalization of the Russell
1000. Thus, those securities falling within the top fifty percent of the
cumulative market capitalization (as ranked by descending book-to-price) become
members of the Russell Price-Driven Indices. The Russell 1000 Growth Index is,
accordingly, designed to include those Russell 1000 securities with a
greater-than-average growth orientation. In contrast with the securities in the
Russell Price-Driven Indices, companies in the Growth Index tend to exhibit
higher price-to-book and price-earnings ratios, lower dividend yield and higher
forecasted growth values.
To the extent Alliance Premier Growth Institutional Fund does not invest in U.S.
common stocks or utilizes investment techniques such as futures or options, the
S&P 500 and Russell 1000 Growth Index may not be substantially comparable to
Alliance Premier Growth Institutional Fund. The S&P 500 and Russell 1000 Growth
Index are included to illustrate material economic and market factors that
existed during the time period shown. The S&P 500 and Russell 1000 Growth Index
do not reflect the deduction of any fees. If Alliance Premier Growth
Institutional 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, Alliance Premier Growth Institutional Fund's performance relative
to the index would be reduced by Alliance Premier Growth Institutional Fund's
expenses, including brokerage commissions, advisory fees, distribution fees,
custodial fees, transfer agency costs and other administrative expenses as well
as by the impact on Alliance Premier Growth Institutional Fund's shareholders of
sales charges and income taxes.
The Lipper Growth Fund Index is prepared by Lipper Analytical Services, Inc. and
represents a composite index of the investment performance for the 30 largest
growth mutual funds. The composite investment performance of the Lipper Growth
Fund Index reflects investment management and administrative fees and other
operating expenses paid by these mutual funds and reinvested income dividends
and capital gain distributions, but excludes the impact of any income taxes and
sales charges.
The following performance data is provided solely to illustrate Mr. Harrison's
performance in managing the Historical Portfolios as measured against certain
broad based market indices and against the composite performance of other
open-end growth mutual funds. Investors should not rely on the following
performance data of the Historical Portfolios as an indication of future
performance of Alliance Premier Growth Institutional Fund. The composite
investment performance for the periods presented may not be indicative of future
rates of return. Other methods of computing investment performance may produce
different results, and the results for different periods may vary.
Schedule of Composite Investment Performance--Historical Portfolios*
<TABLE>
<CAPTION>
Premier
Growth Russell Lipper
Institutional Historical S&P 500 1000 Growth
Fund Portfolios Index Growth Index Fund Index
Total Return Total Return** Total Return Total Return Total Return
------------ -------------- ------------ ------------ ------------
Year ended December:
<S> <C> <C> <C> <C> <C>
1998**...... 50.91 52.16% 28.60% 38.71% 25.69%
1997........ -- 34.64 33.36 30.49 25.30
1996........ -- 22.06 22.96 23.12 17.48
1995........ -- 39.83 37.58 37.19 32.65
1994........ -- (4.82) (1.32) 2.66 (1.57)
1993........ -- 10.54 10.08 2.90 11.98
1992........ -- 12.18 7.62 5.00 7.63
1991........ -- 38.91 30.47 41.16 35.20
1990........ -- (1.57) (3.10) (0.26) (5.00)
1989........ -- 38.80 31.69 35.92 28.60
1988........ -- 10.88 16.61 11.27 15.80
1987........ -- 8.49 5.25 5.31 1.00
1986........ -- 27.40 18.67 15.36 15.90
1985........ -- 37.41 31.73 32.85 30.30
1984........ -- (3.31) 6.27 (.95) (2.80)
1983........ -- 20.80 22.56 15.98 22.30
1982........ -- 28.02 21.55 20.46 20.20
1981........ -- (1.09) (4.92) (11.31) (8.40)
1980........ -- 50.73 32.50 39.57 37.30
1979........ -- 30.76 18.61 23.91 27.40
Cumulative total
return for
the period
1/1/79 -
12/31/98.. n.a. 4708% 2525% 2373% 2003%
- -----------------------------------------------------------------------------------------
</TABLE>
* Total return is a measure of investment performance that is based upon the
change in value of an investment from the beginning to the end of a
specified period and assumes reinvestment of all dividends and other
distributions. The basis of preparation of this data is described in the
preceding discussion.
** Total return for Alliance Premier Growth Institutional Fund is for Class I
shares since inception.
The average annual total returns presented below are based upon the cumulative
total return as of December 31, 1998, 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.
20
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Premier
Growth Russell Lipper
Institutional Historical S&P 500 1000 Growth
Fund Portfolios Index Growth Index Fund Index
------------- ---------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C>
One year.... 50.91*% 52.16% 28.60% 38.71% 25.69%
Three years. n.a. 35.74 28.23 30.62 23.67
Five years.. n.a. 27.19 24.05 25.70 19.82
Ten years... n.a. 22.86 19.19 20.57 17.21
Since January 1,
1979........ n.a. 21.37 17.75 17.40 16.45
</TABLE>
- --------------------------------------------------------------------------------
* Since inception.
The Funds' SAIs have more detailed information about Alliance and other Fund
service providers.
- --------------------------------------------------------------------------------
PURCHASE AND SALE OF SHARES
- --------------------------------------------------------------------------------
How The Funds Value Their Shares
The Funds' net asset value or NAV is calculated at 4:00 p.m., Eastern time, each
day the Exchange is open for business. To calculate NAV, a Fund's assets are
valued and totaled, liabilities are subtracted, and the balance, called net
assets, is divided by the number of shares outstanding. The Funds' value their
securities 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 Funds' directors believe accurately reflect fair market value.
Your order for purchase, sale, or exchange of shares is priced at the next NAV
calculated after your order is accepted by the Fund.
How To Buy Shares
You may purchase a Fund's shares through your financial representative at NAV.
Alliance Institutional Funds' shares are not subject to any initial or
contingent sales charges. See "Distribution Arrangements" for a description of
who can buy each class of shares of the Funds.
The minimum initial investment in the Alliance Institutional Funds 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.
A Fund is required to withhold 31% of taxable dividends, capital gains
distributions, and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number. To avoid this, you
must provide your correct Tax Identification Number (Social Security Number for
most investors) on your account application.
A Fund may refuse any order to purchase shares. In particular, 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 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 next-determined NAV without sales or service charges.
You may request an exchange by mail or telephone. You must call by 4:00 p.m.,
Eastern time, to receive that day's NAV. The Funds may change, suspend, or
terminate the exchange service on 60 days' notice.
How To Sell Shares
You may "redeem" your shares (i.e., sell your shares to a Fund) on any day the
Exchange is open, either directly or through your financial representative. Your
sales price will be the next-determined NAV after the Fund receives your sales
request in proper form. Normally, proceeds will be sent to you within seven
days. If you recently purchased your shares by check or electronic funds
transfer, your redemption payment may be delayed until the Fund is reasonably
satisfied that the check or electronic funds transfer has been collected (which
may take up to 15 days).
o Selling Shares Through Your Financial Representative
Your financial representative must receive your sales request by 4:00 p.m.,
Eastern time, and submit it to the Fund by 5:00 p.m., Eastern time, for you to
receive that day's NAV. Your financial representative is responsible for
submitting all necessary documentation to the Fund and may charge you for this
service. If you are in doubt about what documents are required by your fee-based
program or other program, you should contact your financial representative.
o Selling Shares Directly To The Funds
By Mail:
--Send a signed letter of instruction or stock power form, along with
certificates, to:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
--For your protection, a bank, a member firm of a national stock exchange or
other eligible guarantor institution must guarantee signatures. 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. If you have any questions about these procedures, contact AFS.
By Telephone:
--You may redeem your shares for which no stock certificates have been issued
by telephone request. Call AFS at 800-221-
21
<PAGE>
5672 with instructions on how you wish to receive your sale proceeds.
--A telephone redemption request must be received by 4:00 p.m., Eastern time,
for you to receive that day's NAV.
--If you have selected electronic funds transfer in your Subscription
Application, the redemption proceeds will be sent directly to your bank.
Otherwise, the proceeds will be mailed to you.
--Redemption requests by electronic funds transfer may not exceed $100,000
and redemption requests by check may not exceed $50,000 per day (except
for certain omnibus accounts).
--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.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS
AND TAXES
- --------------------------------------------------------------------------------
Each Fund's 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.
If paid in additional shares, the shares will have an aggregate net asset value
as of the payment date of the dividend or distribution equal to the cash amount
of the income dividend or distribution. You may make an election to receive
dividends and distributions in cash or shares at the time you purchase shares.
Your election can be changed at any time prior to the record date for a
particular dividend or distribution. Cash dividends can be paid by check or, at
your election, electronically via the ACH network. There is no sales or other
charge on with the reinvestment of Fund 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 that Fund without charge
by returning to Alliance, with appropriate instructions, the check representing
the 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.
The Funds expect that distributions will consist either of net income or
long-term capital gains. For federal income tax purposes, the Fund's dividend
distributions of net income (or short-term capital gains) will be taxable to you
as ordinary income. Any long-term capital gains distributions may be taxable to
you as long-term capital gains. A Fund's distributions also may be subject to
certain state and local taxes.
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 will
depend upon the realization by such Fund of income and capital gains from
investments. There is no fixed dividend rate and there can be no assurance that
a Fund will pay any dividends or realize any capital gains. Since REITs pay
distributions based on cash flow, without regard to depreciation and
amortization, it is likely that a portion of the distributions paid to Alliance
Real Estate Investment Institutional Fund and subsequently distributed to
shareholders may be a nontaxable return of capital. The final determination of
the amount of a Fund's return of capital distributions for the period will be
made after the end of each calendar year.
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. Furthermore,
a shareholder's ability to claim a foreign tax credit or deduction for foreign
taxes paid by a Fund may be subject to certain limitations imposed by the Code,
as a result of which a shareholder may not be permitted to claim a full credit
or deductions for the amount of such taxes.
Under certain circumstances, if a Fund realizes losses (e.g., from fluctuations
in currency exchange rates) after paying a dividend, all or a portion of the
distributions may subsequently be characterized as a return of capital. Returns
of capital are generally non taxable, but 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 a capital gain.
See the Fund's SAI for a further explanation of these tax issues.
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.
The sale or exchange of Fund shares is a taxable transaction for federal income
tax purposes.
Each year shortly after December 31, the Funds will send you tax information
stating the amount and type of all its distributions for the year. Consult your
tax adviser about the federal, state, and local tax consequences in your
particular circumstances.
22
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTION ARRANGEMENTS
- --------------------------------------------------------------------------------
Share Classes. The Funds offer two classes of shares.
Class I Shares
You may purchase and hold shares of Class I solely:
o through accounts established under a fee-based program sponsored and
maintained by a registered broker-dealer or other financial intermediary
and approved by the Fund's principal underwriter, Alliance Fund
Distributors, Inc. or AFD;
o through employee plans that have at least $10 million in assets;
o if you are an investment advisory client of, or are a certain other person
associated with, Alliance and its affiliates or the Funds; and
o 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 AFD 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.
You may purchase and hold shares of Class II solely:
o if you are an investor participating in a wrap-fee or other similar
program offered by a registered broker-dealer or other financial
intermediary that meets certain requirements established by AFD; and
o through employee plans that have at least $10 million in assets.
For more detailed information about who may purchase and hold the shares of each
Fund, see the Fund's SAI. Fee-based and other programs may impose different
requirements with respect to investment in the shares of the Funds than
described above.
Asset-based Sales Charge or Rule 12b-1 Fees. Each Fund has adopted a plan under
Commission Rule 12b-1 that allows the Fund to pay asset-based sales charges or
distribution and service fees for the distribution and sale of its Class II
shares. The amount of these fees is .30% of the Fund's aggregate average daily
net assets. Because these fees are paid out of the Fund's assets on an on-going
basis, over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales fees.
Conversion Feature. As described above, 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, and by
investment advisory clients of, and certain other persons associated with,
Alliance and its affiliates or the Funds. If a holder of Class I shares (i)
ceases to participate in the fee-based program or plan, or to be associated with
an investment advisor or financial intermediary or (ii) 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 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 NAVs
of the two classes and without the imposition of any sales load, fee or other
charge.
OTHER. 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.
In addition to the discount or commission which may be paid to dealers or agents
in connection with the sale of shares of a Fund, AFD may from time to time pay
additional cash or other incentives to dealers or agents, including EQ Financial
Consultants, Inc., an affiliate of AFD, in connection with such sales. Such
additional amounts may be utilized, in whole or in part, in some cases together
with other revenues of such dealers or agents, to provide additional
compensation to registered representatives who sell shares of the Funds. On some
occasions, such cash or other incentives will be conditioned upon the sale of a
specified minimum dollar amount of the shares of a Fund and/or other Alliance
Mutual Funds during a specific period of time. Such incentives may take the form
of payment for attendance at seminars, meals, sporting events or theater
performances, or payment for travel, lodging and entertainment incurred in
connection with travel by persons associated with a dealer or agent and their
immediate family members to urban or resort locations within or outside the
United States. Such dealer or agent may elect to receive cash incentives of
equivalent amount in lieu of such payments.
23
<PAGE>
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
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 Funds reserve 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.
24
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand each Fund's
financial performance for the past 5 years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
share of each Fund. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in the Fund (assuming
investment of all dividends and distributions). The information has been
audited by Ernst & Young LLP, the Funds' independent accountants, whose report,
along with each Fund's financial statements, is included in the SAI, which is
available upon request.
25
<PAGE>
<TABLE>
<CAPTION>
Income from Investment Operations Less Dividends and Distributions
------------------------------------- ------------------------------------------
Net Gains
Net Asset Net or Losses on Dividends Distributions
Value, Investment Securities Total from from Net in Excess of Distributions
Beginning Income (both realized Investment Investment Net Investment from
Fiscal Year or Period of Period (Loss) (a) and unrealized) Operations Income Income Capital Gains
-------------------- ----------- ---------- -------------- ----------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alliance Premier Growth
Institutional Fund
Class I
1/7/98+ to 10/31/98 ...... $10.00 $ .01 $ 2.61 $ 2.62 $ -0- $-0- $-0-
Class II
1/7/98+ to 10/31/98 ...... $10.00 $ (.03) $ 2.61 $ 2.58 $ -0- $-0- $-0-
Alliance Quasar Institutional Fund
Class I
3/17/98+ to 10/31/98 ..... $10.00 $ -0- $(2.58) $(2.58) $ -0- $-0- $-0-
Class II
3/17/98+ to 10/31/98 ..... $10.00 $(5.89) $ 3.29 $(2.60) $ -0- $-0- $-0-
Alliance Real Estate Investment
Institutional Fund
Class I
12/9/97+ to 10/31/98 ..... $10.00 $ .43 $(2.26) $(1.83) $(.39) $-0- $-0-
Class II
12/9/97+ to 10/31/98 ..... $10.00 $ .41 $(2.28) $(1.87) $(.36) $-0- $-0-
<CAPTION>
Fiscal Year or Period Less Distributions Ratios/Supplemental Data
--------------------- ------------------ ----------------------------------------------------------
Ratio of
Total Net Asset Expenses Ratio of Net
Dividends Value, to Average Income (Loss)
and End of Total Net Assets, Net to Average Portfolio
Distributions Period Return (b) End of Period Assets (c)(e) Net Assets(c) Turnover Rate
-------------- --------- ---------- ------------- ------------- ------------- -------------
Premier Growth Institutional Fund
Class I
<S> <C> <C> <C> <C> <C> <C> <C>
1/7/98+ to 10/31/98 ...... $ -0- $12.62 26.20% $56,894 .90% .08% 86%
Class II
1/7/98+ to 10/31/98 ...... $ -0- $12.58 25.80% $ 3,014(d) 1.30% (.38)% 86%
Quasar Institutional Fund
Class I
3/17/98+ to 10/31/98 ..... $ -0- $ 7.42 (25.80)% $20,513 1.20% .03% 61%
Class II
3/17/98+ to 10/31/98 ..... $ -0- $ 7.40 (26.00)% $ 283 1.60% (.14)% 61%
Real Estate Investment
Institutional Fund
Class I
12/9/97+ to 10/31/98 ..... $(.39) $ 7.78 (18.61)% $18,193 1.00% 5.62% 11%
Class II
12/9/97+ to 10/31/98 ..... $(.36) $ 7.77 (19.02)% $ 320 1.40% 5.04% 11%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Commencement of operations
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming an initial investment made
at the beginning of the period, reinvestment of all dividends and
distributions at net asset value during the period, and redemption on the
last day of the period. Total investment return calculated for a period of
less than one year is not annualized.
(c) Annualized.
(d) (000's omitted).
(e) Net of expenses waived/reimbursed. If the Fund's had borne all expenses in
their most recent fiscal period, the expense ratio would have been as
follows:
Alliance Premier Growth Institutional Fund
Class I 2.29%
Class II 2.65%
Alliance Quasar Institutional Fund
Class I 3.82%
Class II 4.62%
Alliance Real Estate Investment Institutional Fund
Class I 3.09%
Class II 3.59%
26 & 27
<PAGE>
For more information about the Funds, the following documents are available upon
request:
o Annual/Semi-Annual Reports to Shareholders
The Funds' annual and semi-annual reports to shareholders contain additional
information on the Funds' investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected a Fund's performance during its last fiscal year.
o Statement of Additional Information (SAI)
Each Fund has an SAI, which contains more detailed information about the Fund,
including its operations and investment policies. The Funds' SAIs are
incorporated by reference into (and are legally part of) this Prospectus.
You may request a free copy of the current annual/semi-annual report or the SAI,
by contacting your broker or other financial intermediary, or by contacting
Alliance:
By Mail: c/o Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
By Phone: For Information: (800) 221-5672
For Literature: (800) 227-4618
Or you may view or obtain these documents from the Commission:
In Person: at the Commission's Public Reference Room
in Washington, D.C.
By Phone: 1-800-SEC-0330
By Mail: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-6009
(duplicating fee required)
On the Internet: www.sec.gov
You also may find more information about Alliance and the Fund on the Internet
at: www.Alliancecapital.com.
28
================================================================================
Alliance Institutional
Funds Subscription
Application
================================================================================
Premier Growth Institutional Fund
Quasar Institutional Fund
Real Estate Investment Institutional Fund
To Open Your New Alliance Account...
Please complete the application and mail it to:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, New Jersey 07096-1520
For certified or overnight deliveries, send to:
Alliance Fund Services, Inc.
500 Plaza Drive
Secaucus, New Jersey 07094
Section 1 Your Account Registration (Required)
Complete one of the available choices. To ensure proper tax reporting to the
IRS:
o Individuals, Joint Tenants, Transfer on Death and Gift/Transfer to a
Minor:
o Indicate your name(s) exactly as it appears on your social
security card.
o Transfer on Death:
o Ensure that your state participates
o 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.
o Non-Resident Alien:
o Indicate your permanent country of residence.
Section 3 Your Initial Investment (Required)
For each fund in which you are investing: (1) Write the three digit fund number
in the column titled 'Indicate three digit fund number located below'.
(2) Write the dollar amount of your initial purchase in the column titled
'Indicate Dollar Amount'. (3) Check off a distribution option for your
dividends. (4) Check off 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
preprinted, 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 preprinted, 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/or a
Systematic Withdrawal Plan and would like the payments sent to a person and/or
address other than those provided in section 1 or 2, complete this option.
Medallion Signature Guarantee is required if your account is not maintained by a
broker dealer.
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
Or Visit Our Website: www.alliancecapital.com
================================================================================
For Literature Call: (800) 227-4618
================================================================================
<PAGE>
Alliance Subscription Application Institutional Funds
================================================================================
1. Your Account Registration (Please Print in Capital Letters and Mark Check
Boxes Where Applicable)
================================================================================
|_| Individual Account {|_| Male |_| Female} - or - |_| Joint Account - or -
|_| Transfer on Death {|_| Male |_| Female} - or - |_| Gift/Transfer to a Minor
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Owner or Custodian (First Name) (MI) (Last Name)
|_| |_| |_| |_| |_| |_| |_| |_| |_|
(First Name) Joint Owner*, Transfer On Death Beneficiary or Minor
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
(MI) (Last Name)
|_| |_| |_| - |_| |_| - |_| |_| |_| |_|
Social Security Number of Owner or Minor (required to open account)
If Joint Tenants Account: * The Account will be registered
"Joint Tenants with right of Survivorship" unless you indicate otherwise below:
|_| In Common |_| By Entirety |_| Community Property
If Uniform Gift/Transfer to Minor Account:
|_| |_| Minor's State of Residence
|_| Trust - or - |_| Corporation - or - |_| Other_______________________________
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Name of Trustee if applicable (First Name) (MI) (Last Name)
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Name of Trust or Corporation or Other Entity
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Name of Trust or Corporation or Other Entity continued
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Trust Dated (MM,DD,YYYY) Tax ID Number (required to open account)
|_| Employer ID Number - OR - |_| Social Security Number
================================================================================
2. Your Address
================================================================================
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Street Number Street Name
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
City State Zip code
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| - |_| |_| |_| - |_| |_| |_| |_|
If Non-U.S., Specify Country Daytime Phone Number
|_| U.S. Citizen |_| Resident Alien |_| Non-Resident Alien
INSTAPP299-P1 AllianceCapital [LOGO](R)
<PAGE>
================================================================================
The minimum investment is $2 million, which may
3. Your Initial Investment be invested in one or more of the Funds.
Different minimums apply for employee retirement
plans.
================================================================================
I hereby subscribe for shares of the following Alliance Stock Fund(s) and elect
distribution options as indicated.
- --------------------------------------
Broker/Dealer Use Only: Wire Confirm #
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
- --------------------------------------
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 Alliance fund. Complete the
appropriate portion of Section 4A to direct your distributions
(dividends and capital gains) to another Alliance Fund (the $250
minimum investment requirement applies to Funds into which
distributions are directed).
--------------------------------------
Make all checks* payable to:
Alliance Funds
--------------------------------------
- -------------------------------------- --------------------------------------
Indicate three digit Fund Indicate Dollar Amount
number located below --------------------------------------
- --------------------------------------
--------------------------------------
|_| |_| |_| $
--------------------------------------
|_| |_| |_| $
--------------------------------------
|_| |_| |_| $
--------------------------------------
|_| |_| |_| $
--------------------------------------
- --------------------------------------
Total Investment $
- -------------------------------------- --------------------------------------
- --------------------------------------
Distributions Options
*Check One*
- --------------------------------------
- ------------- -----------------
Dividends Capital Gains
R C D R C D
- ------------- -----------------
|R| |C| |D| |R| |C| |D|
|R| |C| |D| |R| |C| |D|
|R| |C| |D| |R| |C| |D|
|R| |C| |D| |R| |C| |D|
* Cash and money orders are not accepted
================================================================================
Alliance Institutional Funds Class I Class II
================================================================================
Premier Growth Fund
- --------------------------------------------------------------------------------
Quasar Fund
- --------------------------------------------------------------------------------
Real Estate Investment Fund
INSTAPP299-P2 AllianceCapital [LOGO](R)
<PAGE>
J. SMITH 103
123 MAIN STREET
ANYTOWN, USA 12345 _____ 19__
PAY TO THE
ORDER OF ______________ ________ _____ __________ ____ ____ $______ ______
________________________ _______ ______ ___________ ____ ___________ DOLLARS
Your Bank
123 STREET
ANYTOWN, USA 12345
NOTE ____________________________ ______________________________________
:000000000:103 000000000:765
<PAGE>
================================================================================
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 transfer (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 4D 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.
For shares recently purchased by check or electronic funds transfer
redemption proceeds will not be made available until the Fund is
reasonably assured the check or electronic funds transfer has been
collected, normally 15 calendar days after the purchase date.
D. Bank Information This bank account information will be used for:
|_| Distributions (Section 3) |_| Automatic Investments (Section 4A)
|_| Telephone Transactions (Section 4B) |_| Withdrawals (Section 4C)
================================================================================
Please Tape a Pre-printed Voided Check Here*
================================================================================
[GRAPHIC OMITTED]
* The above services cannot be established without a pre-printed voided check.
For EFT transactions, the fund requires signatures of bank account owners
exactly as they appear on bank records. If the registration at the bank differs
from that on the Alliance mutual fund, all parties must sign in Section 5.
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Your Bank's ABA Routing Number Your Bank Account Number
|_| Checking Account
|_| Savings Account
INSTAPP299-P3 AllianceCapital [LOGO](R)
<PAGE>
================================================================================
4. Your Shareholder Options (CONTINUED)
================================================================================
C. Third Party Payment Details Your signature(s) in Section 5 must be Medallion
Signature Guaranteed if your account is not maintained by a broker/dealer.
This third party payee information will be used for:
|_| Distributions (Section 3) |_| Systematic Withdrawals (Section 4C)
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Name (First Name) (MI) (Last Name)
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Street Number Street Name
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
City State Zip code
================================================================================
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
|________________________________| |______________________________________|
Dealer/Agent Firm Number Representative Number
|________________________________| |______________________________________|
Branch Number Branch Telephone Number
|______________________________________________________________________________|
Branch Office Address
|_______________________________________________| |_| |_| |_________________|
City State Zip code
INSTAPP299-P4 AllianceCapital [LOGO](R)
<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 not have changed
within the last 30 days. The maximum telephone redemption amount is $50,000 for
redemptions by check.
|_| I do not elect the telephone exchange service
|_| I do not elect the telephone redemption by check service
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.
I certify under penalty of perjury that the number shown in Section 1 of this
form is my correct tax identification number or I am waiting for a number to be
issued to me and that I have not been notified that this account is subject to
backup withholding.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certification required to avoid backup withholding.
- ------------------------------------------------------- --------------------
Signature Date
- ------------------------------------------------------- --------------------
Signature Date
- -------------------------------------------------------
Medallion Signature Guarantee required if completing Section 4E and your mutual
fund is not maintained by a broker dealer
INSTAPP299-P5 AllianceCapital [LOGO](R)
<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 333-37177 and 811-08403.
<PAGE>
Alliance Prospectus and Application
Institutional
Funds March 1, 1999
o Alliance Special Equity
Institutional Fund
Alliance Institutional Funds, Inc. provides a selection of equity investment
alternatives to institutional and other investors through qualifying programs
who seek capital growth or high total return.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
Alliance Capital [LOGO](R)
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
RISK/RETURN SUMMARY ...................................................... 3
FEES AND EXPENSES OF THE FUND ............................................ 5
GLOSSARY ................................................................. 6
DESCRIPTION OF THE FUND .................................................. 6
Investment Objective, Policies and Principal Risks ....................... 6
Description of Investment Practices ...................................... 7
Additional Risk Considerations ........................................... 7
MANAGEMENT OF THE FUND ................................................... 8
PURCHASE AND SALE OF SHARES .............................................. 8
How The Fund Values Its Shares ........................................... 8
How To Buy Shares ........................................................ 8
How To Exchange Shares ................................................... 8
How To Sell Shares ....................................................... 8
DIVIDENDS, DISTRIBUTIONS AND TAXES ....................................... 9
DISTRIBUTION ARRANGEMENTS ................................................ 10
GENERAL INFORMATION ...................................................... 11
Alliance Special Equity Institutional Fund's investment adviser is Alliance
Capital Management L.P., a global investment manager providing diversified
services to institutions and individuals through a broad line of investments
including more than 100 mutual funds.
RISK/RETURN SUMMARY
The following is a summary of certain key information about the Alliance Special
Equity Institutional Fund. This Summary describes the Fund's objectives,
principal investment strategies, principal risks and fees. This Summary includes
a short discussion of some of the principal risks of investing in the Fund.
A more detailed description of the Fund, including the risks associated with
investing in the Fund, can be found further back in this Prospectus. Please be
sure to read this additional information BEFORE you invest.
Other important things for you to note:
o You may lose money by investing in the Fund.
o An investment in the Fund is not a deposit in a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency.
3
<PAGE>
Alliance Special Equity Institutional Fund
==========================================--------------------------------------
OBJECTIVE:
The Fund's investment objective is capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES:
The Fund invests primarily in equity securities. The Fund emphasizes investments
in companies that Alliance believes will have superior relative earnings growth
and are selling at reasonable valuations. The Fund seeks to achieve long-term
performance that is significantly better than that of the S&P 500 Index.
Although the Fund typically invests for the long-term, it also may take
advantage of shorter-term opportunities. The weighted average market
capitalization of the companies that the Fund invests in will be less than
that of the S&P 500 Index but greater than those of indices of smaller and
medium capitalization stocks. This reflects the Fund's tendency to invest in
less mature companies and restructuring situations that, in Alliance's
judgment, offer relatively attractive appreciation opportunities.
PRINCIPAL RISKS:
Among the principal risks of investing in the Fund are market risk and
management risk. The Fund also has the risk of investments in small- to
mid-capitalization companies, which may be more volatile than investments in
large-cap companies.
There is no bar chart or performance table for the Fund because it has not
completed a full calendar year of operations.
4
<PAGE>
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
Maximum sales charge imposed on purchases None
Sales charge imposed on dividend reinvestments None
Deferred sales charge None
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) and
EXAMPLES
The Examples are to help you compare the cost of investing in the Fund with the
cost of investing in other funds. They assume that you invest $10,000 in the
Fund for the time periods indicated and then redeem all your shares at the end
of those periods. They also assume that your investment has a 5% return each
year, that the Fund's operating expenses stay the same and that all dividends
and distributions are reinvested. Your actual costs may be higher or lower.
Operating Expenses
- -------------------------------------------------
Class I Class II
------- --------
Management fees .63% 63%
12b-1 fees None .30%
Other expenses .16% .16%
----- -----
Total Fund operating expenses .79% 1.09%
Example
- -------------------------------------------------
Class I Class II
------- --------
After 1 year $ 81 $ 111
After 3 years $252 $ 347
After 5 years $439 $ 601
------ ------
After 10 years $978 $1,329
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
GLOSSARY
- --------------------------------------------------------------------------------
This Prospectus uses the following terms.
TYPES OF SECURITIES
Convertible securities are fixed-income securities that are convertible into
common stock.
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.
OTHER
Code is the Internal Revenue Code of 1986, as amended.
Commission is the Securities and Exchange Commission.
Exchange is the New York Stock Exchange.
S&P is Standard & Poor's Ratings Services.
S&P 500 Index is S&P's 500 Composite Stock Price Index, a widely recognized
unmanaged index of market activity.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE FUND
- --------------------------------------------------------------------------------
This section of the Prospectus provides a more complete description of the
investment objective, principal strategies and principal risks of the Fund. Of
course, there can be no assurance that the Fund will achieve its investment
objective.
Please note that:
o Additional discussion of the Fund's investments, including the risks of
the investments, can be found in the discussion under Description of
Investment Practices following this section.
o Additional information about the risks of investing in the Fund can be
found in the discussion under Additional Risk Considerations.
o Additional descriptions of the Fund's strategies, investments, and risks
can be found in the Fund's Statement of Additional Information or SAI.
o The Fund's investment objective is "fundamental" and cannot be changed
without shareholder vote, and except as noted, the Fund's investment
policies are not fundamental and thus can be changed without a shareholder
vote.
INVESTMENT OBJECTIVE, POLICIES AND PRINCIPAL RISKS
The Fund's investment objective is capital appreciation. The Fund invests
primarily in equity securities. The Fund emphasizes investments in companies
that Alliance believes will have superior relative earnings growth and are
selling at reasonable valuations. The Fund seeks to achieve long-term
performance that is significantly better than the S&P 500 Index. In line with
this objective, the Fund may exhibit greater volatility than is exhibited in the
overall market. The Fund usually is fully invested with no effort made to time
the market.
Although the Fund typically invests for the long-term, it also may take
advantage of shorter-term opportunities. The weighted average market
capitalization of the Fund will be less than that of the S&P 500 Index but
greater than those of indices of smaller and medium capitalization stocks. This
reflects the Fund's tendency to invest in less mature companies and
restructuring situations that, in Alliance's judgment, offer relatively
attractive appreciation opportunities. The Fund may invest up to 15% of its
assets in foreign equity securities.
Risk Considerations. The value of an investment in the Fund changes with the
values of the Fund's investments. Many factors can affect these values. Among
the principal risks of investing in the Fund are:
o Market Risk This is the risk that the value of the Fund's investments will
fluctuate as the stock market fluctuates and that prices overall will
decline over short or longer-term periods.
o Management Risk The Fund is subject to management risk because it is an
actively managed investment portfolio. Alliance will apply its investment
techniques and risk analyses in making investment decisions for the Fund,
but there is no guarantee that its techniques will produce the intended
result.
o Capitalization Risk This is the risk of investments in small- to
mid-capitalization companies. Investments in mid-cap companies may be more
volatile than investments in large-cap companies. Investments in small-cap
companies tend to be more volatile than investments in either large-cap or
mid-cap companies. Investments in small-cap companies may have additional
risks because these companies often have limited product lines, markets,
and financial resources.
6
<PAGE>
DESCRIPTION OF INVESTMENT PRACTICES
This section describes the investment practices of the Fund and risks associated
with these practices.
Convertible Securities. Convertible securities are fixed-income securities that
are convertible into common stocks. 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.
Future Developments. The 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.
General. The successful use of the Fund's 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, the Fund may not achieve the
anticipated benefits of the transactions or may realize losses and thus be in a
worse position than if such strategies had not been used.
Portfolio Turnover. The Fund is actively managed and, in some cases in response
to market conditions, the Fund's portfolio turnover rate may exceed 100%. A
higher rate of portfolio turnover increases brokerage and other expenses, which
must be borne by the Fund and its shareholders.
Temporary Defensive Position. For temporary defensive purposes, the Fund may
reduce its position in equity securities and invest in, without limit, certain
types of short-term, liquid, high grade or high quality 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. While investing for temporary
defensive purposes, the Fund may not achieve its investment objective.
ADDITIONAL RISK CONSIDERATIONS
Investment in the Fund involves the special risk considerations described below.
Foreign Securities. The portion of the Fund's assets invested in foreign
securities may have more risks than U.S. investments. Investments in foreign
securities may experience more rapid and extreme changes in value than
investments in securities of U.S. companies. This is because the securities
markets of many foreign countries are relatively small, with a limited number of
companies representing a small number of industries. Additionally, foreign
securities issuers are usually not subject to the same degree of regulation as
U.S. issuers. Reporting, accounting, and auditing standards of foreign countries
differ, in some cases significantly, from U.S. standards. Also, nationalization,
expropriation or confiscatory taxation, currency blockage, or diplomatic
developments could adversely affect the Fund's investments in a foreign country.
In the event of nationalization, expropriation, or other confiscation, the Fund
could lose its entire investment.
Investment in Smaller, Emerging Companies. The Fund 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.
Year 2000. Many computer systems and applications in use today process
transactions using two-digit date fields for the year of the transaction, rather
than the full four digits. If these systems are not modified or replaced,
transactions occurring after 1999 could be processed as year "1900", which could
result in processing inaccuracies and computer system failures. This is commonly
known as the Year 2000 problem. Should any of the computer systems employed by
the Fund's major service providers fail to process Year 2000 related information
properly, that could have a significant negative impact on the Fund's operations
and the services that are provided to the Fund's shareholders. In addition, to
the extent that the operations of issuers of securities held by the Fund are
impaired by the Year 2000 problem, or prices of securities held by the Fund
decline as a result of real or perceived problems relating to the Year 2000, the
value of the Fund's shares may be materially affected.
With respect to the Year 2000, the Fund has been advised that Alliance, Alliance
Fund Distributors, Inc. ("AFD"), the Fund's principal underwriter, and Alliance
Fund Services, Inc. ("AFS"), the Fund's registrar, transfer agent and dividend
disbursing agent (for the purpose of this discussion collectively, "Alliance")
began to address the Year 2000 issue several years ago in connection with the
replacement or upgrading of certain computer systems and applications. During
1998, Alliance began a formal Year 2000 initiative, which established a
structured and coordinated process to deal with the Year 2000 issue. Alliance
reports that it has completed its assessment of the Year 2000 issues on its
domestic and international
7
<PAGE>
computer systems and applications. Currently, management of Alliance expects
that the required modifications for the majority of its significant systems and
applications that will be in use on January 1, 2000, will be completed and
tested by early 1999. Full integration testing of these systems and testing of
interfaces with third-party suppliers will continue through 1999. At this time,
management of Alliance believes that the costs associated with resolving this
issue will not have a material adverse effect on its operations or on its
ability to provide the level of services it currently provides to the Fund.
The Fund and Alliance have been advised by the Fund's Custodian that they are
also in the process of reviewing their systems with the same goals. As of the
date of this Prospectus, the Fund and Alliance have no reason to believe that
the Custodian will be unable to achieve these goals.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
The Fund's Adviser is Alliance Capital Management, L.P. ("Alliance"), 1345
Avenue of the Americas, New York, New York 10105. Alliance is a leading
international investment manager supervising client accounts with assets as of
December 31, 1998 totaling more than $286 billion (of which approximately $118
billion represented the assets of investment companies). Alliance's clients are
primarily major corporate employee benefit funds, public employee retirement
systems, investment companies, foundations and endowment funds. The 54
registered investment companies managed by Alliance comprising 118 separate
investment portfolios currently have over 3.5 million shareholder accounts. As
of December 31, 1998, Alliance was an investment manager of employee benefit
plan assets for 35 of the FORTUNE 100 companies.
Alliance provides investment advisory services and order placement facilities
for the Fund. For these services, the Fund pays Alliance as a percentage of net
assets: 1.0% of the first $50 million; .75% of the next $50 million; and .50% of
assets greater than $100 million.
The person primarily responsible for the day-to-day management of the Fund will
be Jane Mack Gould, Senior Vice President of Alliance Capital Management
Corporation. Ms. Gould has been associated with Alliance and its affiliates
since 1965 and has 30 years experience as a portfolio manager.
- --------------------------------------------------------------------------------
PURCHASE AND SALE OF SHARES
- --------------------------------------------------------------------------------
How The Fund Values Its Shares
The Fund's net asset value or NAV is calculated at 4:00 p.m., Eastern time,
each day the Exchange is open for business. To calculate NAV, the Fund's
assets are valued and totaled, liabilities are subtracted, and the balance,
called net assets, is divided by the number of shares outstanding. The Fund
values its securities 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 Fund's directors believe accurately reflect fair market
value.
Your order for purchase, sale, or exchange of shares is priced at the next NAV
calculated after your order is accepted by the Fund.
How To Buy Shares
You may purchase the Fund's shares through your financial representative at NAV.
The Fund's shares are not subject to any initial or contingent sales charges.
The minimum initial investment in the Fund is $__ million.
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions, and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number. To avoid this, you
must provide your correct Tax Identification Number (Social Security Number for
most investors) on your account application.
Generally, a fee-based program must charge an asset-based or other similar fee
and must invest at least $2 million in the Fund to be approved by AFD for
investment in the Fund. The Fund's SAI has more detailed information about who
may purchase and hold Fund shares.
The Fund may refuse any order to purchase shares. In particular, the Fund
reserves 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 To Exchange Shares
You may exchange your shares of the Fund for Class A shares of any other
Alliance Mutual Fund. Exchanges of shares are made at the next-determined NAV
without sales or service charges. You may request an exchange by mail or
telephone. You must call by 4:00 p.m., Eastern time, to receive that day's NAV.
The Fund may change, suspend, or terminate the exchange service on 60 days'
notice.
How To Sell Shares
You may "redeem" your shares (i.e., sell your shares to the Fund) on any day the
Exchange is open, either directly or through your financial representative. Your
sales price will be the next-determined NAV after the Fund receives your sales
request in proper form. Normally, proceeds will be sent to you within seven
days. If you recently purchased your shares by check or electronic funds
transfer, your redemption payment may be
8
<PAGE>
delayed until the Fund is reasonably satisfied that the check or electronic
funds transfer has been collected (which may take up to 15 days).
o Selling Shares Through Your Financial Representative
Your financial representative must receive your sales request by 4:00 p.m.,
Eastern time, and submit it to the Fund by 5:00 p.m. Eastern time, for you to
receive that day's NAV. Your financial representative is responsible for
submitting all necessary documentation to the Fund and may charge you for this
service. If you are in doubt about what documents are required by your fee-based
program or other program, you should contact your financial representative.
o Selling Shares Directly to the Fund
By Mail:
-- Send a signed letter of instruction or stock power form, along with
certificates, to:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
-- For your protection, a bank, a member firm of a national stock
exchange or other eligible guarantor institution must guarantee
signatures. 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. If you
have any questions about these procedures, contact AFS.
By Telephone:
-- You may redeem your shares for which no stock certificates have been
issued by telephone request. Call AFS at 800-221-5672 with
instructions on how you wish to receive your sale proceeds.
-- A telephone redemption request must be received by 4:00 p.m. Eastern
time for you to receive that day's NAV.
-- If you have selected electronic funds transfer in your Subscription
Application, the redemption proceeds may be sent directly to your
bank. Otherwise, the proceeds will be mailed to you.
-- Redemption requests by electronic funds transfer may not exceed
$100,000 and redemption requests by check may not exceed $50,000 per
day (except for certain omnibus accounts).
-- 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.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS
AND TAXES
- --------------------------------------------------------------------------------
The Fund's income 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 in additional shares of the same class of shares of the Fund. If
paid in additional shares, the shares will have an aggregate net asset value as
of the payment date of the dividend or distribution equal to the cash amount of
the income dividend or distribution. You may make an election to receive
dividends and distributions in cash or shares at the time you purchase shares.
Your election can be changed at any time prior to the record date for a
particular dividend or distribution. Cash dividends can be paid by check or, at
your election, electronically via the ACH network. There is no sales or other
charge on the reinvestment of Fund 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 without charge
by returning to Alliance, with appropriate instructions, the check representing
the 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 the Fund.
The Fund expects that distributions will consist either of net income or
long-term capital gains. For federal income tax purposes, the Fund's dividend
distributions of net income (or short-term capital gains) will be taxable to you
as ordinary income. Any long-term capital gains distributions may be taxable to
you as long-term capital gains. The Fund's distributions also may be subject
to certain state and local taxes.
While it is the intention of the 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 will
depend upon the realization by the Fund of income and capital gains from
investments. There is no fixed dividend rate and there can be no assurance that
the Fund will pay any dividends or realize any capital gains. The final
determination of the amount of a Fund's return of capital distributions for the
period will be made after the end of each calendar year.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. To the extent that
the Fund is liable for foreign income taxes withheld at the source, the 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 the Fund will be able to do so. Furthermore,
a shareholder's ability to claim a foreign tax credit or deduction for foreign
taxes paid by the Fund may be subject to certain limitations imposed
9
<PAGE>
by the Code, as a result of which a shareholder may not be permitted to
claim a full credit or deductions for the amount of such taxes.
Under certain circumstances, if the Fund realizes losses (e.g., from
fluctuations in currency exchange rates) after paying a dividend, all or a
portion of the distributions may subsequently be characterized as a return of
capital. Returns of capital are generally non-taxable, but 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 a capital gain. See the Fund's SAI for a further explanation of these
tax issues.
The sale or exchange of Fund shares is a taxable transaction for Federal Income
tax purposes.
If you buy shares just before the 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.
Each year shortly after December 31, the Fund will send you tax information
stating the amount and type of all its distributions for the year. Consult your
tax adviser about the federal, state, and local tax consequences in your
particular circumstances.
- --------------------------------------------------------------------------------
DISTRIBUTION ARRANGEMENTS
- --------------------------------------------------------------------------------
Share Classes. The Fund offers two classes of shares.
Class I Shares
You may purchase and hold shares of Class I solely:
o through accounts established under a fee-based program sponsored and
maintained by a registered broker-dealer or other financial intermediary
and approved by the Fund's principal underwriter, Alliance Fund
Distributors, Inc. or AFD;
o through employee plans that have at least $10 million in assets;
o as investment advisory clients of, and certain other persons associated
with, Alliance and its affiliates or the Fund; and
o through registered investment advisers or other financial intermediaries
who charge a management, consulting or other fee for their services and
who purchase shares through a broker or agent approved by AFD, 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
You may purchase and hold shares of Class II solely:
o through participation in wrap-fee or other similar programs offered by
registered broker-dealers or other financial intermediaries that meet
certain requirements established by AFD, and
o through employee plans that have at least $10 million in assets.
For more detailed information about who may purchase and hold the shares of the
Fund, see the Fund's SAI. Fee-based and other programs may impose different
requirements with respect to investment in the shares of the Fund than described
above.
Asset-based Sales Charge or Rule 12b-1 Fees. The Fund has adopted a plan under
Commission Rule 12b-1 that allows the Fund to pay asset-based sales charges or
distribution and service fees for the distribution and sale of its Class II
shares. The amount of these fees is .30% of the Fund's aggregate average daily
net assets. Because these fees are paid out of the Fund's assets on an on-going
basis, over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales fees.
Conversion Feature. As described above, 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, and by
investment advisory clients of, and certain other persons associated with,
Alliance and its affiliates or the Fund. If a holder of Class I shares (i)
ceases to participate in the fee-based program or plan, or to be associated with
an investment advisor or financial intermediary or (ii) 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 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 NAVs
of the two classes and without the imposition of any sales load, fee or other
charge.
Other. 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 the 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
10
<PAGE>
are different from, or in addition to, those imposed by the Fund, including
requirements as to the minimum initial and subsequent investment amounts.
In addition to the discount or commission that may be paid to dealers or agents
in connection with the sale of shares of the Fund, AFD may from time to time pay
additional cash or other incentives to dealers or agents, including EQ Financial
Consultants, Inc., an affiliate of AFD, in connection with such sales. Such
additional amounts may be utilized, in whole or in part, in some cases together
with other revenues of such dealers or agents, to provide additional
compensation to registered representatives who sell shares of the Fund. On some
occasions, such cash or other incentives will be conditioned upon the sale of a
specified minimum dollar amount of the shares of the Fund and/or other Alliance
Mutual Funds during a specific period of time. Such incentives may take the form
of payment for attendance at seminars, meals, sporting events or theater
performances, or payment for travel, lodging and entertainment incurred in
connection with travel by persons associated with a dealer or agent and their
immediate family members to urban or resort locations within or outside the
United States. Such dealer or agent may elect to receive cash incentives of
equivalent amount in lieu of such payments.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Under unusual circumstances, the Fund may suspend redemptions or postpone
payment for up to seven days or longer, as permitted by federal securities law.
The Fund 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.
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<PAGE>
For more information about the Fund, the following documents are available upon
request:
o Annual/Semi-Annual Reports to Shareholders
The Fund's annual and semi-annual reports to shareholders contain additional
information on the Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
o Statement of Additional Information (SAI)
The Fund has an SAI, which contains more detailed information about the Fund,
including its operations and investment policies. The Fund's SAI is incorporated
by reference into (and is legally part of) this Prospectus.
You may request a free copy of the current annual/semi-annual report or the SAI,
by contacting your broker or other financial intermediary, or by contacting
Alliance:
By Mail: c/o Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
By Phone: For Information: (800) 221-5672
For Literature: (800) 227-4618
Or you may view or obtain these documents from the Commission:
In Person: at the Commission's Public Reference Room
in Washington, D.C.
By Phone: 1-800-SEC-0330
By Mail: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-6009
(duplicating fee required)
On the Internet: www.sec.gov
You also may find more information about Alliance and the Fund on the Internet
at: www.Alliancecapital.com.
12
<PAGE>
This is filed pursuant to Rule 497(c).
File Nos.333-37177 and 811-08403.
<PAGE>
(LOGO) ALLIANCE INSTITUTIONAL FUNDS, INC.
- ALLIANCE PREMIER GROWTH
INSTITUTIONAL FUND
_________________________________________________________________
c/o Alliance Fund Services, Inc.
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
March 1, 1999
_________________________________________________________________
This Statement of Additional Information is not a
prospectus but supplements and should be read in conjunction with
the Prospectus dated March 1, 1999 (the "Prospectus") for
Alliance Institutional Funds, Inc. (the "Company"). Copies of
the Prospectus may be obtained by contacting Alliance Fund
Services, Inc. at the address or the "For Literature" telephone
number shown above.
TABLE OF CONTENTS
PAGE
DESCRIPTION OF THE FUND.....................................
MANAGEMENT OF THE FUND......................................
EXPENSES OF THE FUND........................................
PURCHASE OF SHARES..........................................
REDEMPTION AND REPURCHASE OF SHARES.........................
SHAREHOLDER SERVICES........................................
NET ASSET VALUE.............................................
DIVIDENDS, DISTRIBUTIONS AND TAXES..........................
PORTFOLIO TRANSACTIONS......................................
GENERAL INFORMATION.........................................
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL
STATEMENTS................................................
APPENDIX A..................................................
- ----------------------
(R) This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
_________________________________________________________________
DESCRIPTION OF THE FUND
_________________________________________________________________
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 four portfolios: Alliance
Premier Growth Institutional Fund (the "Fund"), which is
described in this Statement of Additional Information, and
Alliance Quasar Institutional Fund, Alliance Real Estate
Investment Institutional Fund and Alliance Special Equity
Institutional Fund, Inc. 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 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
2
<PAGE>
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.
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
3
<PAGE>
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
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
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<PAGE>
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
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
5
<PAGE>
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
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.
6
<PAGE>
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
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
7
<PAGE>
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.
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
8
<PAGE>
undertaken as a matter of non-fundamental investment policy not
to purchase the securities of any company that has a record of
less than three years of continuous operation (including that of
predecessors) if such purchase at the time thereof would cause
more than 5% of its total assets, taken at current value, to be
invested in the securities of such companies, that it will not
purchase puts, calls, straddles, spreads and any combination
thereof if by reason thereof the value of its aggregate
investment in such classes of securities will exceed 5% of its
total assets, that it will not engage in option transactions in
the over-the-counter market if such options are available on an
exchange, that it will only transact in over-the-counter options
with major broker-dealer and financial institutions whom the
Adviser considers creditworthy, that it will only engage in
transactions in options which are liquid and readily marketable,
i.e., the market will be of sufficient depth and liquidity so as
not to create undue risk, that the aggregate premiums paid on all
options which are held by the Fund at any time will not exceed
20% of the Fund's total net assets, that it will not purchase or
retain the securities of any issuer if each of the Fund's
officers, directors or investment adviser who owns beneficially
more than one-half of one percent of the securities of such
issuer together own beneficially more than five percent of the
securities of such issuer, that any securities transaction
effected through an affiliated broker-dealer will be fair and
reasonable in compliance with Rule 17e-1 under the 1940 Act, and
that it will not purchase illiquid securities if immediately
after such investment more than 10% of the Fund's net assets
(taken at market value) would be so invested. In addition, the
Fund will not invest in real estate partnerships and will not
invest in mineral leases.
General. When business or financial conditions warrant,
the Fund may assume a temporary defensive position and invest in
high-grade short-term fixed-income securities, which may include
U.S. Government securities, or hold its assets in cash.
Other Investment Practices
While the Fund does not anticipate utilizing them on a
regular basis, the Fund may from time to time employ the
following investment practices.
Puts and Calls. The Fund may write exchange-traded call
options on common stocks, for which it will receive a purchase
premium from the buyer, and may purchase and sell exchange-traded
call and put options on common stocks written by others or
combinations thereof. The Fund will not write put options.
Writing, purchasing and selling call options are highly
specialized activities and entail greater than ordinary
investment risks. A call option gives the purchaser of the
9
<PAGE>
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
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.
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<PAGE>
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
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.
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<PAGE>
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
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.
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Portfolio Turnover
The Fund's investment policies and practices as
described above (see "Investment Objective" and "How the Fund
Pursues its Objective") are based on the Adviser's assessment of
fundamentals in the context of changing market valuations. They
may therefore involve frequent purchases and sales of shares of a
particular issuer as well as the replacement of securities.
While it is anticipated that the Fund's annual portfolio turnover
rate will not normally exceed 150%, it could, under some
conditions, exceed 150%. A 150% annual turnover rate would
occur, for example, if all of the stocks in the Fund's portfolio
were replaced one and a half times in a period of one year. The
Fund expects that more of its portfolio turnover will be
attributable to increases and decreases in the size of particular
portfolio positions rather than to the complete elimination of a
particular issuer's securities from the Fund's portfolio. A
portfolio turnover rate approximating 150% involves
correspondingly greater brokerage commission expenses than would
a lower rate, which expenses must be borne by the Fund and its
shareholders. See "Dividends, Distributions and Taxes."
Certain Fundamental Investment Policies
The following restrictions may not be changed without a
vote of a majority of the Fund's outstanding voting securities.
As a matter of fundamental policy, the Fund may not:
(a) purchase more than 10% of the outstanding
voting securities of any one issuer;
(b) invest 25% or more of the value of its total
assets in the same industry except that this restriction
does not apply to securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities;
(c) borrow money or issue senior securities except
for temporary or emergency purposes in an amount not
exceeding 5% of the value of its total assets at the
time the borrowing is made;
(d) pledge, mortgage, hypothecate or otherwise
encumber any of its assets except in connection with the
writing of call options and except to secure permitted
borrowings;
(e) invest in the securities of any issuer which
has a record of less than three years of continuous
operation (including the operation of any predecessor)
if as a result more than 10% of the value of the total
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<PAGE>
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
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
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<PAGE>
change in values or net assets will not be considered a violation
of any such maximum.
_________________________________________________________________
MANAGEMENT OF THE FUND
_________________________________________________________________
Adviser
Alliance Capital Management L.P., a Delaware limited
partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision of the Fund's Board of Directors (see "Management of
the Fund" in the Prospectus).
The Adviser is a leading international investment
manager supervising client accounts with assets as of
December 31, 1998 of more than $286 billion (of which more than
$118 billion represented the assets of investment companies). The
Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies,
foundation and endowment funds. The 54 registered investment
companies managed by the Adviser, comprising 118 investment
portfolios, currently have more than 3.6 million shareholders
accounts. As of December 31, 1998, the Adviser and its
subsidiaries employed approximately 2,000 employees who operated
out of domestic offices and the offices of subsidiaries in
Bahrain, Bangalore, Cairo, Chennai, Hong Kong, Istanbul,
Johannesburg, London, Luxembourg, Madrid, Moscow, Mumbai, New
Delhi, Paris, Pune, Sao Paulo, Seoul, Singapore, Sydney, Tokyo,
Toronto, Vienna and Warsaw. As of December 31, 1998, the Adviser
was an investment manager of employee benefit fund assets for 35
of the FORTUNE 100 companies.
Alliance Capital Management Corporation ("ACMC"), 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, which is a wholly-owned subsidiary of The
Equitable Companies Incorporated ("ECI"). ECI is a holding
company controlled by AXA-UAP ("AXA"), a French insurance holding
company which at March 1, 1998, beneficially owned approximately
59% of the outstanding voting shares of ECI. As of June 30,
1998, 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%
15
<PAGE>
of the issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser.
AXA is a holding company for an international group of
insurance and related financial services companies. AXA'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 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, as of March 31,
1998 more than 30% of the voting power of AXA was controlled
directly and indirectly by FINAXA, a French holding company. As
of March 31, 1998 approximately 74% of the voting power of FINAXA
was controlled directly and indirectly by four French mutual
insurance companies (the "Mutuelles AXA"), one of which, AXA
Assurances I.A.R.D. Mutuelle, itself controlled directly and
indirectly more than 42% of the voting power of FINAXA. Acting
as a group, the Mutuelles AXA control AXA and FINAXA.
Under 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 space and certain other equipment, investment
advisory and 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
16
<PAGE>
approved by the Board of Directors. The Fund paid to the Adviser
a total of $0 in respect of such services during the Fund's
fiscal period ended October 31, 1998.
For the services rendered by the Adviser under the
Advisory Agreement, the Fund pays the Adviser at an annualized
rate of 1.00% of the average daily value of the Fund's net
assets. The fee is accrued daily and paid monthly.
The Advisory Agreement became effective on November 14,
1997. The Advisory Agreement was 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 November 7, 1997, and by the Fund's
initial shareholder on November 3, 1997.
The Advisory Agreement will remain in effect until
November 5, 1999 and continue in effect thereafter only so long
as its continuance is approved annually by a vote of a majority
of the Fund's outstanding voting securities (as defined in the
1940 Act) or by the Board of Directors, including in either case,
approval by a majority of the Directors who are not parties to
the Advisory Agreement or interested persons of any such party as
defined in the 1940 Act.
The Advisory Agreement may be terminated without penalty
on 60 days' written notice by a vote of a majority of the Fund's
outstanding voting securities, by a vote of a majority of the
Directors, 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
17
<PAGE>
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: 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 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 Institutional Reserves, Inc., Alliance
International Fund, Alliance International Premier Growth Fund,
Inc., 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 Premier Growth 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 Select Investor Series,
Inc., Alliance Technology Fund, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance Worldwide Privatization Fund, Inc., The Alliance
Portfolios 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., AMC Managed Multi-Market Trust, 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 principal 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 of the following is 1345 Avenue of
the Americas, New York, New York 10105.
18
<PAGE>
Directors
JOHN D. CARIFA,* 53, Chairman of the Board is the
President, Chief Operating Officer and a Director of ACMC, with
which he has been associated since prior to 1994.
RUTH BLOCK, 67, was formerly Executive Vice President
and Chief Insurance Officer of Equitable. She is a Director of
Ecolab Incorporated (specialty chemicals) and BP Amoco
Corporation (oil and gas). Her address is Box 4653, Stamford,
Connecticut, 06903.
DAVID H. DIEVLER, 69, is an independent consultant. He
was formerly a Senior Vice President of ACMC until December 1994.
His address is P.O. Box 167, Spring Lake, New Jersey, 07762.
JOHN H. DOBKIN, 57, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1993.
Previously, he was Director of the National Academy of Design.
His address is 150 White Plains Road, Tarrytown, New York 10591.
WILLIAM H. FOULK, JR., 66, is an Investment Adviser and
independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he has been associated with since prior to 1993. His
address is Suite 100, 2 Greenwich Plaza, Greenwich, Connecticut
06830.
DR. JAMES M. HESTER, 74, is President of the Harry Frank
Guggenheim Foundation with which he has been associated since
prior to 1993. He was formerly President of New York University,
the New York Botanical Garden and Rector of the United Nations
University. His address is 25 Cleveland Lane, Princeton, New
Jersey 08540.
CLIFFORD L. MICHEL, 59, is a partner of the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1993. He is President and Chief Executive Officer of
Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining). His address is St. Bernard's Road,
Gladstone, New Jersey 07934.
DONALD J. ROBINSON, 64, is Senior Counsel to the law
firm of Orrick, Herrington & Sutcliffe and was formerly a senior
partner and a member of the Executive Committee of that firm. He
was also a trustee of the Museum of the City of New York from
____________________
* An "interested person" of the Fund as defined in the
1940 Act.
19
<PAGE>
1977 to 1995. His address is 98 Hell's Peak Road, Weston,
Vermont 05161.
Officers
JOHN D. CARIFA, President, Chairman and President, see
biography above.
ALFRED HARRISON, Executive Vice President, 61, is Vice
Chairman of the Board of ACMC, with which he has been associated
since prior to 1994.
ALDEN M. STEWART, Executive Vice President, 53, is an
Executive Vice President of ACMC, with which he has been
associated since prior to 1994.
KATHLEEN A. CORBET, Senior Vice President, 39, is an
Executive Vice President of ACMC, with which she has been
associated since prior to 1994.
RANDALL E. HAASE, Senior Vice President, 35, is a Vice
President of ACMC, with which he has been associated since prior
to 1994.
DANIEL G. PINE, Senior Vice President, 47, has been
associated with the Adviser since 1996. Previously, he was a
Senior Vice President of Desai Capital Management since prior to
1994.
THOMAS BARDONG, Vice President, 53, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1994.
DAVID KRUTH, Vice President, 34, is a Vice President of
ACMC, with which he has been associated since 1997. Prior
thereto he was a Senior Vice President of the Yarmouth Group.
MARK D. GERSTEN, Treasurer and Chief Financial Officer,
48, is a Senior Vice President of Alliance Fund Services, Inc.
with which he has been associated since prior to 1994.
VINCENT S. NOTO, Controller, 34, is a Vice President of
Alliance Fund Services, Inc., with which he has been associated
since prior to 1994.
EDMUND P. BERGAN, JR., Secretary, 48, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. and Alliance Fund Services, Inc. with which he has been
associated since prior to 1994.
20
<PAGE>
DOMENICK PUGLIESE, Assistant Secretary, 37, is a Vice
President and Assistant General Counsel of Alliance Fund
Distributors, Inc., with which he has been associated since May
1995. Prior thereto, he was Vice President and Counsel of
Concord Holding Corporation since 1994 and Vice President and
Associate General Counsel of Prudential Securities since prior to
1994.
ANDREW L. GANGOLF, Assistant Secretary, 44, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since December 1994. Prior thereto he was a Vice
President and Assistant Secretary of Delaware Management Company,
Inc.
EMILIE D. WRAPP, Assistant Secretary, 43, is a Vice
President and Assistant General Counsel of AFD, with which she
has been associated since prior to 1994.
The aggregate compensation paid by the Fund to each of
the Directors during its fiscal period ended October 31, 1998,
the aggregate compensation paid to each of the Directors during
calendar year 1998 by all of the registered investment companies
to which the Adviser provides investment advisory services
(collectively, the "Alliance Fund Complex") and the total number
of registered investment companies (and separate investment
portfolios within those companies) in the Alliance Fund Complex
with respect to which each of the Directors serves as a director
or trustee, are set forth below. Neither the Fund nor any other
fund in the Alliance Fund Complex provides compensation in the
form of pension or retirement benefits to any of its directors or
trustees. Each of the Directors is a director or trustee of one
or more other registered investment companies in the Alliance
Fund Complex.
21
<PAGE>
Total Number Total Number
of Investment of Investment
Companies in Portfolios with-
the Alliance in the Alliance
Total Complex, Fund Complex,
Compensation Including the Including the
from the Fund, as to Fund, as to
Aggregate Alliance Fund which the which the
Compensation Complex, Director is a Director is a
from the Including the Director or Director or
Name of Director Fund Fund Trustee Trustee
John D. Carifa $ -0- $ -0- 50 114
Ruth Block $1,613 $180,763 37 77
David H. Dievler $1,613 $216,288 43 80
John H. Dobkin $1,604 $185,363 41 91
William H. Foulk, Jr. $1,611 $241,003 45 109
Dr. James M. Hester $1,616 $172,913 37 74
Clifford L. Michel $1,616 $187,763 38 90
Donald J. Robinson $1,613 $193,709 41 103
As of January 31, 1999, 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 Company 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").
During the Fund's fiscal period ended October 31, 1998,
the Fund paid distribution services fees for expenditures under
the Agreement, with respect to Class II shares, in amounts
aggregating $3,838, which constituted approximately 0.30% of the
aggregate average daily net assets attributable to Class II
shares during the period, and the Adviser made payments from its
own resources as described above aggregating $666,257. Of the
22
<PAGE>
$670,095 paid by the Fund and the Adviser with respect to the
Class II shares under the Agreement, $80,711 was spent on
advertising, $6,103 on the printing and mailing of prospectuses
for persons other than current shareholders, $247,147 for
compensation to broker-dealers and other financial intermediaries
(including $174,160 to the Fund's Principal Underwriters),
$96,793 for compensation to sales personnel, $239,341 was spent
on printing of sales literature, travel, entertainment, due
diligence and other promotional expenses, and $0 was spent on
interest on Class II shares financing.
Distribution services fees are accrued daily and paid
monthly and are 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 became effective on November 14, 1997.
The Agreement will continue in effect so long as its continuance
is specifically approved annually by the Directors or by vote of
the holders of a majority of the outstanding voting securities
(as defined in the 1940 Act) of that class, and, in either case,
by a majority of the Directors who are not parties to the
Agreement or interested persons, as defined in the 1940 Act, of
any such party (other than as directors of the Fund) and who have
no direct or indirect financial interest in the operation of the
Rule 12b-1 Plan or any agreement related thereto. Most recently
the continuance of the Agreement until November 30, 1999 was
approved by a vote, cast in person, of the Directors, including a
majority of the Directors who are not "interested persons," as
defined in the 1940 Act, at their meeting held on October 15,
1998.
In approving the Rule 12b-1 Plan, the Directors of the
Fund determined that there was a reasonable likelihood that the
Rule 12b-1 Plan would benefit the Fund and its Class II
shareholders. The distribution services fee of a particular
class will not be used to subsidize the provision of distribution
services with respect to any other class.
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.
23
<PAGE>
In the event that the Rule 12b-1 Plan is terminated or
not continued with respect to the Class II shares (i) no
distribution services fee (other than current amounts accrued but
not yet paid) would be owed by the Fund to the Principal
Underwriter with respect to that class, and (ii) the Fund would
not be obligated to pay the Principal Underwriter for any amounts
expended under the Agreement not previously recovered by the
Principal Underwriter from distribution services fees in respect
of shares of such class.
The Glass-Steagall Act and other applicable laws may
limit the availability of a bank or other depository institution
to become an underwriter or distributor of securities. However,
in the opinion of the Fund's 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
Agreement. 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.
Transfer Agency Agreement
Alliance Fund Services, an indirect wholly-owned
subsidiary of the Adviser, located at 500 Plaza Drive, Secaucus,
New Jersey 07094, acts as the Fund's registrar, transfer agent
and dividend-disbursing agent for a fee based upon the number of
account holders 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.
For the fiscal period ended October 31, 1998, the Fund paid
Alliance Fund Services $15,683 pursuant to the Transfer Agency
Agreement.
_________________________________________________________________
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,
24
<PAGE>
(ii) through employee benefit plans, including defined
contribution and defined benefit plans ("Employee Plans"), that
have at least $10 million in assets, (iii) by investment advisory
clients of the Adviser or its affiliates, (iv) by (a) officers
and present or former Directors of the Company, (b) present or
former directors and trustees of other investment companies
managed by the Adviser, (c) present or retired full-time
employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates, (d) officers and
directors of ACMC, the Principal Underwriter, Alliance Fund
Services, Inc. and their affiliates, (e) (1) the spouse, sibling,
direct ancestor or direct descendant (collectively "relatives")
of any person listed in (a) through (d), (2) any trust,
individual retirement account or retirement plan account for the
benefit of any person listed in (a) through (d) or a relative of
such person, or (3) the estate of any person listed in (a)
through (d) or a relative of such person, if such shares are
purchased for investment purposes (such shares may not be resold
except to the Fund), (v) by (a) the Adviser, the Principal
Underwriter, Alliance Fund Services, Inc. and their affiliates or
(b) certain employee benefit plans for employees of the Adviser,
the Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates, and (vi) through registered investment advisers or
other financial intermediaries who charge a management,
consulting or other fee for their service and who purchase shares
through a broker or agent approved by the Principal Underwriter,
and clients of such registered investment advisers or financial
intermediaries whose accounts are linked to the master account of
such investment adviser or financial intermediary on the books of
such approved broker or agent.
Class II shares of the Fund may be purchased and held
solely (i) by investors participating in wrap fee or other
similar programs offered by registered broker-dealers or other
financial intermediaries that meet certain requirements
established by the Principal Underwriter, and (ii) Employee Plans
that have at least $10 million in assets.
The shares of the Fund are offered on a continuous basis
at a price equal to their net asset value. The minimum initial
investment in the Company is $2,000,000, which may be invested in
any one or more of the Funds. Investments made through fee-based
or "wrap fee" programs will satisfy the minimum initial
investment requirement if the fee-based or "wrap fee" program, as
a whole, invests at least $2,000,000 in one or more of the Funds.
There is no minimum for subsequent investments. The minimum
initial investment may be waived in the discretion of the
Company.
Investors may purchase shares of the Fund through their
financial representatives. A transaction, service,
25
<PAGE>
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.
Such 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
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.
26
<PAGE>
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 subscriber
account in the amount purchased by the subscriber. 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 subscriber's financial representative. This
facilitates later redemption and relieves the shareholder of the
responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
although such shares remain in the shareholder's account on the
books of the Fund.
In addition to the discount or commission which may be
paid to dealers or agents in connection with the sale of the Fund
shares, the Principal Underwriter from time to time pay
additional cash or other incentives to dealers or agents,
including EQ Financial Consultants, Inc., formerly Equico
Securities, Inc., an affiliate of the Principal Underwriter, in
connection with such sales. Such additional amounts may be
utilized, in whole or in part, to provide additional compensation
to registered representatives who sell shares of the Fund. On
some occasions, cash or other incentives will be conditioned upon
the sale of a specified minimum dollar amount of the shares of
the Fund and/or other Alliance Mutual Funds, as defined below,
during a specific period of time. On some occasions, such cash
or other incentives may take the form of payment for attendance
at seminars, meals, sporting events or theater performances, or
payment for travel, lodging and entertainment incurred in
connection with travel taken by persons associated with a dealer
or agent and their immediate family members to urban or resort
locations within or outside the United States. Such dealer or
27
<PAGE>
agent may elect to receive cash incentives of equivalent amount
in lieu of such payments.
Class I and Class II shares each represent an interest
in the same portfolio of investments of the Fund, have the same
rights and are identical in all respects, except that
(i) Class II has exclusive voting rights with respect to
provisions of the Rule 12b-1 Plan pursuant to which its
distribution services fees are paid and other matters for which
separate class voting is appropriate under applicable law,
provided that, if the Fund submits to a vote of the Class II
shareholders an amendment to the Rule 12b-1 Plan that would
materially increase the amount to be paid thereunder with respect
to the Class II shares, then such amendment will also be
submitted to the Class I shareholders and the Class II and
Class I shareholders will vote separately thereon by class and
(ii) Class I shares are subject to a conversion feature.
The Directors have determined that currently no conflict
of interest exists between Class I and Class II shares. On an
ongoing basis, the Directors, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
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.
28
<PAGE>
As a result, Class II shares may pay correspondingly lower
dividends and have a lower net asset value than Class I shares.
The conversion of Class I shares to Class II shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class I shares to Class II
shares does not constitute a taxable event under federal income
tax law. The conversion of Class I shares to Class II shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, the Class I
shareholder would be required to redeem his Class I shares, which
would constitute a taxable event under federal income tax law.
_________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in
the Prospectus under the heading "Purchase and Sale of Shares-
- -How to Sell Shares." If you are a shareholder through an
account established under a fee-based program, your fee-based
program may impose requirements with respect to the purchase,
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. Payment of the redemption
price will be made within seven days after the Fund's receipt of
such tender for redemption. 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
29
<PAGE>
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
funds transfer 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
30
<PAGE>
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. 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. 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. 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.
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
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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. Eastern time (certain selected financial
intermediaries may enter into operating agreements permitting
them to transmit purchase information to the Principal
Underwriter after 5:00 p.m. Eastern time and receive that day's
net asset value). 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
32
<PAGE>
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
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
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 International Fund
Alliance International Premier Growth Fund, Inc.
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
33
<PAGE>
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.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Short-Term U.S. Government Fund
Please read carefully the portions of the prospectus of
the Fund or Alliance Mutual Fund, as applicable, into which you
wish to exchange before submitting the request. Call Alliance
Fund Services, Inc. at (800) 221-5672 to exchange uncertificated
shares. Exchanges of shares as described above in this section
are taxable transactions for federal income tax purposes. The
exchange service may be changed, suspended or terminated on 60
days' written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus or the prospectus for the Alliance Mutual Fund whose
shares are being acquired, as applicable. An exchange is
effected through the redemption of the shares tendered for
exchange and the purchase of shares being acquired at their
respective net asset values as next determined following receipt
by the Fund or the Alliance Mutual Fund, as applicable, whose
shares are being exchanged of (i) proper instructions and all
necessary supporting documents as described in that fund's
prospectus, or (ii) a telephone request for such exchange in
accordance with the procedures set forth in the following
paragraph. Exchanges involving the redemption of shares recently
purchased by check will be permitted only after the fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
Each Fund shareholder, and the shareholder's financial
representative, are authorized to make telephone requests for
exchanges unless Alliance Fund Services, Inc. receives a written
instruction to the contrary from the shareholder, or the
shareholder declines the privilege by checking the appropriate
box on the Subscription Application found in the Prospectus.
Such telephone requests cannot be accepted with respect to shares
then represented by stock certificates. Shares acquired pursuant
34
<PAGE>
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 before
4:00 p.m., Eastern time, 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
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:
35
<PAGE>
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.
Distributions from retirement plans are subject to
certain Code requirements in addition to normal redemption
procedures. For additional information please contact Alliance
Fund Services, Inc.
Statements and Reports
Each shareholder of the Fund receives semi-annual and
annual reports which include a listing of the Fund's investments,
financial statements and, in the case of the annual report, the
report of the Company's independent auditors, Ernst & Young LLP,
as well as a confirmation of each purchase and redemption of
shares by the shareholder. By contacting his or her broker or
Alliance Fund Services, Inc., a shareholder can arrange for
copies of his or her account statements to be sent to another
person.
36
<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 (ordinarily 4:00
p.m. Eastern time) following receipt of a purchase or redemption
order by the Fund on each Fund business day on which such an
order is received and on such other days as the Board of
Directors deems appropriate or 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. A Fund business day is any weekday on which
the Exchange is open for trading.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Board's duties with respect to the following procedures.
Readily marketable securities listed on the Exchange or on a
foreign securities exchange (other than foreign securities
exchanges whose operations are similar to those of the United
States over-the-counter market) are valued, except as indicted
below, at the last sale price reflected on the consolidated tape
at the close of the Exchange or, in the case of a foreign
securities exchange, at the last quoted sale price, in each case
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 in good faith at fair value by, or in accordance with
procedures established by, the Board of Directors. Readily
marketable securities not listed on the Exchange or on a foreign
securities exchange but listed on other United States national
securities exchanges or traded on The Nasdaq Stock Market, Inc.
("Nasdaq") are valued in like manner. Portfolio securities
traded on the Exchange and on one or more foreign or other
national securities exchanges, and portfolio securities not
traded on the Exchange but traded on one or more foreign or other
national securities exchanges are valued in accordance with these
procedures by reference to the principal exchange on which the
securities are traded.
Readily marketable securities traded in the over-the-
counter market, securities listed on a foreign securities
exchange whose operations are similar to those of the United
States over-the-counter market, and securities listed on a U.S.
37
<PAGE>
national securities exchange whose primary market is believed to
be over-the-counter (but excluding securities traded on The
Nasdaq Stock Market, Inc.), 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
another comparable sources.
Listed put or call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that
day, such securities will be valued at the closing bid prices on
that day.
Open futures contracts and options thereon will be
valued using the closing settlement price or, in the absence of
such a price, the most recent quoted bid price, If there are no
quotations available for the day of valuations, the last
available closing settlement price will be used.
U.S. Government securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that
this method does not represent fair value).
Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
The prices provided by pricing service take into account many
factors, including institutional size trading in similar groups
of securities and any developments related to specific
securities.
All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund business
day. In addition, trading in foreign markets may not take place
on all Fund business days. Furthermore, trading may take place
in various foreign markets on days that are not Fund business
days. The Fund's calculation of the net asset value per share,
therefore, does not always take place contemporaneously with the
most recent determination of the prices of portfolio securities
in these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are
determined in accordance with the above procedures and the close
of the Exchange will not be reflected in the Fund's calculation
38
<PAGE>
of net asset value unless it is believed that these prices do not
reflect current market value, in which case the securities will
be valued in good faith by, or in accordance with procedures
established by, the Board of Directors at fair value.
The Board of Directors may suspend the determination of
the Fund's, net asset value (and the offering and sale of
shares), subject to the rules of the Commission and other
governmental rules and regulations, at a time when: (1) the
Exchange is closed, other than customary weekend and holiday
closings, (2) an emergency exists as a result of which it is not
reasonably practicable for the Fund to dispose of securities
owned by it or to determine fairly the value of its net assets,
or (3) for the protection of shareholders, the Commission by
order permits a suspension of the right of redemption or a
postponement of the date of payment on redemption.
For purposes of determining the Fund's net asset value
per share, all assets and liabilities initially expressed in a
foreign currency 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 relevant 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. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class I shares 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
_________________________________________________________________
General
The Fund intends for each taxable year to qualify to be
taxed 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 management on investment practices or policies.
39
<PAGE>
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
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 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
40
<PAGE>
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 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.
Distributions of net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) are
taxable as long-term capital gain 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 that particular dividend or distribution.
Furthermore, a dividend or distribution made shortly after the
purchase of Fund shares by a shareholder, although in effect a
return of capital to the shareholder, would be taxable to the
shareholder as described above. If a shareholder has held shares
in the Fund for six months or less and during that period has
received a distribution of net capital gain, 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.
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.
A dividend or capital gains distribution with respect to
shares of the Fund held by a tax-deferred or qualified plan, 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.
The Fund may be required to withhold federal income tax
at the rate of 31% from all taxable distributions payable to
41
<PAGE>
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.
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
42
<PAGE>
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
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 and control of the
Directors of the Company, the Adviser makes the Fund's portfolio
decisions and determines the broker to be used in each specific
transaction with the objective of negotiating best price and
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
43
<PAGE>
and statistical services provided by the executing broker.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and subject to seeking
best execution, the Fund may consider sales of shares of the Fund
as a factor in the selection of broker-dealers to execute
portfolio transactions for the Fund.
Neither the Company nor the Adviser has entered into
agreements or understandings with any brokers regarding the
placement of securities transactions because of research or
statistical 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. 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 and
statistical 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 but not all such services may
be used by the Adviser in connection with the Fund.
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 broker-dealers to execute
portfolio transactions for the Fund.
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
44
<PAGE>
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.
With respect to orders placed with Donaldson, Lufkin &
Jenrette Securities Corporation (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.
During the fiscal period January 7, 1998 (commencement
of the operations) to October 31, 1998, the Fund incurred
brokerage commissions amounted in the aggregate to $85,675.
During the fiscal period January 7, 1998 (commencement of
operations) to October 31, 1998, brokerage commissions amounting
in the aggregate to $0 were paid to DLJ and brokerage commissions
amounting in the aggregate to $660 were paid to brokers utilizing
the Pershing Division of DLJ. During the fiscal period
January 7, 1998 (commencement of operations) to October 31, 1998,
the brokerage commissions paid to DLJ constituted 0% of the
Fund's aggregate brokerage commissions and the brokerage
commissions paid to brokers utilizing the Pershing Division of
DLJ constituted 0.77% of the Fund's aggregate brokerage
commissions. During the fiscal period January 7, 1998
(commencement of operations) to October 31, 1998, of the Fund's
aggregate dollar amount of brokerage transactions involving the
payment of commissions, 0% were effected through DLJ and 0% were
effected through brokers utilizing the Pershing Division of DLJ.
During the fiscal period January 7, 1998 (commencement of
operations) to October 31, 1998, transactions in portfolio
securities of the Fund aggregating $93,890,190 with associated
brokerage commissions of approximately $31,502 were allocated to
persons or firms supplying research services to the Fund or the
Adviser.
45
<PAGE>
_________________________________________________________________
GENERAL INFORMATION
_________________________________________________________________
Capitalization
The Company is a Maryland corporation organized on
October 3, 1997. The authorized capital stock of the Company
consists of 24,000,000,000 shares, of which 3,000,000,000 shares
are Class I shares of the Fund and 3,000,000,000 shares are
Class II shares of the Fund, each having $.001 par value. The
balance of the shares of the Company are Class I and Class II
shares of the Company's other three 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.
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.
As of January 31, 1999 there were 4,727,363 Class I
shares and 272,566 Class II shares of common stock of the Fund
outstanding. To the knowledge of the Fund, the following persons
owned, of record or beneficially, 5% or more of a class of the
outstanding shares of the Fund as of January 31, 1999:
46
<PAGE>
Name and Address Shares % of Class
Class I
Charles Schwab & Co.
For the Exclusive Benefit
of Customers
Mutual Fund Operations
101 Montgomery Street
San Francisco, CA 94104-4122 617,896 13.09%
Woodstock Inc.
c/o Wood County Trust Co.
P.O. Box 8000
Wisconsin Rapid, WI 54495-8000 1,013,994 21.48%
Trust For Profit Sharing Plan
For Employees of Alliance Capital
Management L.P. Plan H
Attn: Jill Smith 32nd Floor
1345 Avenue of the Americas
New York, NY 10105-0302 2,436,883 51.61%
FTC & Co.
Attn: Datalynx #074
P.O. Box 173736
Denver, CO 80217-3736 4,248,579 57.94%
Class II
Ibak & Co.
P.O. Box 1700
102 South Clinton
Iowa City, IA 52240-4024 4,248,579 57.94%
Custodian
State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts, will act as the Fund's custodian
for the assets of the Fund but plays no part in decisions as to
the purchase or sale of portfolio securities. Subject to the
supervision of the Directors, State Street Bank and Trust Company
may enter into sub-custodial agreements for the holding of the
Fund's foreign securities.
Principal Underwriter
Alliance Fund Distributors, Inc., an indirect wholly-
owned subsidiary of the Adviser, located at 1345 Avenue of the
Americas, New York, New York 10105, is the principal underwriter
of shares of the Fund. Under the Distribution Services Agreement
47
<PAGE>
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
shares of common stock offered hereby are passed upon by Seward &
Kissel LLP, New York, New York. Seward & Kissel LLP has relied
upon the opinion of Venable, Baetjer and Howard, LLP, Baltimore,
Maryland, for matters relating to Maryland law.
Independent Auditors
Ernst & Young LLP, New York, New York, has appointed as
independent auditors for the Company.
Performance Information
From time to time the Fund advertises its "total
return." Such advertisements disclose the Fund's average annual
compounded total return for the periods prescribed by the
Commission. 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 when paid
and the maximum sales charges applicable to purchases and
redemptions of the Fund's shares are assumed to have been 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.
48
<PAGE>
The Fund's average total return is computed separately
for Class I and Class II shares. The average annual compounded
total return based on net asset value since inception on
January 7, 1998 through October 31, 1998 was 26.2% for Class I
shares and 25.8% for Class II shares.
Advertisements may quote performance rankings or ratings
of the Fund as measured by financial publications or by
independent organizations such as Lipper Analytical Services,
Inc. and Morningstar, Inc. or may compare the Fund's performance
to various indices. 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.
49
<PAGE>
_______________________________________________________________
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
_______________________________________________________________
50
<PAGE>
ALLIANCE INSTITUTIONAL FUNDS
ANNUAL REPORT
OCTOBER 31, 1998
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1998 ALLIANCE PREMIER GROWTH INSTITUTIONAL FUND
_______________________________________________________________________________
COMPANY SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS-97.3%
TECHNOLOGY-31.2%
COMMUNICATION EQUIPMENT-11.9%
EMC Corp. (a) 26,600 $ 1,712,375
Lucent Technologies, Inc. 19,800 1,587,713
Nokia Corp. (ADR) (b) 41,400 3,852,787
------------
7,152,875
COMPUTER HARDWARE-7.1%
Dell Computer Corp. (a) 56,500 3,700,750
International Business Machines Corp. 3,700 549,219
------------
4,249,969
COMPUTER SOFTWARE-3.4%
HBO & Co. 33,300 874,125
Microsoft Corp. (a) 11,100 1,175,213
------------
2,049,338
NETWORKING SOFTWARE-6.1%
America Online, Inc. 6,900 876,731
Cisco Systems, Inc. (a) 44,150 2,781,450
------------
3,658,181
SEMI-CONDUCTOR COMPONENTS-2.7%
Intel Corp. 17,850 1,591,997
------------
18,702,360
CONSUMER SERVICES-28.2%
AIRLINES-7.4%
Continental Airlines, Inc. C1.B (a) 12,400 491,350
Delta Air Lines, Inc. 10,000 1,055,625
KLM Royal Dutch Air 17,300 522,244
Northwest Airlines Corp. (a) 31,700 831,134
UAL Corp. (a) 23,300 1,513,044
------------
4,413,397
BROADCASTING & CABLE-6.8%
AirTouch Communications, Inc. (a) 59,300 3,320,800
Tele-Communications, Inc. -
Liberty Media Group Cl.A (a) 20,100 765,056
------------
4,085,856
RETAIL - GENERAL MERCHANDISE-14.0%
Dayton Hudson Corp. 30,400 1,288,200
Home Depot, Inc. 60,700 2,640,450
Kohl's Corp. (a) 18,800 898,875
May Department Stores Co. 10,800 658,800
Wal-Mart Stores, Inc. 41,900 2,891,100
------------
8,377,425
------------
16,876,678
FINANCE-15.0%
BANKING - REGIONAL-3.9%
BankAmerica Corp. 15,118 868,340
Fifth Third Bancorp 7,300 483,625
U.S. Bancorp 27,100 989,150
------------
2,341,115
BROKERAGE & MONEY MANAGEMENT-0.9%
Morgan Stanley, Dean Witter and Co. 8,250 534,188
INSURANCE-1.7%
American International Group, Inc. 7,100 605,275
Progressive Corp. 2,800 412,300
------------
1,017,575
MORTGAGE BANKING-4.3%
Federal Home Loan Mortgage Corp. 21,800 1,253,500
Federal National Mortgage Assn. 5,300 375,306
Washington Mutual, Inc. 24,832 929,648
------------
2,558,454
MISCELLANEOUS-4.2%
Associates First Capital Corp. Cl.A 18,388 1,296,354
MBNA Corp. 54,425 1,241,570
------------
2,537,924
------------
8,989,256
15
PORTFOLIO OF INVESTMENTS
(CONTINUED) ALLIANCE PREMIER GROWTH INSTITUTIONAL FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- -------------------------------------------------------------------------
HEALTH CARE-11.8%
DRUGS-10.4%
Bristol-Myers Squibb Co. 9,200 $ 1,017,175
Pfizer, Inc. 27,200 2,918,900
Schering-Plough Corp. 14,400 1,481,400
Warner-Lambert Co. 10,400 815,100
------------
6,232,575
MEDICAL SERVICES-1.4%
IMS Health, Inc. 12,400 824,600
------------
7,057,175
MULTI INDUSTRY COMPANY-4.1%
Tyco International, Ltd. 39,500 2,446,531
CONSUMER STAPLES-3.6%
HOUSEHOLD PRODUCTS-0.9%
Colgate-Palmolive Co. 6,050 534,669
RETAIL-FOOD-0.6%
Kroger Co. (a) 7,100 394,050
TOBACCO-2.1%
Philip Morris Cos., Inc. 24,400 1,247,450
------------
2,176,169
CAPITAL GOODS-2.6%
ELECTRICAL EQUIPMENT-1.2%
General Electric Co. 8,500 743,750
MISCELLANEOUS-1.4%
United Technologies Corp. 8,700 828,675
------------
1,572,425
UTILITIES-0.8%
TELEPHONE UTILITY-0.8%
MCI WorldCom, Inc. (a) 8,600 475,150
Total Common Stocks (cost $53,088,449) 58,295,744
SHORT-TERM INVESTMENT-2.7%
COMMERCIAL PAPER-2.7%
General Electric Capital Corp.
5.70%, 11/02/98
(amortized cost $1,631,741) $1,632 1,631,741
TOTAL INVESTMENTS-100.0%
(cost $54,720,190) 59,927,485
Other assets less liabilities-0.0% (19,175)
NET ASSETS-100% $59,908,310
(a) Non-income producing security.
(b) Country of origin--Finland.
Glossary:
ADR - American Depositary Receipt
See notes to financial statements.
16
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1998 ALLIANCE QUASAR INSTITUTIONAL FUND
_______________________________________________________________________________
COMPANY SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS-87.5%
CONSUMER PRODUCTS & SERVICES-36.2%
AIRLINES-6.7%
Alaska Air Group, Inc. (a) 16,000 $ 575,000
America West Holdings Corp. 29,900 459,712
Continental Airlines, Inc. C1.B (a) 5,700 225,863
Mesa Air Group, Inc. (a) 21,500 108,844
------------
1,369,419
APPAREL-2.3%
Tommy Hilfiger Corp. (a) 10,000 464,375
BROADCASTING & CABLE-1.3%
Sinclair Broadcast Group, Inc. Cl.A (a) 10,800 140,400
Young Broadcasting, Inc. Cl.A (a) 4,400 138,875
------------
279,275
BUSINESS SERVICES-4.8%
Carriage Services, Inc. C1.A (a) 6,900 161,288
Century Business Services, Inc. (a) 17,500 243,906
FirstService Corp. (a) 6,500 75,766
Provant, Inc. (a) 100 1,144
Renaissance Worldwide, Inc. (a) 17,200 162,325
TeleSpectrum Worldwide, Inc. (a) 32,600 340,262
------------
984,691
ENTERTAINMENT & LEISURE-5.8%
Bally Total Fitness Holding Corp. (a) 14,700 277,463
N2K, Inc. (a) 2,800 13,825
Premier Parks, Inc. (a) 24,700 548,031
Preview Travel, Inc. (a) 7,300 99,006
Sunterra Corp. (a) 27,200 258,400
------------
1,196,725
RESTAURANTS & LODGING-1.7%
Florida Panthers Holdings, Inc. (a) 12,700 123,825
MeriStar Hospitality Corp. 11,800 218,300
------------
342,125
RETAILING-12.8%
Brylane, Inc. (a) 5,600 $90,300
Circuit City Stores, Inc. - CarMax Group (a) 28,300 171,569
Furniture Brands International, Inc. (a) 10,200 219,300
Industrie Natuzzi SpA (ADR) (b) 13,800 250,987
Men's Wearhouse, Inc. (a) 9,300 225,525
Movado Group, Inc. 8,700 164,212
Pacific Sunwear of California, Inc. (a) 5,600 121,100
Sports Authority, Inc. (a) 19,600 149,450
Stage Stores, Inc. (a) 13,600 180,200
Tiffany & Co. 12,900 416,831
Trans World Entertainment Corp. (a) 7,900 162,938
United Rentals, Inc. (a) 11,400 306,375
Venator Group, Inc. (a) 18,900 159,469
------------
2,618,256
MISCELLANEOUS-0.8%
Central Garden & Pet Co. (a) 8,800 173,800
------------
7,428,666
BASIC INDUSTRIES-11.1%
BUILDING & RELATED-0.4%
Associated Materials, Inc. (a) 6,700 73,700
METAL HARDWARE-3.4%
Bethlehem Steel Corp. (a) 77,300 695,700
METALS & MINING-0.2%
Royal Oak Mines, Inc. (a) 82,400 51,500
TEXTILE PRODUCTS-2.3%
Mohawk Industries, Inc. (a) 15,600 470,925
TRANSPORTATION & SHIPPING-4.8%
AMERCO (a) 100 2,350
Carey International, Inc. (a) 10,800 193,050
Consolidated Freightways Corp. (a) 28,400 307,075
Knightsbridge Tankers, Ltd. 3,000 65,250
OMI Corp. (a) 66,200 248,250
Teekay Shipping Corp. 9,900 173,250
------------
989,225
------------
2,281,050
17
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE QUASAR INSTITUTIONAL FUND
_______________________________________________________________________________
COMPANY SHARES VALUE
- -------------------------------------------------------------------------
TECHNOLOGY-10.4%
COMMUNICATION EQUIPMENT-1.1%
Comverse Technology, Inc. (a) 4,600 $ 211,600
COMPUTER SOFTWARE & SERVICES-3.5%
DBT Online, Inc. (a) 9,700 196,425
Harbinger Corp. (a) 17,580 116,468
Information Management Resources, Inc. (a) 4,400 103,400
Insight Enterprises, Inc. (a) 3,650 105,850
Saville Systems Plc (ADR) (a)(c) 3,800 64,125
Transaction Systems Architects, Inc. C1.A (a) 3,800 137,156
------------
723,424
NETWORKING SOFTWARE-2.2%
Apex PC Solutions, Inc. (a) 12,500 326,562
Xylan Corp. (a) 8,025 128,400
------------
454,962
SEMI-CONDUCTOR EQUIPMENT-1.5%
Uniphase Corp. (a) 3,200 158,400
Vitesse Semiconductor Corp. (a) 4,700 151,575
------------
309,975
TELECOMMUNICATIONS-1.6%
GST Telecommunications, Inc. (a) 12,000 83,250
Millicom International Cellular, SA (a)(d) 7,400 246,975
------------
330,225
MISCELLANEOUS-0.5%
Engineering Animation, Inc. (a) 1,400 61,338
Excalibur Technologies Corp. (a) 8,200 47,150
------------
108,488
------------
2,138,674
HEALTH CARE-9.6%
BIOTECHNOLOGY-6.4%
Centocor, Inc. (a) 11,200 498,400
GelTex Pharmaceuticals, Inc. (a) 19,300 482,500
Gensia Sicor, Inc. (a) 11,500 43,125
MedImmune, Inc. (a) 4,100 275,725
------------
1,299,750
DRUGS, HOSPITAL SUPPLIES &
MEDICAL SERVICES-3.2%
Aradigm Corp. (a) 10,400 120,900
St. Jude Medical, Inc. (a) 6,400 180,800
Synetic, Inc. (a) 4,400 189,750
Veterinary Centers of America, Inc. (a) 9,200 163,300
------------
654,750
------------
1,954,500
FINANCIAL SERVICES-9.2%
BROKERAGE & MONEY MANAGEMENT-2.0%
Legg Mason, Inc. 15,300 406,406
INSURANCE-0.4%
Reinsurance Group of America, Inc. 2,000 95,000
REAL ESTATE-6.8%
Chelsea GCA Realty, Inc. 16,300 560,313
Glenborough Realty Trust, Inc. 11,500 246,531
Golf Trust of America, Inc. 7,700 205,975
Taubman Centers, Inc. 27,500 376,406
------------
1,389,225
------------
1,890,631
CONSUMER MANUFACTURING-8.3%
AUTO & RELATED-8.3%
Budget Group, Inc. Cl.A (a) 33,300 597,319
Dollar Thrifty Automotive Group, Inc. (a) 25,200 341,775
Group 1 Automotive, Inc. (a) 16,700 285,987
Miller Industries, Inc. (a) 13,600 71,400
Monaco Coach Corp. (a) 8,550 259,706
United Auto Group, Inc. (a) 10,800 148,500
------------
1,704,687
ENERGY-2.7%
OIL & GAS SERVICES-2.7%
Parker Drilling Co. (a) 24,800 122,450
Southern Union Co. 18,200 422,013
------------
544,463
Total Common Stocks (cost $21,392,880) 17,942,671
18
ALLIANCE QUASAR INSTITUTIONAL FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- -------------------------------------------------------------------------
SHORT-TERM INVESTMENT-17.5%
U.S. GOVERNMENT & AGENCY-17.5%
Student Loan Marketing Assn.
5.42%, 11/02/98
(amortized cost $3,599,458) $3,600 $ 3,599,458
TOTAL INVESTMENTS-105.0%
(cost $24,992,338) $21,542,129
Other assets less liabilities-(5.0%) (1,029,101)
NET ASSETS-100% $20,513,028
(a) Non-income producing security.
(b) Country of origin--Italy.
(c) Country of origin--Ireland.
(d) Country of origin--Luxembourg.
Glossary:
ADR - American Depositary Receipt
See notes to financial statements.
19
PORTFOLIO OF INVESTMENTS ALLIANCE REAL ESTATE INVESTMENT
OCTOBER 31, 1998 INSTITUTIONAL FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- -------------------------------------------------------------------------
COMMON STOCKS-97.3%
REAL ESTATE INVESTMENT TRUSTS-97.3%
APARTMENTS-8.5%
AvalonBay Communities, Inc. 21,500 $ 690,688
Essex Property Trust, Inc. 22,800 715,350
Irvine Apartment Communities, Inc. 5,400 141,750
------------
1,547,788
CORRECTIONAL FACILITIES-2.2%
Correctional Properties Trust 21,100 410,131
DIVERSIFIED-11.6%
Entertainment Properties Trust 27,200 452,200
Glenborough Realty Trust, Inc. 29,900 640,981
Golf Trust of America, Inc. 14,600 390,550
Vornado Realty Trust 18,600 626,588
------------
2,110,319
HOTELS & RESTAURANTS-10.6%
Innkeepers USA Trust 33,700 387,550
MeriStar Hospitality Corp. 25,755 476,468
Patriot American Hospitality, Inc. 45,000 399,375
Starwood Hotels & Resorts 20,200 571,912
Sunstone Hotel Investors, Inc. 9,600 87,000
------------
1,922,305
OFFICE-26.0%
Arden Realty, Inc. 29,700 642,262
Boston Properties, Inc. 18,100 515,850
Brookfield Properties Corp. (a) 55,500 593,487
Crescent Real Estate Equities Co. 27,800 696,737
Equity Office Properties Trust 37,900 909,600
Great Lakes REIT, Inc. 14,400 236,700
Mack-Cali Realty Corp. 14,000 414,750
SL Green Realty Corp. 38,100 721,519
------------
4,730,905
OFFICE - INDUSTRIAL MIX-13.5%
Brandywine Realty Trust 28,500 509,437
Duke Realty Investments, Inc. 15,200 362,900
Highwoods Properties, Inc. 16,900 472,144
Reckson Associates Realty
Corp. 24,400 553,575
Spieker Properties, Inc. 16,100 555,450
------------
2,453,506
REAL ESTATE DEVELOPMENT & MANAGEMENT-.2%
Excel Legacy Corp. (b) 5,000 13,750
Reckson Services Industries, Inc. (b) 10,416 20,181
------------
33,931
REGIONAL MALLS-6.1%
Macerich Co. 21,400 589,837
Mills Corp. 24,200 524,838
------------
1,114,675
SHOPPING CENTERS-9.0%
Burnham Pacific Properties, Inc. 31,900 418,687
New Plan Excel Realty Trust, Inc. 18,260 415,415
Pacific Retail Trust Co. (b)(c) 7,500 82,800
Pan Pacific Retail Properties, Inc. 38,800 725,075
------------
1,641,977
STORAGE-3.7%
Public Storage, Inc. 25,400 677,863
WAREHOUSE & INDUSTRIAL-5.9%
Cabot Industrial Trust 23,400 468,000
ProLogis Trust 27,600 602,025
------------
1,070,025
Total Common Stocks (cost $21,740,670) 17,713,425
SHORT-TERM INVESTMENT-4.3%
TIME DEPOSIT-4.3%
State Street Cayman Islands
4.75%, 11/02/98
(cost $778,000) $778 778,000
TOTAL INVESTMENTS-101.6%
(cost $22,518,670) 18,491,425
Other assets less liabilities-(1.6%) (298,082)
NET ASSETS-100% $18,193,343
(a) Country of origin--Canada.
(b) Non-income producing security.
(c) Illiquid security, valued at fair market value (see Note A).
See notes to financial statements.
20
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1998 ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
<TABLE>
<CAPTION>
REAL ESTATE
PREMIER GROWTH QUASAR INVESTMENT
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
FUND FUND FUND
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at value
(cost $54,720,190, $24,992,338 and
$22,518,670, respectively) $59,927,485 $21,542,129 $ 18,491,425
Cash 500 129,765 2,074
Receivable for capital stock sold 549,317 6,139,085 59,455
Receivable for investment securities sold 129,313 80,883 58,482
Deferred organization expenses 61,218 63,938 60,098
Interest and dividends receivable 19,671 3,059 25,042
Receivable due from adviser 27,685 17,741 2,822
Total assets 60,715,189 27,976,600 18,699,398
LIABILITIES
Payable for investment securities purchased 587,186 1,453,412 193,240
Payable for capital stock redeemed 53,279 5,883,750 196,807
Distribution fee payable 649 467 -0-
Accrued expenses 165,765 125,943 116,008
Total liabilities 806,879 7,463,572 506,055
NET ASSETS $59,908,310 $20,513,028 $ 18,193,343
COMPOSITION OF NET ASSETS
Capital stock, at par $ 4,748 $ 2,766 $ 2,340
Additional paid-in capital 55,567,622 25,245,229 22,501,152
Undistributed net investment income 16,136 2,356 40,785
Accumulated net realized loss on
investments and foreign currency
transactions (887,491) (1,287,114) (323,689)
Net unrealized appreciation
(depreciation) of investments 5,207,295 (3,450,209) (4,027,245)
$59,908,310 $20,513,028 $18,193,343
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS I SHARES
Net asset value, redemption and offering
price per share ($56,893,921 / 4,508,047,
$20,512,745 / 2,765,729 and $18,193,023 /
2,339,663 shares of capital stock issued
and outstanding, respectively) $12.62 $ 7.42 $ 7.78
CLASS II SHARES
Net asset value, redemption and offering
price per share ($3,014,389 / 239,539,
$283 / 38.2 and $320 / 41.2 shares of
capital stock issued and outstanding,
respectively) $12.58 $ 7.40 $ 7.77
</TABLE>
See notes to financial statements.
21
STATEMENTS OF OPERATIONS
PERIOD ENDED OCTOBER 31, 1998 ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
<TABLE>
<CAPTION>
REAL ESTATE
PREMIER GROWTH QUASAR INVESTMENT
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
FUND(A) FUND(B) FUND(C)
-------------- ------------- -------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends (Net of foreign taxes withheld
of $5,953, $1,197 and $250, respectively) $ 201,882 $ 67,134 $ 799,152
Interest 66,174 47,911 34,834
Total income 268,056 115,045 833,986
EXPENSES
Advisory fee 274,226 93,387 123,142
Distribution fee - Class II 3,838 468 1
Administrative 102,500 71,750 112,750
Audit and legal 71,176 63,757 61,936
Custodian 66,455 47,624 51,166
Printing 41,874 21,246 21,809
Registration 29,926 20,539 18,171
Transfer agency 15,683 5,408 7,508
Directors' fees 13,000 5,000 13,000
Amortization of organization expenses 11,880 9,160 13,000
Miscellaneous 2,640 749 976
Total expenses 633,198 339,088 423,459
Less: expenses waived and reimbursed
by adviser (See Note B) (381,278) (226,399) (286,633)
Net expenses 251,920 112,689 136,826
Net investment income 16,136 2,356 697,160
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Net realized loss on investment transactions (887,491) (1,287,114) (323,689)
Net realized loss on foreign currency
transactions -0- -0- (1,254)
Net unrealized appreciation (depreciation)
of investments 5,207,295 (3,450,209) (4,027,245)
Net gain (loss) on investments and foreign
currency transactions 4,319,804 (4,737,323) (4,352,188)
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $4,335,940 $(4,734,967) $(3,655,028)
</TABLE>
(a) Commencement of operations, January 7, 1998.
(b) Commencement of operations, March 17, 1998.
(c) Commencement of operations, December 9, 1997.
22
STATEMENT OF CHANGES IN NET ASSETS
PERIOD ENDED OCTOBER 31, 1998 ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
<TABLE>
<CAPTION>
REAL ESTATE
PREMIER GROWTH QUASAR INVESTMENT
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
FUND(A) FUND(B) FUND(C)
-------------- ------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income $ 16,136 $ 2,356 $ 697,160
Net realized loss on investments and
foreign currency transactions (887,491) (1,287,114) (324,943)
Net unrealized appreciation (depreciation)
of investments 5,207,295 (3,450,209) (4,027,245)
Net increase (decrease) in net assets
from operations 4,335,940 (4,734,967) (3,655,028)
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income
Class I -0- -0- (655,108)
Class II -0- -0- (13)
CAPITAL STOCK TRANSACTIONS
Net increase 55,539,040 25,214,665 22,470,152
Total increase 59,874,980 20,479,698 18,160,003
NET ASSETS
Beginning of period 33,330 33,330 33,340
End of period (including undistributed net
investment income of $16,136, $2,356
and $114,408, respectively) $59,908,310 $20,513,028 $18,193,343
</TABLE>
(a) Commencement of operations, January 7, 1998.
(b) Commencement of operations, March 17, 1998.
(c) Commencement of operations, December 9, 1997.
23
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998 ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Institutional Funds, Inc. (the "Company") was organized as a Maryland
corporation on October 3, 1997 and is registered under the Investment Company
Act of 1940 as an open-end series investment company. The Company is comprised
of three funds, Alliance Premier Growth Institutional Fund, Alliance Quasar
Institutional Fund and Alliance Real Estate Investment Institutional Fund (the
"Funds"). Each Fund has different investment objectives and policies. Prior to
the commencement of operations on January 7, 1998, March 17, 1998 and December
9, 1997, respectively, the Funds had no operations other than the sale to
Alliance Capital Management L.P. (the "Adviser") of 3,300 shares of Class I
common stock of each Fund for $33,000, and 33 shares of Class II common stock
of the Alliance Premier Growth Institutional Fund and the Alliance Quasar
Institutional Fund for $330 and 34 shares of Class II common stock of the
Alliance Real Estate Investment Institutional Fund for $340 in each case on
November 12, 1997. Each Fund offers Class I and Class II shares. Sales are made
without a sales charge, at each Fund's net asset value per share. Each class of
shares have identical voting, dividend, liquidation and other rights, except
that each class bears different distribution expenses and has exclusive voting
rights with respect to its distribution plan. The financial statements have
been prepared in conformity with generally accepted accounting principles which
require management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities in the financial statements and
amounts of income and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of significant
accounting policies followed by the Funds.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sale price or if no sale occurred, at the
mean of the closing bid and asked price on that day. Readily marketable
securities traded in the over-the-counter market, securities listed on a
foreign securities exchange whose operations are similar to the U.S.
over-the-counter market, and securities listed on a national securities
exchange whose primary market is believed to be over-the-counter, are valued at
the mean of the current bid and asked prices. U.S. government and fixed income
securities which mature in 60 days or less are valued at amortized cost, unless
this method does not represent fair value. Securities for which current market
quotations are not readily available are valued at their fair value as
determined in good faith by, or in accordance with procedures adopted by, the
Board of Directors. Fixed income securities may be valued on the basis of
prices obtained from a pricing service when such prices are believed to reflect
the fair market value of such securities.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the
mean of the quoted bid and asked price of such currencies against the U.S.
dollar. Purchases and sales of portfolio securities are translated into U.S.
dollars at the rates of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated into U.S. dollars at rates of
exchange prevailing when accrued.
Net realized foreign currency gains and losses represent foreign exchange gains
and losses from sales and maturities of securities, closed forward exchange
currency contracts, holding of foreign currencies, options on foreign
currencies, exchange gains and losses realized between the trade and settlement
dates on security transactions, and the difference between the amounts of
interest and dividends recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net currency gains and losses
from valuing foreign currency denominated assets and liabilities at period end
exchange rates are reflected as a component of net unrealized appreciation
(depreciation) of investments and foreign currency denominated assets and
liabilities.
3. ORGANIZATION EXPENSES
Organization expenses of approximately $73,099 for the Real Estate Investment
Institutional Fund, $73,098 for the Premier Growth Institutional Fund and
$73,098 for the Quasar Institutional Fund have been deferred and are being
amortized on a straight-line basis through December 2002, January and March
2003, respectively.
24
ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
4. TAXES
It is each Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
5. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Investment transactions are accounted for on the trade date securities
are purchased or sold. The Fund accretes discounts and amortizes premiums as
adjustments to interest income. Investment gains and losses are determined on
the identified cost basis.
6. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each outstanding class of shares, based on the proportionate interest
in the Fund represented by the net assets of such class, except that Class II
shares bear higher transfer agent fees. Expenses of the Trust are charged to
each Fund in proportion to net assets.
7. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Income dividends and capital gains distributions are determined in accordance
with federal tax regulations and may differ from those determined in accordance
with generally accepted accounting principles. To the extent these differences
are permanent, such amounts are reclassified within the capital accounts based
on their federal tax basis treatment; temporary differences, do not require
such reclassification.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Funds pay Alliance
Capital Management L.P. (the "Adviser"), an advisory fee at an annual rate of
.90% of the Real Estate Investment Institutional Fund's average daily net
assets and 1% of the Premier Growth Institutional Fund and Quasar Institutional
Fund's average daily net assets. Such fees are accrued daily and paid monthly.
The Adviser has agreed to voluntarily waive its fees and bear certain expenses
so that total expenses do not exceed on an annual basis .90% and 1.30% of
average daily net assets for Class I and Class II of the Premier Growth
Institutional Fund; 1.20% and 1.60% of average daily net assets for Class I and
Class IIof the Quasar Institutional Fund and 1.00% and 1.40% of average daily
net assets for Class Iand Class II for the Real Estate Investment Institutional
Fund. Effective November 1, 1998, the voluntary fee was increased so that total
expenses do not exceed on an annual basis 1.35% of average daily net assets for
Class II of the Quasar Institutional Fund. For the period ended October 31,
1998 such reimbursement amounted to: Premier Growth Institutional Fund
$278,778; Quasar Institutional Fund $154,649 and Real Estate Investment
Institutional Fund $173,883.
Pursuant to the advisory agreement, the Adviser provides to each Fund certain
legal and accounting services. For the period ended October 31, 1998, the
Adviser agreed to waive its fees for such services. Such waiver amounted to:
Premier Growth Institutional Fund $102,500; Quasar Institutional Fund $71,750
and Real Estate Investment Institutional Fund $112,750.
The Funds compensate Alliance Fund Services, Inc., a wholly-owned subsidiary of
the Adviser, under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Funds. Such compensation
amounted to $14,991, $4,825 and $6,841, respectively for the Premier Growth
Institutional Fund, the Quasar Institutional Fund and the Real Estate
Investment Institutional Fund for the period ended October 31, 1998.
Brokerage commissions paid on investment transactions for the period ended
October 31, 1998 amounted to $85,675 for the Premier Growth Institutional Fund;
$58,337 for the Quasar Institutional Fund and $51,639 for the Real Estate
Investment Institutional Fund, of which $660 for the Premier Growth
Institutional Fund was paid to the Pershing Division of Donaldson, Lufkin &
Jenrette Securities Corp., an affiliate of the Adviser and $115 for the Quasar
Institutional Fund was paid to Donaldson, Lufkin & Jenrette Securities Corp.,
directly.
25
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Funds have adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Funds pay a distribution fee to the Distributor at an annual
rate of up to .30% of average daily net assets attributable to Class II shares.
There is no distribution fee on Class I shares. The fees are accrued daily and
paid monthly. The Agreement provides that the Distributor will use such
payments in their entirety for distribution assistance and promotional
activities. In accordance with the Agreement, there is no provision for
recovery of unreimbursed distribution costs incurred by the Distributor beyond
the current fiscal year for Class II shares. The Agreement also provides that
the Adviser may use its own resources to finance the distribution of the Fund's
shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
for the period ended October 31, 1998 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------------------------------- -----------------------------------
STOCKS AND U.S. GOVERNMENT STOCKS AND U.S. GOVERNMENT
FUND DEBT OBLIGATIONS AND AGENCIES DEBT OBLIGATIONS AND AGENCIES
- ------------------------------------ ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Premier Growth Institutional $83,703,108 $1,676,700 $29,727,168 $347,108
Quasar Institutional 31,168,054 -0- 8,488,059 -0-
Real Estate Investment Institutional 23,790,192 -0- 1,649,731 -0-
</TABLE>
At October 31, 1998, the cost of investments for federal income tax purposes
and the tax basis gross unrealized appreciation, depreciation and net
unrealized appreciation (depreciation), excluding foreign currency
transactions, were as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED NET UNREALIZED
------------------------------- APPRECIATION
FUND COST APPRECIATION DEPRECIATION (DEPRECIATION)
- ------------------------------------ --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Premier Growth Institutional $55,008,826 $6,826,419 $(1,907,760) $4,918,659
Quasar Institutional 25,284,080 550,698 (4,292,649) (3,741,951)
Real Estate Investment Institutional 22,634,636 9,548 (4,152,759) (4,143,211)
</TABLE>
For Federal income tax purposes at October 31, 1998, the Fund had capital loss
carry forwards for the Portfolios as follows: $598,855 expiring in 2006 for the
Premier Growth Institutional Fund $995,373 expiring 2006 for the Quasar
Institutional Fund, and $280,232 expiring in 2006 for the Real Estate
Investment Institutional Fund.
26
ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
NOTE E: CAPITAL STOCK
There are 18,000,000,000 shares of $.001 par value capital stock authorized,
6,000,000,000 shares each for Premier Growth Institutional Fund, Quasar
Institutional Fund and Real Estate Investment Institutional Fund. Each Fund
consists of two classes designated Class I and Class II, each with
3,000,000,000 authorized shares. Transactions in shares of capital stock were
as follows:
PREMIER GROWTH INSTITUTIONAL FUND
--------------------------------------
SHARES AMOUNT
------------------ ------------------
JANUARY 7, 1998(A) JANUARY 7, 1998(A)
TO TO
OCTOBER 31, 1998 OCTOBER 31, 1998
------------------ ------------------
CLASS I
Shares sold 4,846,318 $56,837,599
Shares redeemed (341,571) (4,198,789)
Net increase 4,504,747 $52,638,810
CLASS II
Shares sold 307,955 $3,782,004
Shares redeemed (68,449) (881,774)
Net increase 239,506 $2,900,230
QUASAR INSTITUTIONAL FUND
-------------------------------------
SHARES AMOUNT
----------------- -----------------
MARCH 17, 1998(A) MARCH 17, 1998(A)
TO TO
OCTOBER 31, 1998 OCTOBER 31, 1998
----------------- -----------------
CLASS I
Shares sold 3,009,763 $27,395,135
Shares redeemed (247,334) (1,985,986)
Net increase 2,762,429 $25,409,149
CLASS II
Shares sold 785,381 $ 5,617,297
Shares redeemed (785,376) (5,811,781)
Net increase (decrease) 5 $ (194,484)
(a) Commencement of operations.
27
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
REAL ESTATE INVESTMENT
INSTITUTIONAL FUND
---------------------------------
SHARES AMOUNT
--------------- ---------------
DEC. 9, 1997(A) DEC. 9, 1997(A)
TO TO
OCT. 31, 1998 OCT. 31, 1998
--------------- ---------------
CLASS I
Shares sold 2,486,932 $23,779,985
Shares issued in reinvestment of dividends 78,721 655,108
Shares redeemed (229,290) (1,965,003)
Net increase 2,336,363 $22,470,090
CLASS II
Shares sold 6 $ 50
Shares issued in reinvestment of dividends 1 12
Net increase 7 $ 62
(a) Commencement of operations.
28
FINANCIAL HIGHLIGHTS ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
REAL ESTATE
PREMIER GROWTH QUASAR INVESTMENT
INSTITUTIONAL FUND INSTITUTIONAL FUND INSTITUTIONAL FUND
CLASS I CLASS I CLASS I
JANUARY 7, 1998(A) MARCH 17, 1998(A) DECEMBER 9, 1997(A)
TO TO TO
OCTOBER 31, 1998 OCTOBER 31, 1998 OCTOBER 31, 1998
------------------ ------------------ -------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.00 $10.00 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .01 -0- .43
Net realized and unrealized gain (loss)
on investment transactions 2.61 (2.58) (2.26)
Net increase (decrease) in net asset
value from operations 2.62 (2.58) (1.83)
LESS: DIVIDENDS
Dividends from net investment income -0- -0- (.39)
Net asset value, end of period $12.62 $7.42 $7.78
TOTAL RETURN
Total investment return based on net
asset value (c) 26.20% (25.80)% (18.61)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $56,894 $20,513 $18,193
Ratios to average net assets of:
Expenses, net of waivers/
reimbursements (d) .90% 1.20% 1.00%
Expenses, before waivers/
reimbursements (d) 2.29% 3.82% 3.09%
Net investment income (d) .08% .03% 5.62%
Portfolio turnover rate 86% 61% 11%
</TABLE>
See footnote summary on page 30.
29
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
REAL ESTATE
PREMIER GROWTH QUASAR INVESTMENT
INSTITUTIONAL FUND INSTITUTIONAL FUND INSTITUTIONAL FUND
CLASS II CLASS II CLASS II
JANUARY 7, 1998(A) MARCH 17, 1998(A) DECEMBER 9, 1997(A)
TO TO TO
OCTOBER 31, 1998 OCTOBER 31, 1998 OCTOBER 31, 1998
------------------ ------------------ -------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.00 $10.00 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (b) (.03) (5.89) .41
Net realized and unrealized gain (loss)
on investment transactions 2.61 3.29 (2.28)
Net increase (decrease) in net asset
value from operations 2.58 (2.60) (1.87)
LESS: DIVIDENDS
Dividends from net investment income -0- -0- (.36)
Net asset value, end of period $12.58 $7.40 $7.77
TOTAL RETURN
Total investment return based on net
asset value (c) 25.80% (26.00)% (19.02)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $3,014 (e) $283$320
Ratios to average net assets of:
Expenses, net of waivers/
reimbursements (d) 1.30% 1.60% 1.40%
Expenses, before waivers/
reimbursements (d) 2.65% 4.62% 3.59%
Net investment income (loss) (d) (.38)% (.14)% 5.04%
Portfolio turnover rate 86% 61% 11%
</TABLE>
(a) Commencement of operations.
(b) Based on average shares outstanding.
(c) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Total investment return calculated
for a period of less than one year is not annualized.
(d) Annualized.
(e) 000's omitted.
30
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS ALLIANCE INSTITUTIONAL FUNDS
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Alliance Institutional Funds
(comprising, respectively, the Alliance Premier Growth Institutional Fund,
Alliance Quasar Institutional Fund and Alliance Real Estate Investment
Institutional Fund) as of October 31, 1998, and the related statements of
operations, changes in net assets and financial highlights for the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1998, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting the Alliance Institutional Funds as of
October 31, 1998, the results of their operations, changes in their net assets,
and the financial highlights for the periods indicated therein, in conformity
with generally accepted accounting principles.
New York, New York
December 9, 1998
31
<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
broker a variation margin payment equal to that increase in
A-1
<PAGE>
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
contracts are based, although there may be deviations arising
A-2
<PAGE>
from differences between the composition of the Fund and the
stocks comprising the index.
Where stock index futures contracts are purchased to
hedge against a possible increase in the price of stocks before
the Fund is able to invest its cash (or cash equivalents) in
stocks (or options) in an orderly fashion, it is possible that
the market may decline instead. If the Fund then concludes not
to invest in stocks or options at that time because of concern as
to a possible further market decline or for other reasons, the
Fund will realize a loss on the futures contract that is not
offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an
imperfect correlation, or no correlation at all, between
movements in stock index futures and the portion of the portfolio
being hedged, the price of stock index futures may not correlate
perfectly with movement in the stock index due to market
distortions. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through off-
setting transactions which could distort the normal relationship
between the index and futures markets. Secondly, from the point
of view of speculators, the deposit requirements in the futures
market are less onerous than margin requirements in the
securities market. Therefore, increased participation by
speculators in the futures market may also cause temporary price
distortions. Due to the possibility of price distortions in the
futures market, and because of the imperfect correlation between
the movements in the stock index and movements in the price of
stock index futures, a correct forecast of general market trends
by the Adviser may still not result in a successful hedging
transaction over a short time frame.
Positions in stock index futures contracts may be closed
out only on an exchange or board of trade which provides a
secondary market for such futures. Although the Fund intends to
purchase or sell futures contracts only on exchanges or boards of
trade where there appear to be active secondary markets, there is
no assurance that a liquid secondary market on any exchange or
board of trade will exist for any particular contract or at any
particular time. In that event, it may not be possible to close
a futures investment position, and in the event of adverse price
movements, the Fund would continue to be required to make daily
cash payments of variation margin. However, in the event futures
contracts have been used to hedge portfolio securities, such
securities will not be sold until the futures contract can be
terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses
on the futures contract. However, as described above, there is no
guarantee that the price of securities will in fact correlate
A-3
<PAGE>
with price movements in futures contract and thus provide an
offset on the futures contract.
The Fund's Adviser intends to purchase and sell futures
contracts on the stock index for which it can obtain the best
price with due consideration to liquidity.
Successful use of stock index futures by the Fund is
also subject to the Adviser's ability to predict correctly
movements in the direction of the market. For example, if the
Fund has hedged against the possibility of a decline in the
market adversely affecting stocks held in its portfolio and stock
prices increase instead, the Fund will lose part or all of the
benefit of the increased value of its stock which it has hedged
because it will have offsetting losses in its futures positions.
In addition, in such situations, if the Fund has insufficient
cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will
not necessarily be, at increased prices which reflect the rising
market. The Fund may have to sell securities at a time when it
may be disadvantageous to do so.
A-4
<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 333-37177 and 811-08403.
<PAGE>
(LOGO) ALLIANCE INSTITUTIONAL FUNDS, INC.
- ALLIANCE QUASAR
INSTITUTIONAL FUND
____________________________________________________________
c/o Alliance Fund Services, Inc.
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
March 1, 1999
_______________________________________________________________
This Statement of Additional Information is not a
prospectus but supplements and should be read in conjunction with
the Prospectus dated March 1, 1999 (the "Prospectus") for
Alliance Institutional Funds, Inc. (the "Company"). Copies of
the Prospectus may be obtained by contacting Alliance Fund
Services, Inc. at the address or the "For Literature" telephone
number shown above.
TABLE OF CONTENTS
Page
DESCRIPTION OF THE FUND..................................
MANAGEMENT OF THE FUND...................................
EXPENSES OF THE FUND.....................................
PURCHASE OF SHARES.......................................
REDEMPTION AND REPURCHASE OF SHARES......................
SHAREHOLDER SERVICES.....................................
NET ASSET VALUE..........................................
DIVIDENDS, DISTRIBUTIONS AND TAXES.......................
PORTFOLIO TRANSACTIONS...................................
GENERAL INFORMATION......................................
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL
STATEMENTS.............................................
____________________
(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 four portfolios: Alliance
Quasar Institutional Fund (the "Fund"), which is described in
this Statement of Additional Information, and Alliance Premier
Growth Institutional Fund, Alliance Real Estate Investment
Institutional Fund and Alliance Special Equity Institutional
Fund, Inc. 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
2
<PAGE>
objective through the more aggressive investment policies
described below, risk of loss increases. The Fund is therefore
not intended for investors whose principal objective is assured
income or preservation of capital.
How The Fund Pursues Its Objective
Within this basic framework, the policy of the Fund is
to invest in any companies and industries and in any types of
securities which are believed to offer possibilities for capital
appreciation. Investments may be made in well-known and
established companies as well as in new and unseasoned companies.
Critical factors considered in the selection of securities
include the economic and political outlook, the values of
individual securities relative to other investment alternatives,
trends in the determinants of corporate profits, and management
capability and practices.
It is the policy of the Fund to invest principally in
equity securities (common stocks, securities convertible into
common stocks or rights or warrants to subscribe for or purchase
common stocks); however, it may also invest to a limited degree
in non-convertible bonds and preferred stocks when, in the
judgment of Alliance Capital Management L.P., the Fund's Adviser
(the "Adviser"), such investments are warranted to achieve the
Fund's investment objective. When business or financial
conditions warrant, a more defensive position may be assumed and
the Fund may invest in short-term fixed-income securities, in
investment grade debt securities, in preferred stocks or may hold
its assets in cash.
The Fund may invest in both listed and unlisted domestic
and foreign securities, in restricted securities, and in other
assets having no ready market, but not more than 10% of the
Fund's total assets may be invested in all such restricted or not
readily marketable assets at any one time. Restricted securities
may be sold only in privately negotiated transactions or in a
public offering with respect to which a registration statement is
in effect under Rule 144 or 144A promulgated under the Securities
Act of 1933, as amended (the "Securities Act"). Where
registration is required, the Fund may be obligated to pay all or
part of the registration expense, and a considerable period may
elapse between the time of the decision to sell and the time the
Fund may be permitted to sell a security under an effective
registration statement. If during such a period adverse market
conditions were to develop, the Fund might obtain a less
favorable price than that which prevailed when it decided to
sell. Restricted securities and other not readily marketable
assets will be valued in such manner as the Board of Directors in
good faith deems appropriate to reflect their fair market value.
3
<PAGE>
The Fund intends to invest in special situations from
time to time. A special situation arises when, in the opinion of
the Fund's management, the securities of a particular company
will, within a reasonably estimable period of time, be accorded
market recognition at an appreciated value solely by reason of a
development particularly or uniquely applicable to that company
and regardless of general business conditions or movements of the
market as a whole. Developments creating special situations
might include, among others, the following: liquidations,
reorganizations, recapitalizations or mergers, material
litigation, technological breakthroughs and new management or
management policies. Although large and well-known companies may
be involved, special situations often involve much greater risk
than is inherent in ordinary investment securities. The Fund
will not, however, purchase securities of any company with a
record of less than three years continuous operation (including
that of predecessors) if such purchase would cause the Fund's
investments in such companies, taken at cost, to exceed 25% of
the value of the Fund's total assets.
Additional Investment Policies And Practices
The following additional investment policies and
practices, including restrictions, supplement those set forth
above and in the Prospectus.
General. In seeking to attain its investment objective
of growth of capital, the Fund will supplement customary
investment practices by engaging in a broad range of investment
techniques including short sales "against the box," writing call
options, purchases and sales of put and call options written by
others and investing in special situations. These techniques are
speculative, may entail greater risk, may be considered of a more
short-term nature, and to the extent used, may result in greater
turnover of the Fund's portfolio and a greater expense than is
customary for most investment companies. Consequently, the Fund
is not a complete investment program and is not a suitable
investment for those who cannot afford to take such risks or
whose objective is income or preservation of capital. No
assurance can be given that the Fund will achieve its investment
objective. However, by buying shares in the Fund an investor may
receive advantages he would not readily obtain as an individual,
including professional management and continuous supervision of
investments. The Fund will be subject to the overall limitation
(in addition to the specific restrictions referred to below) that
the aggregate value of all restricted and not readily marketable
securities of the Fund, and of all cash and securities covering
outstanding call options written or guaranteed by the Fund, shall
at no time exceed 15% of the value of the total assets of the
Fund.
4
<PAGE>
There is also no assurance that the Fund will at any
particular time engage in all or any of the investment activities
in which it is authorized to engage. In the opinion of the
Fund's management, however, the power to engage in such
activities provides an opportunity which is deemed to be
desirable in order to achieve the Fund's investment objective.
Short Sales. The Fund may only make short sales of
securities "against the box." A short sale is effected by
selling a security which the Fund does not own, or if the Fund
does own such security, it is not to be delivered upon
consummation of the sale. A short sale is "against the box" to
the extent that the Fund contemporaneously owns or has the right
to obtain securities identical to those sold short without
payment. Short sales may be used by the Fund to defer the
realization of gain or loss for federal income tax purposes on
securities then owned by the Fund. Gains or losses will be short-
or long-term for federal income tax purposes depending upon the
length of the period the securities are held by the Fund before
closing out the short sales by delivery to the lender. The Fund
may, in certain instances, realize short-term gain on short sales
"against the box" by covering the short position through a
subsequent purchase. Not more than 15% of the value of the
Fund's net assets will be in deposits on short sales "against the
box". Pursuant to the Taxpayer Relief Act of 1997, if the Fund
has unrealized gain with respect to a security and enters into a
short sale with respect to such security, the Fund generally will
be deemed to have sold the appreciated security and thus will
recognize gain for tax purposes.
Puts and Calls. The Fund may write call options and may
purchase and sell put and call options written by others,
combinations thereof, or similar options. The Fund may not write
put options. A put option gives the buyer of such option, upon
payment of a premium, the right to deliver a specified number of
shares of a stock to the writer of the option on or before a
fixed date at a predetermined price. A call option gives the
purchaser of the option, upon payment of a premium, the right to
call upon the writer to deliver a specified number of shares of a
specified stock on or before a fixed date, at a predetermined
price, usually the market price at the time the contract is
negotiated. When calls written by the Fund are exercised, the
Fund will be obligated to sell stocks below the current market
price.
The writing of call options will, therefore, involve a
potential loss of opportunity to sell securities at higher
prices. In exchange for the premium received, the writer of a
fully collateralized call option assumes the full downside risk
of the securities subject to such option. In addition, the
writer of the call gives up the gain possibility of the stock
5
<PAGE>
protecting the call. Generally, the opportunity for profit from
the writing of options is higher, and consequently the risks are
greater when the stocks involved are lower priced or volatile, or
both. While an option that has been written is in force, the
maximum profit that may be derived from the optioned stock is the
premium less brokerage commissions and fees. (For a discussion
regarding certain tax consequences of the writing of call options
by the Fund, see "Dividends, Distributions and Taxes".)
Writing, purchasing and selling call options are highly
specialized activities and entail greater than ordinary
investment risks. It is the Fund's policy not to write a call
option if the premium to be received by the Fund in connection
with such option would not produce an annualized return of at
least 15% of the then market value of the securities subject to
option. Commissions, stock transfer taxes and other expenses of
the Fund must be deducted from such premium receipts. Option
premiums vary widely depending primarily on supply and demand.
Calls written by the Fund will ordinarily be sold either on a
national securities exchange or through put and call dealers,
most, if not all, of whom are members of a national securities
exchange on which options are traded, and will in such cases be
endorsed or guaranteed by a member of a national securities
exchange or qualified broker-dealer, which may be Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ"), an affiliate of
the Adviser. The endorsing or guaranteeing firm requires that
the option writer (in this case the Fund) maintain a margin
account containing either corresponding stock or other equity as
required by the endorsing or guaranteeing firm. A call written
by the Fund will not be sold unless the Fund at all times during
the option period owns either (a) the optioned securities, or
securities convertible into or carrying rights to acquire the
optioned securities or (b) an offsetting call option on the same
securities.
The Fund will not sell a call option written or
guaranteed by it if, as a result of such sale, the aggregate of
the Fund's portfolio securities subject to outstanding call
options (valued at the lower of the option price or market value
of such securities) would exceed 15% of the Fund's total assets.
The Fund will not sell any call option if such sale would result
in more than 10% of the Fund's assets being committed to call
options written by the Fund, which, at the time of sale by the
Fund, have a remaining term of more than 100 days. The aggregate
cost of all outstanding options purchased and held by the Fund
shall at no time exceed 10% of the Fund's total assets.
In buying a call, the Fund would be in a position to
realize a gain if, during the option period, the price of the
shares increased by an amount in excess of the premium paid and
commissions payable on exercise. It would realize a loss if the
6
<PAGE>
price of the security declined or remained the same or did not
increase during the period by more than the amount of the premium
and commissions payable on exercise. By buying a put, the Fund
would be in a position to realize a gain if, during the option
period, the price of the shares declined by an amount in excess
of the premium paid and commissions payable on exercise. It
would realize a loss if the price of the security increased or
remained the same or did not decrease during that period by more
than the amount of the premium and commissions payable on
exercise. In addition, the Fund could realize a gain or loss on
such options by selling them.
As noted above, the Fund may purchase and sell put and
call options written by others, combinations thereof, or similar
options. There are markets for put and call options written by
others and the Fund may from time to time sell or purchase such
options in such markets. If an option is not so sold and is
permitted to expire without being exercised, its premium would be
lost by the Fund.
Portfolio Turnover
Generally, the Fund's policy with respect to portfolio
turnover is to purchase securities with a view to holding them
for periods of time sufficient to assure long-term capital gains
treatment upon their sale and not for trading purposes. However,
it is also the Fund's policy to sell any security whenever, in
the judgment of the Adviser, its appreciation possibilities have
been substantially realized or the business or market prospects
for such security have deteriorated, irrespective of the length
of time that such security has been held. This policy may result
in the Fund realizing short-term capital gains or losses on the
sale of certain securities. See "Dividends, Distributions and
Taxes". It is anticipated that the Fund's rate of portfolio
turnover will not exceed 150% during the current fiscal year. A
150% annual turnover rate would occur, for example, if all the
stocks in the Fund's portfolio were replaced one and a half times
within a period of one year. A portfolio turnover rate
approximating 150% involves correspondingly greater brokerage
commission expenses than would a lower rate, which expenses must
be borne by the Fund and its shareholders.
Other Restrictions
In addition to the investment restrictions described
below, the Fund has undertaken as a matter of non-fundamental
policy that it (i) will not invest more than 10% of its total
assets in the securities of any one issuer; (ii) will not invest
more than 5% of its total assets in securities of issuers which
have been in operation for less than three years, including the
operations of any predecessors, and any equity securities of
7
<PAGE>
issuers which are not readily marketable; (iii) will not invest
more than 5% of its total assets in puts, calls, straddles,
spreads or any combination thereof nor more than 2% of its net
assets in puts or calls written by others; (iv) will not invest
more than 5% of its net assets in warrants nor more than 2% of
its net assets in unlisted warrants; (v) will not invest in real
estate (including limited partnership interests), excluding
readily marketable securities or participations or other direct
interests in oil, gas or other mineral leases, exploration or
development programs; and (vi) will not purchase or retain the
securities of any issuer if those officers and directors of the
Company or its Adviser owning individually more than 1/2 of 1% of
such issuer together own more than 5% of the securities of such
issuer.
Fundamental Investment Policies
In addition to the investment objective and policies
described above, the Fund has adopted certain fundamental
investment policies which may not be changed without approval by
the vote of a majority of the Fund's outstanding voting
securities which means the vote of (1) 67% or more of the shares
represented at a meeting at which more than 50% of the
outstanding shares of the Fund are represented or (2) more than
50% of the outstanding shares of the Fund, whichever is less.
Briefly, these policies provide that the Fund may not:
(i) purchase the securities of any one issuer, other
than the U.S. Government or any of its agencies
or instrumentalities, if 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 such 5% and 10%
limitations;
(ii) invest more than 25% of the value of its total
assets in any particular industry;
(iii) borrow money except for temporary or emergency
purposes in an amount not exceeding 5% of its
total assets at the time the borrowing is made;
(iv) invest more than 10% of its assets in restricted
securities;
(v) purchase or sell real estate;
8
<PAGE>
(vi) participate on a joint or joint and several basis
in any securities trading account;
(vii) invest in companies for the purpose of exercising
control;
(viii) purchase or sell commodities or commodity
contracts;
(ix) write put options;
(x) except as permitted in connection with short
sales of securities "against the box" described
under the heading "Short Sales" above, make short
sales of securities;
(xi) make loans of its funds or assets to any other
person, which shall not be considered as
including the purchase of a portion of an issue
of publicly distributed bonds, debentures, or
other securities, whether or not the purchase was
made upon the original issuance of the
securities; except that the Fund may not purchase
non-publicly distributed securities subject to
the limitations applicable to restricted
securities;
(xii) except as permitted in connection with short
sales of securities or writing of call options,
described under the headings "--Short Sales" and
"--Puts and Calls" above, pledge, mortgage or
hypothecate any of its assets;
(xiii) except as permitted in connection with short
sales of securities "against the box" described
under the heading "Additional Investment Policies
and Practices" above, make short sales of
securities; and
(xiv) purchase securities on margin, but it may obtain
such short-term credits as may be necessary for
the clearance of purchases and sales of
securities.
Application of Percentage Limitations
Except as otherwise indicated, whenever any investment
policy or practice, including any restriction, described in the
Prospectus or under the heading "Description of the Fund," states
a maximum percentage of the Fund's assets which may be invested
in any security or other asset, it is intended that such maximum
9
<PAGE>
percentage limitation be determined immediately after and as a
result of the Fund's acquisition of such securities or other
assets. Accordingly, any later increase or decrease in
percentage beyond the specified limitation resulting from a
change in values or net assets will not be considered a violation
of any such maximum.
_______________________________________________________________
MANAGEMENT OF THE FUND
_______________________________________________________________
Adviser
Alliance Capital Management L.P., a Delaware limited
partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision of the Fund's Board of Directors (see "Management of
the Fund" in the Prospectus).
The Adviser is a leading international investment
manager supervising client accounts with assets as of
December 31, 1998 of more than $286 billion (of which more than
$118 billion represented the assets of investment companies). The
Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies,
foundation and endowment funds. The 54 registered investment
companies managed by the Adviser, comprising 118 investment
portfolios, currently have more than 3.6 million shareholder
accounts. As of December 31, 1998, the Adviser and its
subsidiaries employed approximately 2,000 employees who operated
out of domestic offices and the offices of subsidiaries in
Bahrain, Bangalore, Cairo, Chennai, Hong Kong, Istanbul,
Johannesburg, London, Luxembourg, Madrid, Moscow, Mumbai, New
Delhi, Paris, Pune, Sao Paulo, Seoul, Singapore, Sydney, Tokyo,
Toronto, Vienna and Warsaw. As of December 31, 1998, the Adviser
was an investment manager of employee benefit fund assets for 35
of the FORTUNE 100 companies.
Alliance Capital Management Corporation ("ACMC"), 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, which is a wholly-owned subsidiary of The
Equitable Companies Incorporated ("ECI"). ECI is a holding
company controlled by AXA-UAP ("AXA"), a French insurance holding
company which at March 1, 1998, beneficially owned approximately
10
<PAGE>
59% of the outstanding voting shares of ECI. As of June 30,
1998, ACMC, Inc. and Equitable Capital Management Corporation,
each a wholly-owned direct or indirect subsidiary of Equitable,
together with Equitable, owned in the aggregate approximately 57%
of the issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser.
AXA is a holding company for an international group of
insurance and related financial services companies. AXA'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 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, as of March 31,
1998 more than 30% of the voting power of AXA was controlled
directly and indirectly by FINAXA, a French holding company. As
of March 31, 1998 approximately 74% of the voting power of FINAXA
was controlled directly and indirectly by four French mutual
insurance companies (the "Mutuelles AXA"), one of which, AXA
Assurances I.A.R.D. Mutuelle, itself controlled directly and
indirectly more than 42% of the voting power of FINAXA. Acting
as a group, the Mutuelles AXA control AXA and FINAXA.
Under 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 space and certain other equipment, investment
advisory and 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
11
<PAGE>
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. The Fund paid to the Adviser
a total of $0 in respect of such services during the Fund's
fiscal period ended October 31, 1998.
For the services rendered by the Adviser under the
Advisory Agreement, the Fund pays the Adviser at an annualized
rate of 1.00% of the average daily value of the Fund's net
assets. The fee is accrued daily and paid monthly.
The Advisory Agreement became effective on November 14,
1997. The Advisory Agreement was 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 November 7, 1997, and by the Fund's
initial shareholder on November 3, 1997.
The Advisory Agreement will remain in effect until
November 5, 1999 and continue in effect thereafter only so long
as its continuance is approved annually by a vote of a majority
of the Fund's outstanding voting securities (as defined in the
1940 Act) or by the Board of Directors, including in either case,
approval by a majority of the Directors who are not parties to
the Advisory Agreement or interested persons of any such party as
defined in the 1940 Act.
The Advisory Agreement may be terminated without penalty
on 60 days' written notice by a vote of a majority of the Fund's
outstanding voting securities, by a vote of a majority of the
Directors, 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
12
<PAGE>
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: 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 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 Institutional Reserves, Inc., Alliance
International Fund, Alliance International Premier Growth Fund,
Inc., 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 Premier Growth 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 Select Investor Series,
Inc., Alliance Technology Fund, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance Worldwide Privatization Fund, Inc., The Alliance
Portfolios 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., AMC Managed Multi-Market Trust, 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 principal 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
13
<PAGE>
specified, the address of each of the following is 1345 Avenue of
the Americas, New York, New York 10105.
Directors
JOHN D. CARIFA,** 53, Chairman of the Board is the
President, Chief Operating Officer and a Director of ACMC, with
which he has been associated since prior to 1994.
RUTH BLOCK, 68, was formerly Executive Vice President
and Chief Insurance Officer of Equitable. She is a Director of
Ecolab Incorporated (specialty chemicals) and BP Amoco
Corporation (oil and gas). Her address is Box 4653, Stamford,
Connecticut, 06903.
DAVID H. DIEVLER, 69, is an independent consultant. He
was formerly a Senior Vice President of ACMC until December 1994.
His address is P.O. Box 167, Spring Lake, New Jersey, 07762.
JOHN H. DOBKIN, 57, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1993.
Previously, he was Director of the National Academy of Design.
His address is 150 White Plains Road, Tarrytown, New York 10591.
WILLIAM H. FOULK, JR., 66, is an Investment Adviser and
independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he has been associated with since prior to 1993. His
address is Suite 100, 2 Greenwich Plaza, Greenwich, Connecticut
06830.
DR. JAMES M. HESTER, 74, is President of the Harry Frank
Guggenheim Foundation with which he has been associated since
prior to 1993. He was formerly President of New York University,
the New York Botanical Garden and Rector of the United Nations
University. His address is 25 Cleveland Lane, Princeton, New
Jersey 08540.
CLIFFORD L. MICHEL, 59, is a partner of the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1993. He is President and Chief Executive Officer of
Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining). His address is St. Bernard's Road,
Gladstone, New Jersey 07934.
DONALD J. ROBINSON, 64, is Senior Counsel to the law
firm of Orrick, Herrington & Sutcliffe and was formerly a senior
____________________
** An "interested person" of the Fund as defined in the
1940 Act.
14
<PAGE>
partner and a member of the Executive Committee of that firm. He
was also a trustee of the Museum of the City of New York from
1977 to 1995. His address is 98 Hell's Peak Road, Weston,
Vermont 05161.
Officers
JOHN D. CARIFA, President, Chairman and President, see
biography above.
ALFRED HARRISON, Executive Vice President, 61, is Vice
Chairman of the Board of ACMC, with which he has been associated
since prior to 1994.
ALDEN M. STEWART, Executive Vice President, 53, is an
Executive Vice President of ACMC, with which he has been
associated since prior to 1994.
KATHLEEN A. CORBET, Senior Vice President, 39, is an
Executive Vice President of ACMC, with which she has been
associated since prior to 1994.
RANDALL E. HAASE, Senior Vice President, 35, is a Vice
President of ACMC, with which he has been associated since prior
to 1994.
DANIEL G. PINE, Senior Vice President, 47, has been
associated with the Adviser since 1996. Previously, he was a
Senior Vice President of Desai Capital Management since prior to
1994.
THOMAS BARDONG, Vice President, 53, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1994.
DAVID KRUTH, Vice President, 34, is a Vice President of
ACMC, with which he has been associated since 1997. Prior
thereto he was a Senior Vice President of the Yarmouth Group.
MARK D. GERSTEN, Treasurer and Chief Financial Officer,
48, is a Senior Vice President of Alliance Fund Services, Inc.
with which he has been associated since prior to 1994.
VINCENT S. NOTO, Controller, 34, is a Vice President of
Alliance Fund Services, Inc., with which he has been associated
since prior to 1994.
EDMUND P. BERGAN, JR., Secretary, 48, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
15
<PAGE>
Inc. and Alliance Fund Services, Inc. with which he has been
associated since prior to 1994.
DOMENICK PUGLIESE, Assistant Secretary, 37, is a Vice
President and Assistant General Counsel of Alliance Fund
Distributors, Inc., with which he has been associated since May
1995. Prior thereto, he was Vice President and Counsel of
Concord Holding Corporation since 1994 and Vice President and
Associate General Counsel of Prudential Securities since prior to
1994.
ANDREW L. GANGOLF, Assistant Secretary, 44, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since December 1994. Prior thereto he was a Vice
President and Assistant Secretary of Delaware Management Company,
Inc.
EMILIE D. WRAPP, Assistant Secretary, 43, is a Vice
President and Assistant General Counsel of AFD, with which she
has been associated since prior to 1994.
The aggregate compensation paid by the Fund to each of
the Directors during its fiscal period ended October 31, 1998,
the aggregate compensation paid to each of the Directors during
calendar year 1998 by all of the registered investment companies
to which the Adviser provides investment advisory services
(collectively, the "Alliance Fund Complex") and the total number
of registered investment companies (and separate investment
portfolios within those companies) in the Alliance Fund Complex
with respect to which each of the Directors serves as a director
or trustee, are set forth below. Neither the Fund nor any other
fund in the Alliance Fund Complex provides compensation in the
form of pension or retirement benefits to any of its directors or
trustees. Each of the Directors is a director or trustee of one
or more other registered investment companies in the Alliance
Fund Complex.
16
<PAGE>
Total Number
Total Number of Investment
of Investment Portfolios
Companies in within the
the Alliance Alliance
Total Complex, Fund Complex
Compensation Including the Including the
from the Fund, as to Fund, as to
Aggregate Alliance Fund which the which the
Compensation Complex, Director is a Director is
from the Including the Director or a Director or
Name of Director Fund Fund Trustee Trustee
John D. Carifa $ -0- $ -0- 50 114
Ruth Block $653 $180,763 37 77
David H. Dievler $654 $216,288 43 80
John H. Dobkin $641 $185,363 41 91
William H. Foulk, Jr. $653 $241,003 45 109
Dr. James M. Hester $654 $172,913 37 74
Clifford L. Michel $654 $187,763 38 90
Donald J. Robinson $653 $193,709 41 103
As of January 31, 1999, 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 Company 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").
During the Fund's fiscal period ended October 31, 1998,
the Fund paid distribution services fees for expenditures under
the Agreement, with respect to Class II shares, in amounts
aggregating $468, which constituted approximately 0.30% of the
aggregate average daily net assets attributable to Class II
shares during the period, and the Adviser made payments from its
17
<PAGE>
own resources as described above aggregating $342,753. Of the
$343,221 paid by the Fund and the Adviser with respect to the
Class II shares under the Agreement, $28,256 was spent on
advertising, $1,127 on the printing and mailing of prospectuses
for persons other than current shareholders, $154,771 for
compensation to broker-dealers and other financial intermediaries
(including $107,569 to the Fund's Principal Underwriters), $6,637
for compensation to sales personnel, $152,430 was spent on
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses, and $0 was spent on
interest on Class II shares financing.
Distribution services fees are accrued daily and paid
monthly and are 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 became effective on November 14, 1997.
The Agreement will continue in effect so long as its continuance
is specifically approved annually by the Directors or by vote of
the holders of a majority of the outstanding voting securities
(as defined in the 1940 Act) of that class, and, in either case,
by a majority of the Directors who are not parties to the
Agreement or interested persons, as defined in the 1940 Act, of
any such party (other than as directors of the Fund) and who have
no direct or indirect financial interest in the operation of the
Rule 12b-1 Plan or any agreement related thereto. Most recently
the continuance of the Agreement until November 30, 1999 was
approved by a vote, cast in person, of the Directors, including a
majority of the Directors who are not "interested persons," as
defined in the 1940 Act, at their meeting held on October 15,
1998.
In approving the Rule 12b-1 Plan, the Directors of the
Fund determined that there was a reasonable likelihood that the
Rule 12b-1 Plan would benefit the Fund and its Class II
shareholders. The distribution services fee of a particular
class will not be used to subsidize the provision of distribution
services with respect to any other class.
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
18
<PAGE>
of such compensation to brokers or other persons for their
distribution assistance.
In the event that the Rule 12b-1 Plan is terminated or
not continued with respect to the Class II shares (i) no
distribution services fee (other than current amounts accrued but
not yet paid) would be owed by the Fund to the Principal
Underwriter with respect to that class, and (ii) the Fund would
not be obligated to pay the Principal Underwriter for any amounts
expended under the Agreement not previously recovered by the
Principal Underwriter from distribution services fees in respect
of shares of such class.
The Glass-Steagall Act and other applicable laws may
limit the availability of a bank or other depository institution
to become an underwriter or distributor of securities. However,
in the opinion of the Fund's 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
Agreement. 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.
Transfer Agency Agreement
Alliance Fund Services, an indirect wholly-owned
subsidiary of the Adviser, located at 500 Plaza Drive, Secaucus,
New Jersey 07094, acts as the Fund's registrar, transfer agent
and dividend-disbursing agent for a fee based upon the number of
account holders 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.
For the fiscal period ended October 31, 1998, the Fund paid
Alliance Fund Services, Inc. $5,408 pursuant to the Transfer
Agency Agreement.
_________________________________________________________________
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."
19
<PAGE>
General
Class I shares of the Fund may be purchased and held
solely (i) through accounts established under a fee-based program
sponsored and maintained by a registered broker-dealer or other
financial intermediary and approved by the Principal Underwriter,
(ii) through employee benefit plans, including defined
contribution and defined benefit plans ("Employee Plans"), that
have at least $10 million in assets, (iii) by investment advisory
clients of the Adviser or its affiliates, (iv) by (a) officers
and present or former Directors of the Company, (b) present or
former directors and trustees of other investment companies
managed by the Adviser, (c) present or retired full-time
employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates, (d) officers and
directors of ACMC, the Principal Underwriter, Alliance Fund
Services, Inc. and their affiliates, (e) (1) the spouse, sibling,
direct ancestor or direct descendant (collectively "relatives")
of any person listed in (a) through (d), (2) any trust,
individual retirement account or retirement plan account for the
benefit of any person listed in (a) through (d) or a relative of
such person, or (3) the estate of any person listed in (a)
through (d) or a relative of such person, if such shares are
purchased for investment purposes (such shares may not be resold
except to the Fund), (v) by (a) the Adviser, the Principal
Underwriter, Alliance Fund Services, Inc. and their affiliates or
(b) certain employee benefit plans for employees of the Adviser,
the Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates, and (vi) through registered investment advisers or
other financial intermediaries who charge a management,
consulting or other fee for their service and who purchase shares
through a broker or agent approved by the Principal Underwriter,
and clients of such registered investment advisers or financial
intermediaries whose accounts are linked to the master account of
such investment adviser or financial intermediary on the books of
such approved broker or agent.
Class II shares of the Fund may be purchased and held
solely (i) by investors participating in wrap-fee or other
similar programs offered by registered broker-dealers or other
financial intermediaries that meet certain requirements
established by the Principal Underwriter, and (ii) Employee Plans
that have at least $10 million in assets.
The shares of the Fund are offered on a continuous basis
at a price equal to their net asset value. The minimum initial
investment in the Company is $2,000,000, which may be invested in
any one or more of the Funds. Investments made through fee-based
or "wrap fee" programs will satisfy the minimum initial
investment requirement if the fee-based or "wrap fee" program, as
a whole, invests at least $2,000,000 in one or more of the Funds.
20
<PAGE>
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.
Such 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
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
21
<PAGE>
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
subscriber's account in the amount purchased by the subscriber.
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 subscriber's financial representative.
This facilitates later redemption and relieves the shareholder of
the responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
although such shares remain in the shareholder's account on the
books of the Fund.
In addition to the discount or commission which may be
paid to dealers or agents in connection with the sale of Fund
shares, the Principal Underwriter from time to time may pay
additional cash or other incentives to dealers or agents,
including EQ Financial Consultants, Inc., formerly Equico
Securities, Inc., an affiliate of the Principal Underwriter, in
connection with such sales. Such additional amounts may be
utilized, in whole or in part, to provide additional compensation
to registered representatives who sell shares of the Fund. On
some occasions, cash or other incentives will be conditioned upon
the sale of a specified minimum dollar amount of the shares of
the Fund and/or other Alliance Mutual Funds, as defined below,
during a specific period of time. On some occasions, such cash
or other incentives may take the form of payment for attendance
at seminars, meals, sporting events or theater performances, or
22
<PAGE>
payment for travel, lodging and entertainment incurred in
connection with travel taken by persons associated with a dealer
or agent and their immediate family members to urban or resort
locations within or outside the United States. Such dealer or
agent may elect to receive cash incentives of equivalent amount
in lieu of such payments.
Class I and Class II shares each represent an interest
in the same portfolio of investments of the Fund, have the same
rights and are identical in all respects, except that
(i) Class II has exclusive voting rights with respect to
provisions of the Rule 12b-1 Plan pursuant to which its
distribution services fees are paid and other matters for which
separate class voting is appropriate under applicable law,
provided that, if the Fund submits to a vote of the Class II
shareholders an amendment to the Rule 12b-1 Plan that would
materially increase the amount to be paid thereunder with respect
to the Class II shares, then such amendment will also be
submitted to the Class I shareholders and the Class II and
Class I shareholders will vote separately thereon by class and
(ii) Class I shares are subject to a conversion feature.
The Directors have determined that currently no conflict
of interest exists between Class I and Class II shares. On an
ongoing basis, the Directors, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
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
23
<PAGE>
occur on the basis of the relative net asset values of the two
classes and without the imposition of any sales load, fee or
other charge. Class II shares currently bear a .30% distribution
services fee and have a higher expense ratio than Class I shares.
As a result, Class II shares may pay correspondingly lower
dividends and have a lower net asset value than Class I shares.
The conversion of Class I shares to Class II shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class I shares to Class II
shares does not constitute a taxable event under federal income
tax law. The conversion of Class I shares to Class II shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, the Class I
shareholder would be required to redeem his Class I shares, which
would constitute a taxable event under federal income tax law.
_________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in
the Prospectus under the heading "Purchase and Sale of Shares-
- -How to Sell Shares." If you are a shareholder through an
account established under a fee-based program, your fee-based
program may impose requirements with respect to the purchase,
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. Payment of the redemption
price will be made within seven days after the Fund's receipt of
such tender for redemption. 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
24
<PAGE>
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
funds transfer 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.
25
<PAGE>
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. 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. 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. 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.
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.
26
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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. Eastern time (certain selected financial
intermediaries may enter into operating agreements permitting
them to transmit purchase information to the Principal
Underwriter after 5:00 p.m. Eastern time, and receive that day's
net asset value). 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.
27
<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
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
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 International Fund
Alliance International Premier Growth Fund, Inc.
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
28
<PAGE>
-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 Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Short-Term U.S. Government Fund
Please read carefully the portions of the prospectus of
the Fund or Alliance Mutual Fund, as applicable, into which you
wish to exchange before submitting the request. Call Alliance
Fund Services, Inc. at (800) 221-5672 to exchange uncertificated
shares. Exchanges of shares as described above in this section
are taxable transactions for federal income tax purposes. The
exchange service may be changed, suspended or terminated on 60
days' written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus or the prospectus for the Alliance Mutual Fund whose
shares are being acquired, as applicable. An exchange is
effected through the redemption of the shares tendered for
exchange and the purchase of shares being acquired at their
respective net asset values as next determined following receipt
by the Fund or the Alliance Mutual Fund, as applicable, whose
shares are being exchanged of (i) proper instructions and all
necessary supporting documents as described in that fund's
prospectus, or (ii) a telephone request for such exchange in
accordance with the procedures set forth in the following
paragraph. Exchanges involving the redemption of shares recently
purchased by check will be permitted only after the fund whose
shares have been tendered for exchange is reasonably assured that
29
<PAGE>
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 before
4:00 p.m., Eastern time 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
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.
30
<PAGE>
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.
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.
31
<PAGE>
Statements and Reports
Each shareholder of the Fund receives semi-annual and
annual reports which include a listing of the Fund's investments,
financial statements and, in the case of the annual report, the
report of the Company's independent auditors, Ernst & Young LLP,
as well as a confirmation of each purchase and redemption of
shares by the shareholder. By contacting his or her broker or
Alliance Fund Services, Inc., a shareholder can arrange for
copies of his or her account statements to be sent to another
person.
_______________________________________________________________
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 (ordinarily
4:00 p.m. Eastern time) following receipt of a purchase or
redemption order by the Fund on each Fund business day on which
such an order is received and on such other days as the Board of
Directors deems appropriate or 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. A Fund business day is any weekday on which
the Exchange is open for trading.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Board's duties with respect to the following procedures.
Readily marketable securities listed on the Exchange or on a
foreign securities exchange (other than foreign securities
exchanges whose operations are similar to those of the United
States over-the-counter market) are valued, except as indicted
below, at the last sale price reflected on the consolidated tape
at the close of the Exchange or, in the case of a foreign
securities exchange, at the last quoted sale price, in each case
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 in good faith at fair value by, or in accordance with
procedures established by, the Board of Directors. Readily
marketable securities not listed on the Exchange or on a foreign
securities exchange but listed on other United States national
securities exchanges or traded on The Nasdaq Stock Market, Inc.
32
<PAGE>
("Nasdaq") are valued in like manner. Portfolio securities
traded on the Exchange and on one or more foreign or other
national securities exchanges, and portfolio securities not
traded on the Exchange but traded on one or more foreign or other
national securities exchanges are valued in accordance with these
procedures by reference to the principal exchange on which the
securities are traded.
Readily marketable securities traded in the over-the-
counter market, securities listed on a foreign securities
exchange whose operations are similar to those of the United
States over-the-counter market, and securities listed on a U.S.
national securities exchange whose primary market is believed to
be over-the-counter (but excluding securities traded on The
Nasdaq Stock Market, Inc.), 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
another comparable sources.
Listed put or call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that
day, such securities will be valued at the closing bid prices on
that day.
Open futures contracts and options thereon will be
valued using the closing settlement price or, in the absence of
such a price, the most recent quoted bid price. If there are no
quotations available for the day of valuations, the last
available closing settlement price will be used.
U.S. Government Securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that
this method does not represent fair value).
Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
The prices provided by pricing service take into account many
factors, including institutional size trading in similar groups
of securities and any developments related to specific
securities.
All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
33
<PAGE>
Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund business
day. In addition, trading in foreign markets may not take place
on all Fund business days. Furthermore, trading may take place
in various foreign markets on days that are not Fund business
days. The Fund's calculation of the net asset value per share,
therefore, does not always take place contemporaneously with the
most recent determination of the prices of portfolio securities
in these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are
determined in accordance with the above procedures and the close
of the Exchange will not be reflected in the Fund's calculation
of net asset value unless it is believed that these prices do not
reflect current market value, in which case the securities will
be valued in good faith by, or in accordance with procedures
established by, the Board of Directors at fair value.
The Board of Directors may suspend the determination of
the Fund's, net asset value (and the offering and sale of
shares), subject to the rules of the Commission and other
governmental rules and regulations, at a time when: (1) the
Exchange is closed, other than customary weekend and holiday
closings, (2) an emergency exists as a result of which it is not
reasonably practicable for the Fund to dispose of securities
owned by it or to determine fairly the value of its net assets,
or (3) for the protection of shareholders, the Commission by
order permits a suspension of the right of redemption or a
postponement of the date of payment on redemption.
For purposes of determining the Fund's net asset value
per share, all assets and liabilities initially expressed in a
foreign currency 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 relevant 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. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class I shares 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.
34
<PAGE>
_______________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_______________________________________________________________
General
The Fund intends for each taxable year 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
gains, such qualification relieves the Fund of federal income
taxes on that part of its taxable income including net capital
gains which it pays out to its shareholders. 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
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
any 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 qualifying 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
35
<PAGE>
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.
Distributions of net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) are
taxable as long-term capital gain 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. For federal income 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 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. 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 gain, 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.
A dividend or capital gains distribution with respect to
shares of the Fund held by a tax-deferred or qualified plan, such
as an individual retirement account, 403(b)(7) retirement plan or
corporate pension or profit-sharing plan, generally will not be
36
<PAGE>
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.
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
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
37
<PAGE>
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.
_______________________________________________________________
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
38
<PAGE>
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 and
statistical 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 but not all such services may
be used by the Adviser in connection with the Fund.
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 broker-dealers to execute
portfolio transactions for the Fund.
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.
With respect to orders placed with Donaldson, Lufkin &
Jenrette Securities Corporation (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
39
<PAGE>
and fair compared to the commissions received by other brokers in
connection with comparable transactions involving similar
securities during a comparable period of time.
During the fiscal period March 17, 1998 (commencement of
the operations) to October 31, 1998, the Fund incurred brokerage
commissions amounted in the aggregate to $58,337. During the
fiscal period March 17, 1998 (commencement of operations) to
October 31, 1998, brokerage commissions amounting in the
aggregate to $115 were paid to DLJ and brokerage commissions
amounting in the aggregate to $0 were paid to brokers utilizing
the Pershing Division of DLJ. During the fiscal period March 17,
1998 (commencement of operations) to October 31, 1998, the
brokerage commissions paid to DLJ constituted 0.20% of the Fund's
aggregate brokerage commissions and the brokerage commissions
paid to brokers utilizing the Pershing Division of DLJ
constituted 0% of the Fund's aggregate brokerage commissions.
During the fiscal period March 17, 1998 (commencement of
operations) to October 31, 1998, of the Fund's aggregate dollar
amount of brokerage transactions involving the payment of
commissions, 0% were effected through DLJ and 0% were effected
through brokers utilizing the Pershing Division of DLJ. During
the fiscal period March 17, 1998 (commencement of operations) to
October 31, 1998, transactions in portfolio securities of the
Fund aggregating $22,328,665 with associated brokerage
commissions of approximately $33,673 were allocated to persons or
firms supplying research services to the Fund or the Adviser.
_______________________________________________________________
GENERAL INFORMATION
_______________________________________________________________
Capitalization
The Company is a Maryland corporation organized on
October 3, 1997. The authorized capital stock of the Company
consists of 24,000,000,000 shares, of which 3,000,000,000 shares
are Class I shares of the Fund and 3,000,000,000 shares are
Class II shares of the Fund, each having $.001 par value. The
balance of the shares of the Company are Class I and Class II
shares of the Company's other three 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
40
<PAGE>
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.
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.
As of January 31, 1999 there were 2,855,450 Class I
shares and 3,507,986 Class II shares of common stock of the Fund
outstanding. To the knowledge of the Fund, the following persons
owned, of record or beneficially, 5% or more of a class of the
outstanding shares of the Fund as of January 31, 1999:
Name and Address Shares % of Class
Class I
Charles Schwab & Co.
For the Exclusive Benefit
of Customers
Mutual Fund Operations
101 Montgomery Street
San Francisco, CA 94104-4122 156,228 5.47%
Bost & Co.
A/C #CLYF2472002
Attn: Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198 167,578 5.87%
National City of KY TTEE
Brown Todd & Heyburn
Retirement Savings Plan DTD 7/18/96
Attn: Mutual Funds/40-69K004021
P.O. Box 94984
Cleveland, OH 44101-4984 371,187 13.00%
41
<PAGE>
FTC & Co.
Attn: Datalynx #061
P.O. Box 173736
Denver, CO 80217-3736 729,412 25.55%
Trust For Profit Sharing Plan
For Employees of Alliance Capital
Management L.P. Plan C
Attn: Jill Smith 32nd Floor
1345 Avenue of the Americas
New York, NY 10105-0302 1,322,484 46.33%
Class II
Charles Schwab & Co.
For the Exclusive Benefit
of Customers
Mutual Fund Operations
101 Montgomery Street
San Francisco, CA 94104-4122 3,507,719 99.99%
Custodian
State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts, will act as the Fund's custodian
for the assets of the Fund but plays no part in decisions as to
the purchase or sale of portfolio securities. Subject to the
supervision of the Directors, State Street Bank and Trust Company
may enter into sub-custodial agreements for the holding of the
Fund's foreign securities.
Principal Underwriter
Alliance Fund Distributors, Inc., an indirect wholly-
owned subsidiary of the Adviser, located at 1345 Avenue of the
Americas, New York, New York 10105, is the principal underwriter
of 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
shares of common stock offered hereby are passed upon by Seward &
Kissel LLP, New York, New York. Seward & Kissel LLP has relied
upon the opinion of Venable, Baetjer and Howard, LLP, Baltimore,
Maryland, for matters relating to Maryland law.
42
<PAGE>
Independent Auditors
Ernst & Young LLP, New York, New York, has been
appointed as independent auditors for the Company.
Performance Information
From time to time the Fund advertises its "total
return." Such advertisements disclose the Fund's average annual
compounded total return for the periods prescribed by the
Commission. 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 when paid
and the maximum sales charges applicable to purchases and
redemptions of the Fund's shares are assumed to have been 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.
The Fund's average total return is computed separately
for Class I and Class II shares. The average annual compounded
total return based on net asset value since inception on
March 17, 1998 through October 31, 1998 was 26.0% for Class I
shares and 25.8% for Class II shares.
Advertisements may quote performance rankings or ratings
of the Fund as measured by financial publications or by
independent organizations such as Lipper Analytical Services,
Inc. and Morningstar, Inc. or may compare the Fund's performance
to various indices. 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,
43
<PAGE>
Investor's Daily, Money Magazine, The New York Times and The Wall
Street Journal or other media on behalf of the Fund.
Additional Information
Any shareholder inquiries may be directed to the
shareholder's broker or to Alliance Fund Services, Inc. at the
address or telephone numbers shown on the front cover of this
Statement of Additional Information. This Statement of
Additional Information does not contain all the information set
forth in the Registration Statement filed by the Fund with the
Commission under the Securities Act. Copies of the Registration
Statement may be obtained at a reasonable charge from the
Commission or may be examined, without charge, at the offices of
the Commission in Washington, D.C.
44
<PAGE>
_______________________________________________________________
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
_______________________________________________________________
45
<PAGE>
ALLIANCE INSTITUTIONAL FUNDS
ANNUAL REPORT
OCTOBER 31, 1998
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1998 ALLIANCE PREMIER GROWTH INSTITUTIONAL FUND
_______________________________________________________________________________
COMPANY SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS-97.3%
TECHNOLOGY-31.2%
COMMUNICATION EQUIPMENT-11.9%
EMC Corp. (a) 26,600 $ 1,712,375
Lucent Technologies, Inc. 19,800 1,587,713
Nokia Corp. (ADR) (b) 41,400 3,852,787
------------
7,152,875
COMPUTER HARDWARE-7.1%
Dell Computer Corp. (a) 56,500 3,700,750
International Business Machines Corp. 3,700 549,219
------------
4,249,969
COMPUTER SOFTWARE-3.4%
HBO & Co. 33,300 874,125
Microsoft Corp. (a) 11,100 1,175,213
------------
2,049,338
NETWORKING SOFTWARE-6.1%
America Online, Inc. 6,900 876,731
Cisco Systems, Inc. (a) 44,150 2,781,450
------------
3,658,181
SEMI-CONDUCTOR COMPONENTS-2.7%
Intel Corp. 17,850 1,591,997
------------
18,702,360
CONSUMER SERVICES-28.2%
AIRLINES-7.4%
Continental Airlines, Inc. C1.B (a) 12,400 491,350
Delta Air Lines, Inc. 10,000 1,055,625
KLM Royal Dutch Air 17,300 522,244
Northwest Airlines Corp. (a) 31,700 831,134
UAL Corp. (a) 23,300 1,513,044
------------
4,413,397
BROADCASTING & CABLE-6.8%
AirTouch Communications, Inc. (a) 59,300 3,320,800
Tele-Communications, Inc. -
Liberty Media Group Cl.A (a) 20,100 765,056
------------
4,085,856
RETAIL - GENERAL MERCHANDISE-14.0%
Dayton Hudson Corp. 30,400 1,288,200
Home Depot, Inc. 60,700 2,640,450
Kohl's Corp. (a) 18,800 898,875
May Department Stores Co. 10,800 658,800
Wal-Mart Stores, Inc. 41,900 2,891,100
------------
8,377,425
------------
16,876,678
FINANCE-15.0%
BANKING - REGIONAL-3.9%
BankAmerica Corp. 15,118 868,340
Fifth Third Bancorp 7,300 483,625
U.S. Bancorp 27,100 989,150
------------
2,341,115
BROKERAGE & MONEY MANAGEMENT-0.9%
Morgan Stanley, Dean Witter and Co. 8,250 534,188
INSURANCE-1.7%
American International Group, Inc. 7,100 605,275
Progressive Corp. 2,800 412,300
------------
1,017,575
MORTGAGE BANKING-4.3%
Federal Home Loan Mortgage Corp. 21,800 1,253,500
Federal National Mortgage Assn. 5,300 375,306
Washington Mutual, Inc. 24,832 929,648
------------
2,558,454
MISCELLANEOUS-4.2%
Associates First Capital Corp. Cl.A 18,388 1,296,354
MBNA Corp. 54,425 1,241,570
------------
2,537,924
------------
8,989,256
15
PORTFOLIO OF INVESTMENTS
(CONTINUED) ALLIANCE PREMIER GROWTH INSTITUTIONAL FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- -------------------------------------------------------------------------
HEALTH CARE-11.8%
DRUGS-10.4%
Bristol-Myers Squibb Co. 9,200 $ 1,017,175
Pfizer, Inc. 27,200 2,918,900
Schering-Plough Corp. 14,400 1,481,400
Warner-Lambert Co. 10,400 815,100
------------
6,232,575
MEDICAL SERVICES-1.4%
IMS Health, Inc. 12,400 824,600
------------
7,057,175
MULTI INDUSTRY COMPANY-4.1%
Tyco International, Ltd. 39,500 2,446,531
CONSUMER STAPLES-3.6%
HOUSEHOLD PRODUCTS-0.9%
Colgate-Palmolive Co. 6,050 534,669
RETAIL-FOOD-0.6%
Kroger Co. (a) 7,100 394,050
TOBACCO-2.1%
Philip Morris Cos., Inc. 24,400 1,247,450
------------
2,176,169
CAPITAL GOODS-2.6%
ELECTRICAL EQUIPMENT-1.2%
General Electric Co. 8,500 743,750
MISCELLANEOUS-1.4%
United Technologies Corp. 8,700 828,675
------------
1,572,425
UTILITIES-0.8%
TELEPHONE UTILITY-0.8%
MCI WorldCom, Inc. (a) 8,600 475,150
Total Common Stocks (cost $53,088,449) 58,295,744
SHORT-TERM INVESTMENT-2.7%
COMMERCIAL PAPER-2.7%
General Electric Capital Corp.
5.70%, 11/02/98
(amortized cost $1,631,741) $1,632 1,631,741
TOTAL INVESTMENTS-100.0%
(cost $54,720,190) 59,927,485
Other assets less liabilities-0.0% (19,175)
NET ASSETS-100% $59,908,310
(a) Non-income producing security.
(b) Country of origin--Finland.
Glossary:
ADR - American Depositary Receipt
See notes to financial statements.
16
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1998 ALLIANCE QUASAR INSTITUTIONAL FUND
_______________________________________________________________________________
COMPANY SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS-87.5%
CONSUMER PRODUCTS & SERVICES-36.2%
AIRLINES-6.7%
Alaska Air Group, Inc. (a) 16,000 $ 575,000
America West Holdings Corp. 29,900 459,712
Continental Airlines, Inc. C1.B (a) 5,700 225,863
Mesa Air Group, Inc. (a) 21,500 108,844
------------
1,369,419
APPAREL-2.3%
Tommy Hilfiger Corp. (a) 10,000 464,375
BROADCASTING & CABLE-1.3%
Sinclair Broadcast Group, Inc. Cl.A (a) 10,800 140,400
Young Broadcasting, Inc. Cl.A (a) 4,400 138,875
------------
279,275
BUSINESS SERVICES-4.8%
Carriage Services, Inc. C1.A (a) 6,900 161,288
Century Business Services, Inc. (a) 17,500 243,906
FirstService Corp. (a) 6,500 75,766
Provant, Inc. (a) 100 1,144
Renaissance Worldwide, Inc. (a) 17,200 162,325
TeleSpectrum Worldwide, Inc. (a) 32,600 340,262
------------
984,691
ENTERTAINMENT & LEISURE-5.8%
Bally Total Fitness Holding Corp. (a) 14,700 277,463
N2K, Inc. (a) 2,800 13,825
Premier Parks, Inc. (a) 24,700 548,031
Preview Travel, Inc. (a) 7,300 99,006
Sunterra Corp. (a) 27,200 258,400
------------
1,196,725
RESTAURANTS & LODGING-1.7%
Florida Panthers Holdings, Inc. (a) 12,700 123,825
MeriStar Hospitality Corp. 11,800 218,300
------------
342,125
RETAILING-12.8%
Brylane, Inc. (a) 5,600 $90,300
Circuit City Stores, Inc. - CarMax Group (a) 28,300 171,569
Furniture Brands International, Inc. (a) 10,200 219,300
Industrie Natuzzi SpA (ADR) (b) 13,800 250,987
Men's Wearhouse, Inc. (a) 9,300 225,525
Movado Group, Inc. 8,700 164,212
Pacific Sunwear of California, Inc. (a) 5,600 121,100
Sports Authority, Inc. (a) 19,600 149,450
Stage Stores, Inc. (a) 13,600 180,200
Tiffany & Co. 12,900 416,831
Trans World Entertainment Corp. (a) 7,900 162,938
United Rentals, Inc. (a) 11,400 306,375
Venator Group, Inc. (a) 18,900 159,469
------------
2,618,256
MISCELLANEOUS-0.8%
Central Garden & Pet Co. (a) 8,800 173,800
------------
7,428,666
BASIC INDUSTRIES-11.1%
BUILDING & RELATED-0.4%
Associated Materials, Inc. (a) 6,700 73,700
METAL HARDWARE-3.4%
Bethlehem Steel Corp. (a) 77,300 695,700
METALS & MINING-0.2%
Royal Oak Mines, Inc. (a) 82,400 51,500
TEXTILE PRODUCTS-2.3%
Mohawk Industries, Inc. (a) 15,600 470,925
TRANSPORTATION & SHIPPING-4.8%
AMERCO (a) 100 2,350
Carey International, Inc. (a) 10,800 193,050
Consolidated Freightways Corp. (a) 28,400 307,075
Knightsbridge Tankers, Ltd. 3,000 65,250
OMI Corp. (a) 66,200 248,250
Teekay Shipping Corp. 9,900 173,250
------------
989,225
------------
2,281,050
17
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE QUASAR INSTITUTIONAL FUND
_______________________________________________________________________________
COMPANY SHARES VALUE
- -------------------------------------------------------------------------
TECHNOLOGY-10.4%
COMMUNICATION EQUIPMENT-1.1%
Comverse Technology, Inc. (a) 4,600 $ 211,600
COMPUTER SOFTWARE & SERVICES-3.5%
DBT Online, Inc. (a) 9,700 196,425
Harbinger Corp. (a) 17,580 116,468
Information Management Resources, Inc. (a) 4,400 103,400
Insight Enterprises, Inc. (a) 3,650 105,850
Saville Systems Plc (ADR) (a)(c) 3,800 64,125
Transaction Systems Architects, Inc. C1.A (a) 3,800 137,156
------------
723,424
NETWORKING SOFTWARE-2.2%
Apex PC Solutions, Inc. (a) 12,500 326,562
Xylan Corp. (a) 8,025 128,400
------------
454,962
SEMI-CONDUCTOR EQUIPMENT-1.5%
Uniphase Corp. (a) 3,200 158,400
Vitesse Semiconductor Corp. (a) 4,700 151,575
------------
309,975
TELECOMMUNICATIONS-1.6%
GST Telecommunications, Inc. (a) 12,000 83,250
Millicom International Cellular, SA (a)(d) 7,400 246,975
------------
330,225
MISCELLANEOUS-0.5%
Engineering Animation, Inc. (a) 1,400 61,338
Excalibur Technologies Corp. (a) 8,200 47,150
------------
108,488
------------
2,138,674
HEALTH CARE-9.6%
BIOTECHNOLOGY-6.4%
Centocor, Inc. (a) 11,200 498,400
GelTex Pharmaceuticals, Inc. (a) 19,300 482,500
Gensia Sicor, Inc. (a) 11,500 43,125
MedImmune, Inc. (a) 4,100 275,725
------------
1,299,750
DRUGS, HOSPITAL SUPPLIES &
MEDICAL SERVICES-3.2%
Aradigm Corp. (a) 10,400 120,900
St. Jude Medical, Inc. (a) 6,400 180,800
Synetic, Inc. (a) 4,400 189,750
Veterinary Centers of America, Inc. (a) 9,200 163,300
------------
654,750
------------
1,954,500
FINANCIAL SERVICES-9.2%
BROKERAGE & MONEY MANAGEMENT-2.0%
Legg Mason, Inc. 15,300 406,406
INSURANCE-0.4%
Reinsurance Group of America, Inc. 2,000 95,000
REAL ESTATE-6.8%
Chelsea GCA Realty, Inc. 16,300 560,313
Glenborough Realty Trust, Inc. 11,500 246,531
Golf Trust of America, Inc. 7,700 205,975
Taubman Centers, Inc. 27,500 376,406
------------
1,389,225
------------
1,890,631
CONSUMER MANUFACTURING-8.3%
AUTO & RELATED-8.3%
Budget Group, Inc. Cl.A (a) 33,300 597,319
Dollar Thrifty Automotive Group, Inc. (a) 25,200 341,775
Group 1 Automotive, Inc. (a) 16,700 285,987
Miller Industries, Inc. (a) 13,600 71,400
Monaco Coach Corp. (a) 8,550 259,706
United Auto Group, Inc. (a) 10,800 148,500
------------
1,704,687
ENERGY-2.7%
OIL & GAS SERVICES-2.7%
Parker Drilling Co. (a) 24,800 122,450
Southern Union Co. 18,200 422,013
------------
544,463
Total Common Stocks (cost $21,392,880) 17,942,671
18
ALLIANCE QUASAR INSTITUTIONAL FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- -------------------------------------------------------------------------
SHORT-TERM INVESTMENT-17.5%
U.S. GOVERNMENT & AGENCY-17.5%
Student Loan Marketing Assn.
5.42%, 11/02/98
(amortized cost $3,599,458) $3,600 $ 3,599,458
TOTAL INVESTMENTS-105.0%
(cost $24,992,338) $21,542,129
Other assets less liabilities-(5.0%) (1,029,101)
NET ASSETS-100% $20,513,028
(a) Non-income producing security.
(b) Country of origin--Italy.
(c) Country of origin--Ireland.
(d) Country of origin--Luxembourg.
Glossary:
ADR - American Depositary Receipt
See notes to financial statements.
19
PORTFOLIO OF INVESTMENTS ALLIANCE REAL ESTATE INVESTMENT
OCTOBER 31, 1998 INSTITUTIONAL FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- -------------------------------------------------------------------------
COMMON STOCKS-97.3%
REAL ESTATE INVESTMENT TRUSTS-97.3%
APARTMENTS-8.5%
AvalonBay Communities, Inc. 21,500 $ 690,688
Essex Property Trust, Inc. 22,800 715,350
Irvine Apartment Communities, Inc. 5,400 141,750
------------
1,547,788
CORRECTIONAL FACILITIES-2.2%
Correctional Properties Trust 21,100 410,131
DIVERSIFIED-11.6%
Entertainment Properties Trust 27,200 452,200
Glenborough Realty Trust, Inc. 29,900 640,981
Golf Trust of America, Inc. 14,600 390,550
Vornado Realty Trust 18,600 626,588
------------
2,110,319
HOTELS & RESTAURANTS-10.6%
Innkeepers USA Trust 33,700 387,550
MeriStar Hospitality Corp. 25,755 476,468
Patriot American Hospitality, Inc. 45,000 399,375
Starwood Hotels & Resorts 20,200 571,912
Sunstone Hotel Investors, Inc. 9,600 87,000
------------
1,922,305
OFFICE-26.0%
Arden Realty, Inc. 29,700 642,262
Boston Properties, Inc. 18,100 515,850
Brookfield Properties Corp. (a) 55,500 593,487
Crescent Real Estate Equities Co. 27,800 696,737
Equity Office Properties Trust 37,900 909,600
Great Lakes REIT, Inc. 14,400 236,700
Mack-Cali Realty Corp. 14,000 414,750
SL Green Realty Corp. 38,100 721,519
------------
4,730,905
OFFICE - INDUSTRIAL MIX-13.5%
Brandywine Realty Trust 28,500 509,437
Duke Realty Investments, Inc. 15,200 362,900
Highwoods Properties, Inc. 16,900 472,144
Reckson Associates Realty
Corp. 24,400 553,575
Spieker Properties, Inc. 16,100 555,450
------------
2,453,506
REAL ESTATE DEVELOPMENT & MANAGEMENT-.2%
Excel Legacy Corp. (b) 5,000 13,750
Reckson Services Industries, Inc. (b) 10,416 20,181
------------
33,931
REGIONAL MALLS-6.1%
Macerich Co. 21,400 589,837
Mills Corp. 24,200 524,838
------------
1,114,675
SHOPPING CENTERS-9.0%
Burnham Pacific Properties, Inc. 31,900 418,687
New Plan Excel Realty Trust, Inc. 18,260 415,415
Pacific Retail Trust Co. (b)(c) 7,500 82,800
Pan Pacific Retail Properties, Inc. 38,800 725,075
------------
1,641,977
STORAGE-3.7%
Public Storage, Inc. 25,400 677,863
WAREHOUSE & INDUSTRIAL-5.9%
Cabot Industrial Trust 23,400 468,000
ProLogis Trust 27,600 602,025
------------
1,070,025
Total Common Stocks (cost $21,740,670) 17,713,425
SHORT-TERM INVESTMENT-4.3%
TIME DEPOSIT-4.3%
State Street Cayman Islands
4.75%, 11/02/98
(cost $778,000) $778 778,000
TOTAL INVESTMENTS-101.6%
(cost $22,518,670) 18,491,425
Other assets less liabilities-(1.6%) (298,082)
NET ASSETS-100% $18,193,343
(a) Country of origin--Canada.
(b) Non-income producing security.
(c) Illiquid security, valued at fair market value (see Note A).
See notes to financial statements.
20
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1998 ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
<TABLE>
<CAPTION>
REAL ESTATE
PREMIER GROWTH QUASAR INVESTMENT
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
FUND FUND FUND
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at value
(cost $54,720,190, $24,992,338 and
$22,518,670, respectively) $59,927,485 $21,542,129 $ 18,491,425
Cash 500 129,765 2,074
Receivable for capital stock sold 549,317 6,139,085 59,455
Receivable for investment securities sold 129,313 80,883 58,482
Deferred organization expenses 61,218 63,938 60,098
Interest and dividends receivable 19,671 3,059 25,042
Receivable due from adviser 27,685 17,741 2,822
Total assets 60,715,189 27,976,600 18,699,398
LIABILITIES
Payable for investment securities purchased 587,186 1,453,412 193,240
Payable for capital stock redeemed 53,279 5,883,750 196,807
Distribution fee payable 649 467 -0-
Accrued expenses 165,765 125,943 116,008
Total liabilities 806,879 7,463,572 506,055
NET ASSETS $59,908,310 $20,513,028 $ 18,193,343
COMPOSITION OF NET ASSETS
Capital stock, at par $ 4,748 $ 2,766 $ 2,340
Additional paid-in capital 55,567,622 25,245,229 22,501,152
Undistributed net investment income 16,136 2,356 40,785
Accumulated net realized loss on
investments and foreign currency
transactions (887,491) (1,287,114) (323,689)
Net unrealized appreciation
(depreciation) of investments 5,207,295 (3,450,209) (4,027,245)
$59,908,310 $20,513,028 $18,193,343
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS I SHARES
Net asset value, redemption and offering
price per share ($56,893,921 / 4,508,047,
$20,512,745 / 2,765,729 and $18,193,023 /
2,339,663 shares of capital stock issued
and outstanding, respectively) $12.62 $ 7.42 $ 7.78
CLASS II SHARES
Net asset value, redemption and offering
price per share ($3,014,389 / 239,539,
$283 / 38.2 and $320 / 41.2 shares of
capital stock issued and outstanding,
respectively) $12.58 $ 7.40 $ 7.77
</TABLE>
See notes to financial statements.
21
STATEMENTS OF OPERATIONS
PERIOD ENDED OCTOBER 31, 1998 ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
<TABLE>
<CAPTION>
REAL ESTATE
PREMIER GROWTH QUASAR INVESTMENT
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
FUND(A) FUND(B) FUND(C)
-------------- ------------- -------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends (Net of foreign taxes withheld
of $5,953, $1,197 and $250, respectively) $ 201,882 $ 67,134 $ 799,152
Interest 66,174 47,911 34,834
Total income 268,056 115,045 833,986
EXPENSES
Advisory fee 274,226 93,387 123,142
Distribution fee - Class II 3,838 468 1
Administrative 102,500 71,750 112,750
Audit and legal 71,176 63,757 61,936
Custodian 66,455 47,624 51,166
Printing 41,874 21,246 21,809
Registration 29,926 20,539 18,171
Transfer agency 15,683 5,408 7,508
Directors' fees 13,000 5,000 13,000
Amortization of organization expenses 11,880 9,160 13,000
Miscellaneous 2,640 749 976
Total expenses 633,198 339,088 423,459
Less: expenses waived and reimbursed
by adviser (See Note B) (381,278) (226,399) (286,633)
Net expenses 251,920 112,689 136,826
Net investment income 16,136 2,356 697,160
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Net realized loss on investment transactions (887,491) (1,287,114) (323,689)
Net realized loss on foreign currency
transactions -0- -0- (1,254)
Net unrealized appreciation (depreciation)
of investments 5,207,295 (3,450,209) (4,027,245)
Net gain (loss) on investments and foreign
currency transactions 4,319,804 (4,737,323) (4,352,188)
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $4,335,940 $(4,734,967) $(3,655,028)
</TABLE>
(a) Commencement of operations, January 7, 1998.
(b) Commencement of operations, March 17, 1998.
(c) Commencement of operations, December 9, 1997.
22
STATEMENT OF CHANGES IN NET ASSETS
PERIOD ENDED OCTOBER 31, 1998 ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
<TABLE>
<CAPTION>
REAL ESTATE
PREMIER GROWTH QUASAR INVESTMENT
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
FUND(A) FUND(B) FUND(C)
-------------- ------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income $ 16,136 $ 2,356 $ 697,160
Net realized loss on investments and
foreign currency transactions (887,491) (1,287,114) (324,943)
Net unrealized appreciation (depreciation)
of investments 5,207,295 (3,450,209) (4,027,245)
Net increase (decrease) in net assets
from operations 4,335,940 (4,734,967) (3,655,028)
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income
Class I -0- -0- (655,108)
Class II -0- -0- (13)
CAPITAL STOCK TRANSACTIONS
Net increase 55,539,040 25,214,665 22,470,152
Total increase 59,874,980 20,479,698 18,160,003
NET ASSETS
Beginning of period 33,330 33,330 33,340
End of period (including undistributed net
investment income of $16,136, $2,356
and $114,408, respectively) $59,908,310 $20,513,028 $18,193,343
</TABLE>
(a) Commencement of operations, January 7, 1998.
(b) Commencement of operations, March 17, 1998.
(c) Commencement of operations, December 9, 1997.
23
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998 ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Institutional Funds, Inc. (the "Company") was organized as a Maryland
corporation on October 3, 1997 and is registered under the Investment Company
Act of 1940 as an open-end series investment company. The Company is comprised
of three funds, Alliance Premier Growth Institutional Fund, Alliance Quasar
Institutional Fund and Alliance Real Estate Investment Institutional Fund (the
"Funds"). Each Fund has different investment objectives and policies. Prior to
the commencement of operations on January 7, 1998, March 17, 1998 and December
9, 1997, respectively, the Funds had no operations other than the sale to
Alliance Capital Management L.P. (the "Adviser") of 3,300 shares of Class I
common stock of each Fund for $33,000, and 33 shares of Class II common stock
of the Alliance Premier Growth Institutional Fund and the Alliance Quasar
Institutional Fund for $330 and 34 shares of Class II common stock of the
Alliance Real Estate Investment Institutional Fund for $340 in each case on
November 12, 1997. Each Fund offers Class I and Class II shares. Sales are made
without a sales charge, at each Fund's net asset value per share. Each class of
shares have identical voting, dividend, liquidation and other rights, except
that each class bears different distribution expenses and has exclusive voting
rights with respect to its distribution plan. The financial statements have
been prepared in conformity with generally accepted accounting principles which
require management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities in the financial statements and
amounts of income and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of significant
accounting policies followed by the Funds.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sale price or if no sale occurred, at the
mean of the closing bid and asked price on that day. Readily marketable
securities traded in the over-the-counter market, securities listed on a
foreign securities exchange whose operations are similar to the U.S.
over-the-counter market, and securities listed on a national securities
exchange whose primary market is believed to be over-the-counter, are valued at
the mean of the current bid and asked prices. U.S. government and fixed income
securities which mature in 60 days or less are valued at amortized cost, unless
this method does not represent fair value. Securities for which current market
quotations are not readily available are valued at their fair value as
determined in good faith by, or in accordance with procedures adopted by, the
Board of Directors. Fixed income securities may be valued on the basis of
prices obtained from a pricing service when such prices are believed to reflect
the fair market value of such securities.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the
mean of the quoted bid and asked price of such currencies against the U.S.
dollar. Purchases and sales of portfolio securities are translated into U.S.
dollars at the rates of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated into U.S. dollars at rates of
exchange prevailing when accrued.
Net realized foreign currency gains and losses represent foreign exchange gains
and losses from sales and maturities of securities, closed forward exchange
currency contracts, holding of foreign currencies, options on foreign
currencies, exchange gains and losses realized between the trade and settlement
dates on security transactions, and the difference between the amounts of
interest and dividends recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net currency gains and losses
from valuing foreign currency denominated assets and liabilities at period end
exchange rates are reflected as a component of net unrealized appreciation
(depreciation) of investments and foreign currency denominated assets and
liabilities.
3. ORGANIZATION EXPENSES
Organization expenses of approximately $73,099 for the Real Estate Investment
Institutional Fund, $73,098 for the Premier Growth Institutional Fund and
$73,098 for the Quasar Institutional Fund have been deferred and are being
amortized on a straight-line basis through December 2002, January and March
2003, respectively.
24
ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
4. TAXES
It is each Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
5. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Investment transactions are accounted for on the trade date securities
are purchased or sold. The Fund accretes discounts and amortizes premiums as
adjustments to interest income. Investment gains and losses are determined on
the identified cost basis.
6. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each outstanding class of shares, based on the proportionate interest
in the Fund represented by the net assets of such class, except that Class II
shares bear higher transfer agent fees. Expenses of the Trust are charged to
each Fund in proportion to net assets.
7. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Income dividends and capital gains distributions are determined in accordance
with federal tax regulations and may differ from those determined in accordance
with generally accepted accounting principles. To the extent these differences
are permanent, such amounts are reclassified within the capital accounts based
on their federal tax basis treatment; temporary differences, do not require
such reclassification.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Funds pay Alliance
Capital Management L.P. (the "Adviser"), an advisory fee at an annual rate of
.90% of the Real Estate Investment Institutional Fund's average daily net
assets and 1% of the Premier Growth Institutional Fund and Quasar Institutional
Fund's average daily net assets. Such fees are accrued daily and paid monthly.
The Adviser has agreed to voluntarily waive its fees and bear certain expenses
so that total expenses do not exceed on an annual basis .90% and 1.30% of
average daily net assets for Class I and Class II of the Premier Growth
Institutional Fund; 1.20% and 1.60% of average daily net assets for Class I and
Class IIof the Quasar Institutional Fund and 1.00% and 1.40% of average daily
net assets for Class Iand Class II for the Real Estate Investment Institutional
Fund. Effective November 1, 1998, the voluntary fee was increased so that total
expenses do not exceed on an annual basis 1.35% of average daily net assets for
Class II of the Quasar Institutional Fund. For the period ended October 31,
1998 such reimbursement amounted to: Premier Growth Institutional Fund
$278,778; Quasar Institutional Fund $154,649 and Real Estate Investment
Institutional Fund $173,883.
Pursuant to the advisory agreement, the Adviser provides to each Fund certain
legal and accounting services. For the period ended October 31, 1998, the
Adviser agreed to waive its fees for such services. Such waiver amounted to:
Premier Growth Institutional Fund $102,500; Quasar Institutional Fund $71,750
and Real Estate Investment Institutional Fund $112,750.
The Funds compensate Alliance Fund Services, Inc., a wholly-owned subsidiary of
the Adviser, under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Funds. Such compensation
amounted to $14,991, $4,825 and $6,841, respectively for the Premier Growth
Institutional Fund, the Quasar Institutional Fund and the Real Estate
Investment Institutional Fund for the period ended October 31, 1998.
Brokerage commissions paid on investment transactions for the period ended
October 31, 1998 amounted to $85,675 for the Premier Growth Institutional Fund;
$58,337 for the Quasar Institutional Fund and $51,639 for the Real Estate
Investment Institutional Fund, of which $660 for the Premier Growth
Institutional Fund was paid to the Pershing Division of Donaldson, Lufkin &
Jenrette Securities Corp., an affiliate of the Adviser and $115 for the Quasar
Institutional Fund was paid to Donaldson, Lufkin & Jenrette Securities Corp.,
directly.
25
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Funds have adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Funds pay a distribution fee to the Distributor at an annual
rate of up to .30% of average daily net assets attributable to Class II shares.
There is no distribution fee on Class I shares. The fees are accrued daily and
paid monthly. The Agreement provides that the Distributor will use such
payments in their entirety for distribution assistance and promotional
activities. In accordance with the Agreement, there is no provision for
recovery of unreimbursed distribution costs incurred by the Distributor beyond
the current fiscal year for Class II shares. The Agreement also provides that
the Adviser may use its own resources to finance the distribution of the Fund's
shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
for the period ended October 31, 1998 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------------------------------- -----------------------------------
STOCKS AND U.S. GOVERNMENT STOCKS AND U.S. GOVERNMENT
FUND DEBT OBLIGATIONS AND AGENCIES DEBT OBLIGATIONS AND AGENCIES
- ------------------------------------ ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Premier Growth Institutional $83,703,108 $1,676,700 $29,727,168 $347,108
Quasar Institutional 31,168,054 -0- 8,488,059 -0-
Real Estate Investment Institutional 23,790,192 -0- 1,649,731 -0-
</TABLE>
At October 31, 1998, the cost of investments for federal income tax purposes
and the tax basis gross unrealized appreciation, depreciation and net
unrealized appreciation (depreciation), excluding foreign currency
transactions, were as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED NET UNREALIZED
------------------------------- APPRECIATION
FUND COST APPRECIATION DEPRECIATION (DEPRECIATION)
- ------------------------------------ --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Premier Growth Institutional $55,008,826 $6,826,419 $(1,907,760) $4,918,659
Quasar Institutional 25,284,080 550,698 (4,292,649) (3,741,951)
Real Estate Investment Institutional 22,634,636 9,548 (4,152,759) (4,143,211)
</TABLE>
For Federal income tax purposes at October 31, 1998, the Fund had capital loss
carry forwards for the Portfolios as follows: $598,855 expiring in 2006 for the
Premier Growth Institutional Fund $995,373 expiring 2006 for the Quasar
Institutional Fund, and $280,232 expiring in 2006 for the Real Estate
Investment Institutional Fund.
26
ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
NOTE E: CAPITAL STOCK
There are 18,000,000,000 shares of $.001 par value capital stock authorized,
6,000,000,000 shares each for Premier Growth Institutional Fund, Quasar
Institutional Fund and Real Estate Investment Institutional Fund. Each Fund
consists of two classes designated Class I and Class II, each with
3,000,000,000 authorized shares. Transactions in shares of capital stock were
as follows:
PREMIER GROWTH INSTITUTIONAL FUND
--------------------------------------
SHARES AMOUNT
------------------ ------------------
JANUARY 7, 1998(A) JANUARY 7, 1998(A)
TO TO
OCTOBER 31, 1998 OCTOBER 31, 1998
------------------ ------------------
CLASS I
Shares sold 4,846,318 $56,837,599
Shares redeemed (341,571) (4,198,789)
Net increase 4,504,747 $52,638,810
CLASS II
Shares sold 307,955 $3,782,004
Shares redeemed (68,449) (881,774)
Net increase 239,506 $2,900,230
QUASAR INSTITUTIONAL FUND
-------------------------------------
SHARES AMOUNT
----------------- -----------------
MARCH 17, 1998(A) MARCH 17, 1998(A)
TO TO
OCTOBER 31, 1998 OCTOBER 31, 1998
----------------- -----------------
CLASS I
Shares sold 3,009,763 $27,395,135
Shares redeemed (247,334) (1,985,986)
Net increase 2,762,429 $25,409,149
CLASS II
Shares sold 785,381 $ 5,617,297
Shares redeemed (785,376) (5,811,781)
Net increase (decrease) 5 $ (194,484)
(a) Commencement of operations.
27
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
REAL ESTATE INVESTMENT
INSTITUTIONAL FUND
---------------------------------
SHARES AMOUNT
--------------- ---------------
DEC. 9, 1997(A) DEC. 9, 1997(A)
TO TO
OCT. 31, 1998 OCT. 31, 1998
--------------- ---------------
CLASS I
Shares sold 2,486,932 $23,779,985
Shares issued in reinvestment of dividends 78,721 655,108
Shares redeemed (229,290) (1,965,003)
Net increase 2,336,363 $22,470,090
CLASS II
Shares sold 6 $ 50
Shares issued in reinvestment of dividends 1 12
Net increase 7 $ 62
(a) Commencement of operations.
28
FINANCIAL HIGHLIGHTS ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
REAL ESTATE
PREMIER GROWTH QUASAR INVESTMENT
INSTITUTIONAL FUND INSTITUTIONAL FUND INSTITUTIONAL FUND
CLASS I CLASS I CLASS I
JANUARY 7, 1998(A) MARCH 17, 1998(A) DECEMBER 9, 1997(A)
TO TO TO
OCTOBER 31, 1998 OCTOBER 31, 1998 OCTOBER 31, 1998
------------------ ------------------ -------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.00 $10.00 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .01 -0- .43
Net realized and unrealized gain (loss)
on investment transactions 2.61 (2.58) (2.26)
Net increase (decrease) in net asset
value from operations 2.62 (2.58) (1.83)
LESS: DIVIDENDS
Dividends from net investment income -0- -0- (.39)
Net asset value, end of period $12.62 $7.42 $7.78
TOTAL RETURN
Total investment return based on net
asset value (c) 26.20% (25.80)% (18.61)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $56,894 $20,513 $18,193
Ratios to average net assets of:
Expenses, net of waivers/
reimbursements (d) .90% 1.20% 1.00%
Expenses, before waivers/
reimbursements (d) 2.29% 3.82% 3.09%
Net investment income (d) .08% .03% 5.62%
Portfolio turnover rate 86% 61% 11%
</TABLE>
See footnote summary on page 30.
29
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
REAL ESTATE
PREMIER GROWTH QUASAR INVESTMENT
INSTITUTIONAL FUND INSTITUTIONAL FUND INSTITUTIONAL FUND
CLASS II CLASS II CLASS II
JANUARY 7, 1998(A) MARCH 17, 1998(A) DECEMBER 9, 1997(A)
TO TO TO
OCTOBER 31, 1998 OCTOBER 31, 1998 OCTOBER 31, 1998
------------------ ------------------ -------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.00 $10.00 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (b) (.03) (5.89) .41
Net realized and unrealized gain (loss)
on investment transactions 2.61 3.29 (2.28)
Net increase (decrease) in net asset
value from operations 2.58 (2.60) (1.87)
LESS: DIVIDENDS
Dividends from net investment income -0- -0- (.36)
Net asset value, end of period $12.58 $7.40 $7.77
TOTAL RETURN
Total investment return based on net
asset value (c) 25.80% (26.00)% (19.02)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $3,014 (e) $283$320
Ratios to average net assets of:
Expenses, net of waivers/
reimbursements (d) 1.30% 1.60% 1.40%
Expenses, before waivers/
reimbursements (d) 2.65% 4.62% 3.59%
Net investment income (loss) (d) (.38)% (.14)% 5.04%
Portfolio turnover rate 86% 61% 11%
</TABLE>
(a) Commencement of operations.
(b) Based on average shares outstanding.
(c) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Total investment return calculated
for a period of less than one year is not annualized.
(d) Annualized.
(e) 000's omitted.
30
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS ALLIANCE INSTITUTIONAL FUNDS
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Alliance Institutional Funds
(comprising, respectively, the Alliance Premier Growth Institutional Fund,
Alliance Quasar Institutional Fund and Alliance Real Estate Investment
Institutional Fund) as of October 31, 1998, and the related statements of
operations, changes in net assets and financial highlights for the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1998, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting the Alliance Institutional Funds as of
October 31, 1998, the results of their operations, changes in their net assets,
and the financial highlights for the periods indicated therein, in conformity
with generally accepted accounting principles.
New York, New York
December 9, 1998
31
<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 333-37177 and 811-08403.
<PAGE>
(LOGO) ALLIANCE INSTITUTIONAL FUNDS, INC.
- ALLIANCE REAL ESTATE INVESTMENT
INSTITUTIONAL FUND
_______________________________________________________________
c/o Alliance Fund Services, Inc.
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
March 1, 1999
_______________________________________________________________
This Statement of Additional Information is not a
prospectus but supplements and should be read in conjunction with
the Prospectus dated March 1, 1999 (the "Prospectus") for
Alliance Institutional Funds, Inc. (the "Company"). Copies of
the Prospectus may be obtained by contacting Alliance Fund
Services, Inc. at the address or the "For Literature" telephone
number shown above.
TABLE OF CONTENTS
Page
DESCRIPTION OF THE FUND..................................
MANAGEMENT OF THE FUND...................................
EXPENSES OF THE FUND.....................................
PURCHASE OF SHARES.......................................
REDEMPTION AND REPURCHASE OF SHARES......................
SHAREHOLDER SERVICES.....................................
NET ASSET VALUE..........................................
DIVIDENDS, DISTRIBUTIONS AND TAXES.......................
PORTFOLIO TRANSACTIONS...................................
GENERAL INFORMATION......................................
REPORT OF INDEPENDENT AUDITORS AND
FINANCIAL STATEMENTS...................................
________________________
(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 four portfolios: Alliance Real
Estate Investment Institutional Fund (the "Fund"), which is
described in this Statement of Additional Information, and
Alliance Premier Growth Institutional Fund, Alliance Quasar
Institutional Fund and Alliance Special Equity 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 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.
2
<PAGE>
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
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
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<PAGE>
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
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 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
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<PAGE>
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.
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
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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
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
6
<PAGE>
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
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
7
<PAGE>
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
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 IBCA, 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.
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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
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) 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
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<PAGE>
not more than 10% of the outstanding voting securities
of such issuer;
(ii) purchase the securities of any one issuer,
other than the U.S. Government and its agencies or
instrumentalities, if as a result (a) the value of the
holdings of the Fund in the securities of such issuer
exceeds 25% of its total assets, or (b) the Fund owns
more than 25% of the outstanding securities of any one
class of securities of such 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;
(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;
(vi) pledge, hypothecate, mortgage or otherwise
encumber its assets, except to secure permitted
borrowings;
(vii) 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;
(viii) participate on a joint or joint and several
basis in any securities trading account;
(ix) invest in companies for the purpose of
exercising control;
(x) issue any senior security within the meaning
of the 1940 Act;
(xi) 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
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assets (taken at market value) is held as collateral for
such sales at any one time; or
(xii) (a) purchase or sell commodities or commodity
contracts including futures contracts; (b) invest in
interests in oil, gas, or other mineral exploration or
development programs; (c) purchase securities on margin,
except for such short-term credits as may be necessary
for the clearance of transactions; and (d) act as an
underwriter of securities, except that the Fund may
acquire restricted securities under circumstances in
which, if such securities were sold, the Fund might be
deemed to be an underwriter for purposes of the
Securities Act.
Application of Percentage Limitations
Except as otherwise indicated, whenever any investment
policy or practice, including any restriction, described in the
Prospectus or under the heading "Description of the Fund," states
a maximum percentage of the Fund's assets which may be invested
in any security or other asset, it is intended that such maximum
percentage limitation be determined immediately after and as a
result of the Fund's acquisition of such securities or other
assets. Accordingly, any later increase or decrease in
percentage beyond the specified limitation resulting from a
change in values or net assets will not be considered a violation
of any such maximum.
_______________________________________________________________
MANAGEMENT OF THE FUND
_______________________________________________________________
Adviser
Alliance Capital Management L.P., a Delaware limited
partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision of the Fund's Board of Directors (see "Management of
the Fund" in the Prospectus).
The Adviser is a leading international investment
manager supervising client accounts with assets as of
December 31, 1998 of more than $286 billion (of which more than
$118 billion represented the assets of investment companies). The
Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies,
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<PAGE>
foundation and endowment funds. The 54 registered investment
companies managed by the Adviser, comprising 118 investment
portfolios, currently have more than 3.6_ million shareholders
accounts. As of December 31, 1998, the Adviser and its
subsidiaries employed approximately 2,000 employees who operated
out of domestic offices and the offices of subsidiaries in
Bahrain, Bangalore, Cairo, Chennai, Hong Kong, Istanbul,
Johannesburg, London, Luxembourg, Madrid, Moscow, Mumbai, New
Delhi, Paris, Pune, Sao Paulo, Seoul, Singapore, Sydney, Tokyo,
Toronto, Vienna and Warsaw. As of December 31, 1998, the Adviser
was an investment manager of employee benefit fund assets for 35
of the FORTUNE 100 companies.
Alliance Capital Management Corporation ("ACMC"), 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, which is a wholly-owned subsidiary of The
Equitable Companies Incorporated ("ECI"). ECI is a holding
company controlled by AXA-UAP ("AXA"), a French insurance holding
company which at March 1, 1998, beneficially owned approximately
59% of the outstanding voting shares of ECI. As of June 30,
1998, ACMC, Inc. and Equitable Capital Management Corporation,
each a wholly-owned direct or indirect subsidiary of Equitable,
together with Equitable, owned in the aggregate approximately 57%
of the issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser.
AXA is a holding company for an international group of
insurance and related financial services companies. AXA'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 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, as of March 31,
1998 more than 30% of the voting power of AXA was controlled
directly and indirectly by FINAXA, a French holding company. As
of March 31, 1998 approximately 74% of the voting power of FINAXA
was controlled directly and indirectly by four French mutual
insurance companies (the "Mutuelles AXA"), one of which, AXA
Assurances I.A.R.D. Mutuelle, itself controlled directly and
indirectly more than 42% of the voting power of FINAXA. Acting
as a group, the Mutuelles AXA control AXA and FINAXA.
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Under 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 space and certain other equipment, investment
advisory and 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. The Fund paid to the Adviser
a total of $0 in respect of such services during the Fund's
fiscal period ended October 31, 1998.
For the services rendered by the Adviser under the
Advisory Agreement, the Fund pays the Adviser at an annualized
rate of 0.90% of the average daily value of the Fund's net
assets. The fee is accrued daily and paid monthly.
The Advisory Agreement became effective on November 14,
1997. The Advisory Agreement was 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 November 7, 1997, and by the Fund's initial
shareholder on November 3, 1997.
The Advisory Agreement will remain in effect until
November 5, 1999 and continue in effect thereafter only so long
as its continuance is approved annually by a vote of a majority
of the Fund's outstanding voting securities (as defined in the
1940 Act) or by the Board of Directors, including in either case,
approval by a majority of the Directors who are not parties to
the Advisory Agreement or interested persons of any such party as
defined in the 1940 Act.
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The Advisory Agreement may be terminated without penalty
on 60 days' written notice by a vote of a majority of the Fund's
outstanding voting securities, by a vote of a majority of the
Directors, 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: 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 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 Institutional Reserves, Inc., Alliance
International Fund, Alliance International Premier Growth Fund,
Inc., 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 Premier Growth 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 Select Investor Series,
Inc., Alliance Technology Fund, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
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<PAGE>
Alliance Worldwide Privatization Fund, Inc., The Alliance
Portfolios 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., AMC Managed Multi-Market Trust, 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.
Consultant to the Adviser With Respect
to Investment in Real Estate Securities
The Adviser, with respect to investment in real estate
securities, has retained as a consultant CB Richard Ellis, Inc.
("CBRE"), a publicly held company and the largest real estate
services company in the United States, comprised of real estate
brokerage, property and facilities management, and real estate
finance and investment advisory activities. In 1997, CBRE
completed 22,100 sale and lease transactions, managed over 6,600
client properties, created over $5 billion in mortgage
originations, and completed over 3,600 appraisal and consulting
assignments. In addition, they advised and managed for
institutions over $4 billion in real estate investments. CBRE
will make available to the Adviser the CBRE National Real Estate
Index, which gathers, analyzes and publishes targeted research
data for the 66 largest U.S. markets, based on a variety of
public-sector and private-sector sources as well as CBRE's
proprietary database of approximately 80,000 property
transactions representing over $500 billion of investment
property. This information provides a substantial component of
the research and data used to create the REIT/Score model. As a
consultant, CBRE provides to the Adviser, at the Adviser's
expense, such in-depth information regarding the real estate
market, the factors influencing regional valuations and analysts
of recent transactions in office, retail, industrial and multi-
family properties as the Adviser shall from time to time request.
CBRE will not furnish advice or make recommendations regarding
the purchase or sale of securities by the Fund nor will it be
responsible for making investment decisions involving Fund
assets.
CBRE is one of the three largest fee-based property
management firms in the United States, the largest commercial
real estate lease brokerage firm in the country, the largest
investment property brokerage firm in the country, as well as one
of the largest publishers of real estate research, with
approximately 8,000 employees worldwide. CBRE will provided the
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<PAGE>
Adviser with exclusive access to its REIT/Score model which ranks
approximately 143 REITs based on the relative attractiveness of
the property markets in which they own real estate. This model
scores the approximately 18,000 individual properties owned by
these companies. REIT/Score is in turn based on CBRE's National
Real Estate Index which gathers, analyzes and publishes targeted
research for the 66 largest U.S. real estate markets based on a
variety of public-and private-sector sources as well as CBRE's
proprietary database of 80,000 commercial property transactions
representing over $500 billion of investment property and over
2,500 tracked properties which report rent and expense data
quarterly. CBRE 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 Real Estate Investment Institutional Fund is
currently the only mutual fund available to retain investors that
has access to CBRE's REIT/Score model.
Directors and Officers
The Directors and principal officers of the Company,
their ages and their primary occupations during the past five
years are set forth below. Each of the Directors and officers
are trustees, directors and officers of other registered
investment companies sponsored by the Adviser. Unless otherwise
specified, the address of each such person is 1345 Avenue of the
Americas, New York, New York 10105.
Directors
JOHN D. CARIFA,*** 53, Chairman of the Board is the
President, Chief Operating Officer and a Director of ACMC, with
which he has been associated since prior to 1994.
RUTH BLOCK, 68, was formerly Executive Vice President
and Chief Insurance Officer of Equitable. She is a Director of
Ecolab Incorporated (specialty chemicals) and BP Amoco
Corporation (oil and gas). Her address is Box 4653, Stamford,
Connecticut, 06903.
DAVID H. DIEVLER, 69, is an independent consultant. He
was formerly a Senior Vice President of ACMC until December 1994.
His address is P.O. Box 167, Spring Lake, New Jersey, 07762.
JOHN H. DOBKIN, 57, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1993.
____________________
*** An "interested person" of the Fund as defined in the
1940 Act.
16
<PAGE>
Previously, he was Director of the National Academy of Design.
His address is 150 White Plains Road, Tarrytown, New York 10591.
WILLIAM H. FOULK, JR., 66, is an Investment Adviser and
independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he has been associated with since prior to 1993. His
address is Suite 100, 2 Greenwich Plaza, Greenwich, Connecticut
06830.
DR. JAMES M. HESTER, 74, is President of the Harry Frank
Guggenheim Foundation with which he has been associated since
prior to 1993. He was formerly President of New York University,
the New York Botanical Garden and Rector of the United Nations
University. His address is 25 Cleveland Lane, Princeton, New
Jersey 08540.
CLIFFORD L. MICHEL, 59, is a partner of the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1993. He is President and Chief Executive Officer of
Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining). His address is St. Bernard's Road,
Gladstone, New Jersey 07934.
DONALD J. ROBINSON, 64, is Senior Counsel to the law
firm of Orrick, Herrington & Sutcliffe and was formerly a senior
partner and a member of the Executive Committee of that firm. He
was also a trustee of the Museum of the City of New York from
1977 to 1995. His address is 98 Hell's Peak Road, Weston,
Vermont 05161.
Officers
JOHN D. CARIFA, President, Chairman and President, see
biography above.
ALFRED HARRISON, Executive Vice President, 61, is Vice
Chairman of the Board of ACMC, with which he has been associated
since prior to 1994.
ALDEN M. STEWART, Executive Vice President, 53, is an
Executive Vice President of ACMC, with which he has been
associated since prior to 1994.
KATHLEEN A. CORBET, Senior Vice President, 39, is an
Executive Vice President of ACMC, with which she has been
associated since prior to 1994.
RANDALL E. HAASE, Senior Vice President, 35, has been a
Vice President of ACMC since prior to 1994.
17
<PAGE>
DANIEL G. PINE, Senior Vice President, 47, has been
associated with the Adviser since 1996. Previously, he was a
Senior Vice President of Desai Capital Management since prior to
1994.
THOMAS BARDONG, Vice President, 53, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1994.
DAVID KRUTH, Vice President, 34, is a Vice President of
ACMC, with which he has been associated since 1997. Prior
thereto he was a Senior Vice President of the Yarmouth Group.
MARK D. GERSTEN, Treasurer and Chief Financial Officer,
48, is a Senior Vice President of Alliance Fund Services, Inc.
with which he has been associated since prior to 1994.
VINCENT S. NOTO, Controller, 34, is a Vice President of
Alliance Fund Services, Inc., with which he has been associated
since prior to 1994.
EDMUND P. BERGAN, JR., Secretary, 48, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. and Alliance Fund Services, Inc. with which he has been
associated since prior to 1994.
DOMENICK PUGLIESE, Assistant Secretary, 37, is a Vice
President and Assistant General Counsel of Alliance Fund
Distributors, Inc., with which he has been associated since May
1995. Prior thereto, he was Vice President and Counsel of
Concord Holding Corporation since 1994 and Vice President and
Associate General Counsel of Prudential Securities since prior to
1994.
ANDREW L. GANGOLF, Assistant Secretary, 44, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since December 1994. Prior thereto he was a Vice
President and Assistant Secretary of Delaware Management Company,
Inc.
EMILIE D. WRAPP, Assistant Secretary, 43, is a Vice
President and Assistant General Counsel of AFD, with which she
has been associated since prior to 1994.
The aggregate compensation paid by the Fund to each of
the Directors during its fiscal period ended October 31, 1998,
the aggregate compensation paid to each of the Directors during
calendar year 1998 by all of the registered investment companies
to which the Adviser provides investment advisory services
(collectively, the "Alliance Fund Complex") and the total number
of registered investment companies (and separate investment
18
<PAGE>
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 Investment
of Investment Portfolios
Companies in within the
the Alliance Alliance Fund
Total Complex, Complex,
Compensation Including the Including
from the Fund, as to the Fund, as
Aggregate Alliance Fund which the to which the
Compensation Complex, Director is a Director is a
from the Including the Director or Director or
Name of Director Fund Fund Trustee Trustee
John D. Carifa $ -0- $ -0- 50 114
Ruth Block $1,613 $180,763 37 77
David H. Dievler $1,613 $216,288 43 80
John H. Dobkin $1,603 $185,363 41 91
William H. Foulk, Jr. $1,611 $241,003 45 109
Dr. James M. Hester $1,616 $172,913 37 74
Clifford L. Michel $1,616 $187,763 38 90
Donald J. Robinson $1,613 $193,709 41 103
As of January 31, 1999, 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 Company 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
19
<PAGE>
adopted by the Commission under the 1940 Act (the "Rule 12b-1
Plan").
During the Fund's fiscal period ended October 31, 1998,
the Fund paid distribution services fees for expenditures under
the Agreement, with respect to Class II shares, in amounts
aggregating $1.00, which constituted approximately 0.30% of the
aggregate average daily net assets attributable to Class II
shares during the period, and the Adviser made payments from its
own resources as described above aggregating $628,406. Of the
$628,407 paid by the Fund and the Adviser with respect to the
Class II shares under the Agreement, $88,940 was spent on
advertising, $16,182 on the printing and mailing of prospectuses
for persons other than current shareholders, $181,066 for
compensation to broker-dealers and other financial intermediaries
(including $130,068 to the Fund's Principal Underwriters),
$146,552 for compensation to sales personnel, $195,662 was spent
on printing of sales literature, travel, entertainment, due
diligence and other promotional expenses, and $0 was spent on
interest on Class II shares financing.
Distribution services fees are accrued daily and paid
monthly and are 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 became effective on November 14, 1997.
The Agreement will continue in effect so long as its continuance
is specifically approved annually by the Directors or by vote of
the holders of a majority of the outstanding voting securities
(as defined in the 1940 Act) of that class, and, in either case,
by a majority of the Directors who are not parties to the
Agreement or interested persons, as defined in the 1940 Act, of
any such party (other than as directors of the Fund) and who have
no direct or indirect financial interest in the operation of the
Rule 12b-1 Plan or any agreement related thereto. Most recently
the continuance of the Agreement until November 30, 1999 was
approved by a vote, cast in person, of the Directors, including a
majority of the Directors who are not "interested persons," as
defined in the 1940 Act, at their meeting held on October 15,
1998.
In approving the Rule 12b-1 Plan, the Directors of the
Fund determined that there was a reasonable likelihood that the
Rule 12b-1 Plan would benefit the Fund and its Class II
20
<PAGE>
shareholders. The distribution services fee of a particular
class will not be used to subsidize the provision of distribution
services with respect to any other class.
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.
In the event that the Rule 12b-1 Plan is terminated or
not continued with respect to the Class II shares (i) no
distribution services fee (other than current amounts accrued but
not yet paid) would be owed by the Fund to the Principal
Underwriter with respect to that class, and (ii) the Fund would
not be obligated to pay the Principal Underwriter for any amounts
expended under the Agreement not previously recovered by the
Principal Underwriter from distribution services fees in respect
of shares of such class.
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 Fund's 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.
Transfer Agency Agreement
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of Alliance, located at 500 Plaza Drive, Secaucus, New
Jersey 07094, acts as the Fund's registrar, transfer agent and
dividend-disbursing agent for a fee based upon the number of
account holders 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.
For the fiscal period ended October 31, 1998, the Fund paid
Alliance Fund Services $7,508 pursuant to the Transfer Agency
Agreement.
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 $10 million in assets, (iii) by investment advisory
clients of the Adviser or its affiliates, (iv) by (a) officers
and present or former Directors of the Company, (b) present or
former directors and trustees of other investment companies
managed by the Adviser, (c) present or retired full-time
employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates, (d) officers and
directors of ACMC, the Principal Underwriter, Alliance Fund
Services, Inc. and their affiliates, (e) (1) the spouse, sibling,
direct ancestor or direct descendant (collectively "relatives")
of any person listed in (a) through (d), (2) any trust,
individual retirement account or retirement plan account for the
benefit of any person listed in (a) through (d) or a relative of
such person, or (3) the estate of any person listed in (a)
through (d) or a relative of such person, if such shares are
purchased for investment purposes (such shares may not be resold
except to the Fund), (v) by (a) the Adviser, the Principal
Underwriter, Alliance Fund Services, Inc. and their affiliates or
(b) certain employee benefit plans for employees of the Adviser,
the Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates, (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 CBRE.
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 $10 million in assets.
The shares of the Fund are offered on a continuous basis
at a price equal to their net asset value. The minimum initial
investment in the Company is $2,000,000, which may be invested in
any one or more of the Funds. Investments made through fee-based
or "wrap fee" programs will satisfy the minimum initial
investment requirement if the fee-based or "wrap fee" program, as
a whole, invests at least $2,000,000 in one or more of the Funds.
There is no minimum for subsequent investments. The minimum
initial investment may be waived in the discretion of the
Company.
Investors may purchase shares of the Fund through their
financial representatives. A transaction, service,
administrative or other similar fee may be charged by your
financial representative with respect to the purchase, sale or
exchange of shares made through such financial representative.
Such 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
subscriber's account in the amount purchased by the subscriber.
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 subscriber's financial representative.
This facilitates later redemption and relieves the shareholder of
the responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
although such shares remain in the shareholder's account on the
books of the Fund.
In addition to the discount or commission which may be
paid to dealers or agents in connection with the sale of Fund
shares, the Principal Underwriter from time to time may pay
additional cash or other incentives to dealers or agents,
including EQ Financial Consultants, Inc., formerly Equico
24
<PAGE>
Securities, Inc., an affiliate of the Principal Underwriter, in
connection with such sales. Such additional amounts may be
utilized, in whole or in part, to provide additional compensation
to registered representatives who sell shares of the Fund. On
some occasions, cash or other incentives will be conditioned upon
the sale of a specified minimum dollar amount of the shares of
the Fund and/or other Alliance Mutual Funds, as defined below,
during a specific period of time. On some occasions, such cash
or other incentives may take the form of payment for attendance
at seminars, meals, sporting events or theater performances, or
payment for travel, lodging and entertainment incurred in
connection with travel taken by persons associated with a dealer
or agent and their immediate family members to urban or resort
locations within or outside the United States. Such dealer or
agent may elect to receive cash incentives of equivalent amount
in lieu of such payments.
Class I and Class II shares each represent an interest
in the same portfolio of investments of the Fund, have the same
rights and are identical in all respects, except that
(i) Class II has exclusive voting rights with respect to
provisions of the Rule 12b-1 Plan pursuant to which its
distribution services fees are paid and other matters for which
separate class voting is appropriate under applicable law,
provided that, if the Fund submits to a vote of the Class II
shareholders an amendment to the Rule 12b-1 Plan that would
materially increase the amount to be paid thereunder with respect
to the Class II shares, then such amendment will also be
submitted to the Class I shareholders and the Class II and
Class I shareholders will vote separately thereon by class and
(ii) Class I shares are subject to a conversion feature.
The Directors have determined that currently no conflict
of interest exists between Class I and Class II shares. On an
ongoing basis, the Directors, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
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
25
<PAGE>
described in this Statement of Additional Information (each, a
"Conversion Event"), then all Class I shares held by the
shareholder will convert automatically and without notice to the
shareholder, other than the notice contained in this Statement of
Additional Information, to Class II shares of the Fund during the
calendar month following the month in which the Fund is informed
or otherwise learns of the occurrence of the Conversion Event.
The failure of a shareholder or a fee-based program to satisfy
the minimum investment requirements to purchase Class I shares
will not constitute a Conversion Event. The conversion would
occur on the basis of the relative net asset values of the two
classes and without the imposition of any sales load, fee or
other charge. Class II shares currently bear a .30% distribution
services fee and have a higher expense ratio than Class I shares.
As a result, Class II shares may pay correspondingly lower
dividends and have a lower net asset value than Class I shares.
The conversion of Class I shares to Class II shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class I shares to Class II
shares does not constitute a taxable event under federal income
tax law. The conversion of Class I shares to Class II shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, the Class I
shareholder would be required to redeem his Class I shares, which
would constitute a taxable event under federal income tax law.
_________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in
the Prospectus under the heading "Purchase and Sale of Shares-
- -How to Sell Shares." If you are a shareholder through an
account established under a fee-based program, your fee-based
program may impose requirements with respect to the purchase,
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. Payment of the redemption
price will be made within seven days after the Fund's receipt of
26
<PAGE>
such tender for redemption. If a shareholder is in doubt about
what documents are required by his or her fee-based program or
employee benefit plan, the shareholder should contact the
shareholder's financial representative.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the Commission determines
that trading thereon is restricted, or for any period during
which an emergency (as determined by the Commission) exists as a
result of which disposal by the Fund of securities owned by it is
not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Commission
may by order permit for the protection of security holders of the
Fund.
Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
repurchase. Payment received by a shareholder upon redemption or
repurchase of the shareholder's shares, assuming the shares
constitute capital assets in the shareholder's hands, will result
in long-term or short-term capital gains (or loss) depending upon
the shareholder's holding period and basis in respect of the
shares redeemed.
To redeem shares of the Fund for which no stock
certificates have been issued, the registered owner or owners
should forward a letter to the Company containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an institution that is an "eligible guarantor
institution" as defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended.
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
27
<PAGE>
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 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. 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. 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. 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.
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,
28
<PAGE>
recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Company did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Financial representatives may
charge a commission for handling telephone requests for
redemptions.
Repurchase
The Company may repurchase shares through the Principal
Underwriter or selected financial intermediaries. The repurchase
price will be the net asset value next determined after the
Principal Underwriter receives the request, except that requests
placed through selected financial representatives before the
close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary is
responsible for transmitting the request to the Principal
Underwriter by 5:00 p.m. Eastern time (certain selected financial
intermediaries may enter into operating agreements permitting
them to transmit purchase information to the Principal
Underwriter after 5:00 p.m. Eastern time and receive that day's
net asset value). 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.
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_________________________________________________________________
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
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
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.
International Premier Growth 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
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-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 Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Short-Term U.S. Government Fund
Please read carefully the portions of the prospectus of
the Fund or 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. 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
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<PAGE>
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 before
4:00 p.m., Eastern time, 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
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.
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<PAGE>
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.
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.
33
<PAGE>
Statements and Reports
Each shareholder of the Fund receives semi-annual and
annual reports which include a listing of the Fund's investments,
financial statements and, in the case of the annual report, the
report of the Company's independent auditors, Ernst & Young LLP,
as well as a confirmation of each purchase and redemption of
shares by the shareholder. By contacting his or her broker or
Alliance Fund Services, Inc., a shareholder can arrange for
copies of his or her account statements to be sent to another
person.
_______________________________________________________________
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 (ordinarily
4:00 p.m. Eastern time) following receipt of a purchase or
redemption order by the Fund on each Fund business day on which
such an order is received and on such other days as the Board of
Directors deems appropriate or 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. A Fund business day is any weekday on which
the Exchange is open for trading.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Board's duties with respect to the following procedures.
Readily marketable securities listed on the Exchange or on a
foreign securities exchange (other than foreign securities
exchanges whose operations are similar to those of the United
States over-the-counter market) are valued, except as indicted
below, at the last sale price reflected on the consolidated tape
at the close of the Exchange or, in the case of a foreign
securities exchange, at the last quoted sale price, in each case
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 in good faith at fair value by, or in accordance with
procedures established by, the Board of Directors. Readily
marketable securities not listed on the Exchange or on a foreign
securities exchange but listed on other United States national
securities exchanges or traded on The Nasdaq Stock Market, Inc.
34
<PAGE>
are valued in like manner. Portfolio securities traded on the
Exchange and on one or more foreign or other national securities
exchanges, and portfolio securities not traded on the Exchange
but traded on one or more foreign or other national securities
exchanges are valued in accordance with these procedures by
reference to the principal exchange on which the securities are
traded.
Readily marketable securities traded in the over-the-
counter market, securities listed on a foreign securities
exchange whose operations are similar to those of the United
States over-the-counter market, and securities listed on a U.S.
national securities exchange whose primary market is believed to
be over-the-counter (but excluding securities traded on The
Nasdaq Stock Market, Inc.), 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
another comparable sources.
Listed put or call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that
day, such securities will be valued at the closing bid prices on
that day.
Open futures contracts and options thereon will be
valued using the closing settlement price or, in the absence of
such a price, the most recent quoted bid price, If there are no
quotations available for the day of valuations, the last
available closing settlement price will be used.
U.S. Government Securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that
this method does not represent fair value).
Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
The prices provided by pricing service take into account many
factors, including institutional size trading in similar groups
of securities and any developments related to specific
securities.
All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
35
<PAGE>
Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund business
day. In addition, trading in foreign markets may not take place
on all Fund business days. Furthermore, trading may take place
in various foreign markets on days that are not Fund business
days. The Fund's calculation of the net asset value per share,
therefore, does not always take place contemporaneously with the
most recent determination of the prices of portfolio securities
in these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are
determined in accordance with the above procedures and the close
of the Exchange will not be reflected in the Fund's calculation
of net asset value unless it is believed that these prices do not
reflect current market value, in which case the securities will
be valued in good faith by, or in accordance with procedures
established by, the Board of Directors at fair value.
The Board of Directors may suspend the determination of
the Fund's, net asset value (and the offering and sale of
shares), subject to the rules of the Commission and other
governmental rules and regulations, at a time when: (1) the
Exchange is closed, other than customary weekend and holiday
closings, (2) an emergency exists as a result of which it is not
reasonably practicable for the Fund to dispose of securities
owned by it or to determine fairly the value of its net assets,
or (3) for the protection of shareholders, the Commission by
order permits a suspension of the right of redemption or a
postponement of the date of payment on redemption.
For purposes of determining the Fund's net asset value
per share, all assets and liabilities initially expressed in a
foreign currency 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 relevant 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. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class I shares 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.
36
<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 to be taxed as a "regulated investment company" under 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
37
<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 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.
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 qualifying
dividends received from domestic corporations. Dividends
received from REITs generally do not constitute qualifying
dividends. A corporate shareholder's dividends received
deduction generally will be disallowed unless 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
38
<PAGE>
means of options, short sales or similar transactions 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.
Distributions of net capital gain will be taxable to
shareholders as long-term capital gain, regardless of how long a
shareholder has held shares in the Fund. Any dividend or
distribution received by a shareholder on shares of the Fund will
have the effect of reducing the net asset value of such shares by
the amount of such dividend or distribution. Furthermore, a
dividend or distribution made shortly after the purchase of such
shares by a shareholder, although in effect a return of capital
to that particular shareholder, would be taxable to him as
described above. Dividends are taxable in the manner discussed
regardless of whether they are paid to the shareholder in cash or
are reinvested in additional shares of the Fund.
After the end of the taxable year, the Fund will notify
shareholders of the federal income tax status of any
distributions made by the Fund to shareholders during such year.
It is the present policy of the Fund to distribute to
shareholders all net investment income and realized capital
gains, if any, quarterly. There is no fixed dividend rate and
there can be no assurance that the Fund will pay any dividends.
The amount of any dividend or distribution paid on shares of the
Fund must necessarily depend upon the realization of income and
capital gains from the Fund's investments.
Sales and Redemptions. Any gain or loss arising from a
sale or redemption of Fund shares generally will be capital gain
or loss except in the case of a dealer or a financial
institution, and will be long-term capital gain or loss if such
shareholder has held such shares for more than one year at the
time of the sale or redemption; otherwise it will be short-term
capital gain or loss. 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 gain, 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.
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
39
<PAGE>
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.
Qualified Plans. A dividend or capital gains
distribution with respect to shares of the Fund held by a tax-
deferred or qualified plan, 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.
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.
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.
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.
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.
40
<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.
_______________________________________________________________
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
41
<PAGE>
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 and
statistical 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 but not all such services may
be used by the Adviser in connection with the Fund.
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 broker-dealers to execute
portfolio transactions for the Fund.
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
42
<PAGE>
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.
With respect to orders placed with Donaldson, Lufkin &
Jenrette Securities Corporation (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.
During the fiscal period December 9, 1997 (commencement
of the operations) to October 31, 1998, the Fund incurred
brokerage commissions amounting in the aggregate to $51,639.
During the fiscal period December 9, 1997 (commencement of
operations) to October 31, 1998, brokerage commissions amounting
in the aggregate to $0 were paid to DLJ and brokerage commissions
amounting in the aggregate to $0 were paid to brokers utilizing
the Pershing Division of DLJ. During the fiscal period
December 9, 1997 (commencement of operations) to October 31,
1998, the brokerage commissions paid to DLJ constituted 0% of the
Fund's aggregate brokerage commissions and the brokerage
commissions paid to brokers utilizing the Pershing Division of
DLJ constituted 0% of the Fund's aggregate brokerage commissions.
During the fiscal period December 9, 1997 (commencement of
operations) to October 31, 1998, of the Fund's aggregate dollar
amount of brokerage transactions involving the payment of
commissions, 0% were effected through DLJ and 0% were effected
through brokers utilizing the Pershing Division of DLJ. During
the fiscal period December 9, 1997 (commencement of operations)
to October 31, 1998, transactions in portfolio securities of the
Fund aggregating $24,461,277 with associated brokerage
commissions of approximately $27,830 were allocated to persons or
firms supplying research services to the Fund or the Adviser.
_______________________________________________________________
GENERAL INFORMATION
_______________________________________________________________
Capitalization
The Company is a Maryland corporation organized on
October 3, 1997. The authorized capital stock of the Company
consists of 24,000,000,000 shares, of which 3,000,000,000 shares
43
<PAGE>
are Class I shares of the Fund and 3,000,000,000 shares are
Class II shares of the Fund, each having $.001 par value. The
balance of the shares of the Company are Class I and Class II
shares of the Company's other three 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.
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.
As of January 31, 1999 there were 1,968,564 Class I
shares and 55 Class II shares of common stock of the Fund
outstanding. To the knowledge of the Fund, the following persons
owned, of record or beneficially, 5% or more of a class of the
outstanding shares of the Fund as of January 31, 1999:
Name and Address Shares % of Class
Class I
Charles Schwab & Co.
For the Exclusive Benefit
of Customers
Mutual Fund Operations
101 Montgomery Street
San Francisco, CA 94104-4122 1,896,818 96.36%
44
<PAGE>
Class II
Alliance Fund Services
Audit Output Account
Attn: Corporate Actions
Secaucus, NJ 07096-1520 6 11.80%
Alliance Fund Services
Audit Output Account
Attn: Corporate Actions
Secaucus, NJ 07096-1520 12 22.24%
Alliance Capital Management L.P.
Attn: Sarah Powell
1345 Avenue of the Americas
New York, NY 10105-0302 36 65.96%
Custodian
State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts, will act as the Fund's custodian
for the assets of the Fund but plays no part in decisions as to
the purchase or sale of portfolio securities. Subject to the
supervision of the Directors, State Street Bank and Trust Company
may enter into sub-custodial agreements for the holding of the
Fund's foreign securities.
Principal Underwriter
Alliance Fund Distributors, Inc., an indirect wholly-
owned subsidiary of the Adviser, located at 1345 Avenue of the
Americas, New York, New York 10105, is the principal underwriter
of 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
shares of Common Stock offered hereby are passed upon by Seward &
Kissel LLP, New York, New York. Seward & Kissel LLP has relied
upon the opinion of Venable, Baetjer and Howard, LLP, Baltimore,
Maryland, for matters relating to Maryland law.
45
<PAGE>
Independent Auditors
Ernst & Young LLP, New York, New York, has appointed as
independent auditors for the Company.
Performance Information
From time to time the Fund advertises its "total
return." Such advertisements disclose the Fund's average annual
compounded total return for the periods prescribed by the
Commission. 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 when paid
and the maximum sales charges applicable to purchases and
redemptions of the Fund's shares are assumed to have been 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 may quote performance rankings or ratings
of the Fund as measured by financial publications or by
independent organizations such as Lipper Analytical Services,
Inc. and Morningstar, Inc. or may compare the Fund's performance
to various indices. 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.
The Fund's average total return is computed separately
for Class I and Class II shares. The average annual compounded
total return based on net asset value since inception on
46
<PAGE>
December 9, 1997 through October 31, 1998 was (18.61%) for Class
I shares and (19.02%) for Class II shares.
Additional Information
Any shareholder inquiries may be directed to the
shareholder's broker or to Alliance Fund Services, Inc. at the
address or telephone number shown on the front cover of this
Statement of Additional Information. This Statement of
Additional Information does not contain all the information set
forth in the Registration Statement filed by the Fund with the
Commission under the Securities Act. Copies of the Registration
Statement may be obtained at a reasonable charge from the
Commission or may be examined, without charge, at the offices of
the Commission in Washington, D.C.
47
<PAGE>
_______________________________________________________________
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
_______________________________________________________________
48
<PAGE>
ALLIANCE INSTITUTIONAL FUNDS
ANNUAL REPORT
OCTOBER 31, 1998
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1998 ALLIANCE PREMIER GROWTH INSTITUTIONAL FUND
_______________________________________________________________________________
COMPANY SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS-97.3%
TECHNOLOGY-31.2%
COMMUNICATION EQUIPMENT-11.9%
EMC Corp. (a) 26,600 $ 1,712,375
Lucent Technologies, Inc. 19,800 1,587,713
Nokia Corp. (ADR) (b) 41,400 3,852,787
------------
7,152,875
COMPUTER HARDWARE-7.1%
Dell Computer Corp. (a) 56,500 3,700,750
International Business Machines Corp. 3,700 549,219
------------
4,249,969
COMPUTER SOFTWARE-3.4%
HBO & Co. 33,300 874,125
Microsoft Corp. (a) 11,100 1,175,213
------------
2,049,338
NETWORKING SOFTWARE-6.1%
America Online, Inc. 6,900 876,731
Cisco Systems, Inc. (a) 44,150 2,781,450
------------
3,658,181
SEMI-CONDUCTOR COMPONENTS-2.7%
Intel Corp. 17,850 1,591,997
------------
18,702,360
CONSUMER SERVICES-28.2%
AIRLINES-7.4%
Continental Airlines, Inc. C1.B (a) 12,400 491,350
Delta Air Lines, Inc. 10,000 1,055,625
KLM Royal Dutch Air 17,300 522,244
Northwest Airlines Corp. (a) 31,700 831,134
UAL Corp. (a) 23,300 1,513,044
------------
4,413,397
BROADCASTING & CABLE-6.8%
AirTouch Communications, Inc. (a) 59,300 3,320,800
Tele-Communications, Inc. -
Liberty Media Group Cl.A (a) 20,100 765,056
------------
4,085,856
RETAIL - GENERAL MERCHANDISE-14.0%
Dayton Hudson Corp. 30,400 1,288,200
Home Depot, Inc. 60,700 2,640,450
Kohl's Corp. (a) 18,800 898,875
May Department Stores Co. 10,800 658,800
Wal-Mart Stores, Inc. 41,900 2,891,100
------------
8,377,425
------------
16,876,678
FINANCE-15.0%
BANKING - REGIONAL-3.9%
BankAmerica Corp. 15,118 868,340
Fifth Third Bancorp 7,300 483,625
U.S. Bancorp 27,100 989,150
------------
2,341,115
BROKERAGE & MONEY MANAGEMENT-0.9%
Morgan Stanley, Dean Witter and Co. 8,250 534,188
INSURANCE-1.7%
American International Group, Inc. 7,100 605,275
Progressive Corp. 2,800 412,300
------------
1,017,575
MORTGAGE BANKING-4.3%
Federal Home Loan Mortgage Corp. 21,800 1,253,500
Federal National Mortgage Assn. 5,300 375,306
Washington Mutual, Inc. 24,832 929,648
------------
2,558,454
MISCELLANEOUS-4.2%
Associates First Capital Corp. Cl.A 18,388 1,296,354
MBNA Corp. 54,425 1,241,570
------------
2,537,924
------------
8,989,256
15
PORTFOLIO OF INVESTMENTS
(CONTINUED) ALLIANCE PREMIER GROWTH INSTITUTIONAL FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- -------------------------------------------------------------------------
HEALTH CARE-11.8%
DRUGS-10.4%
Bristol-Myers Squibb Co. 9,200 $ 1,017,175
Pfizer, Inc. 27,200 2,918,900
Schering-Plough Corp. 14,400 1,481,400
Warner-Lambert Co. 10,400 815,100
------------
6,232,575
MEDICAL SERVICES-1.4%
IMS Health, Inc. 12,400 824,600
------------
7,057,175
MULTI INDUSTRY COMPANY-4.1%
Tyco International, Ltd. 39,500 2,446,531
CONSUMER STAPLES-3.6%
HOUSEHOLD PRODUCTS-0.9%
Colgate-Palmolive Co. 6,050 534,669
RETAIL-FOOD-0.6%
Kroger Co. (a) 7,100 394,050
TOBACCO-2.1%
Philip Morris Cos., Inc. 24,400 1,247,450
------------
2,176,169
CAPITAL GOODS-2.6%
ELECTRICAL EQUIPMENT-1.2%
General Electric Co. 8,500 743,750
MISCELLANEOUS-1.4%
United Technologies Corp. 8,700 828,675
------------
1,572,425
UTILITIES-0.8%
TELEPHONE UTILITY-0.8%
MCI WorldCom, Inc. (a) 8,600 475,150
Total Common Stocks (cost $53,088,449) 58,295,744
SHORT-TERM INVESTMENT-2.7%
COMMERCIAL PAPER-2.7%
General Electric Capital Corp.
5.70%, 11/02/98
(amortized cost $1,631,741) $1,632 1,631,741
TOTAL INVESTMENTS-100.0%
(cost $54,720,190) 59,927,485
Other assets less liabilities-0.0% (19,175)
NET ASSETS-100% $59,908,310
(a) Non-income producing security.
(b) Country of origin--Finland.
Glossary:
ADR - American Depositary Receipt
See notes to financial statements.
16
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1998 ALLIANCE QUASAR INSTITUTIONAL FUND
_______________________________________________________________________________
COMPANY SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS-87.5%
CONSUMER PRODUCTS & SERVICES-36.2%
AIRLINES-6.7%
Alaska Air Group, Inc. (a) 16,000 $ 575,000
America West Holdings Corp. 29,900 459,712
Continental Airlines, Inc. C1.B (a) 5,700 225,863
Mesa Air Group, Inc. (a) 21,500 108,844
------------
1,369,419
APPAREL-2.3%
Tommy Hilfiger Corp. (a) 10,000 464,375
BROADCASTING & CABLE-1.3%
Sinclair Broadcast Group, Inc. Cl.A (a) 10,800 140,400
Young Broadcasting, Inc. Cl.A (a) 4,400 138,875
------------
279,275
BUSINESS SERVICES-4.8%
Carriage Services, Inc. C1.A (a) 6,900 161,288
Century Business Services, Inc. (a) 17,500 243,906
FirstService Corp. (a) 6,500 75,766
Provant, Inc. (a) 100 1,144
Renaissance Worldwide, Inc. (a) 17,200 162,325
TeleSpectrum Worldwide, Inc. (a) 32,600 340,262
------------
984,691
ENTERTAINMENT & LEISURE-5.8%
Bally Total Fitness Holding Corp. (a) 14,700 277,463
N2K, Inc. (a) 2,800 13,825
Premier Parks, Inc. (a) 24,700 548,031
Preview Travel, Inc. (a) 7,300 99,006
Sunterra Corp. (a) 27,200 258,400
------------
1,196,725
RESTAURANTS & LODGING-1.7%
Florida Panthers Holdings, Inc. (a) 12,700 123,825
MeriStar Hospitality Corp. 11,800 218,300
------------
342,125
RETAILING-12.8%
Brylane, Inc. (a) 5,600 $90,300
Circuit City Stores, Inc. - CarMax Group (a) 28,300 171,569
Furniture Brands International, Inc. (a) 10,200 219,300
Industrie Natuzzi SpA (ADR) (b) 13,800 250,987
Men's Wearhouse, Inc. (a) 9,300 225,525
Movado Group, Inc. 8,700 164,212
Pacific Sunwear of California, Inc. (a) 5,600 121,100
Sports Authority, Inc. (a) 19,600 149,450
Stage Stores, Inc. (a) 13,600 180,200
Tiffany & Co. 12,900 416,831
Trans World Entertainment Corp. (a) 7,900 162,938
United Rentals, Inc. (a) 11,400 306,375
Venator Group, Inc. (a) 18,900 159,469
------------
2,618,256
MISCELLANEOUS-0.8%
Central Garden & Pet Co. (a) 8,800 173,800
------------
7,428,666
BASIC INDUSTRIES-11.1%
BUILDING & RELATED-0.4%
Associated Materials, Inc. (a) 6,700 73,700
METAL HARDWARE-3.4%
Bethlehem Steel Corp. (a) 77,300 695,700
METALS & MINING-0.2%
Royal Oak Mines, Inc. (a) 82,400 51,500
TEXTILE PRODUCTS-2.3%
Mohawk Industries, Inc. (a) 15,600 470,925
TRANSPORTATION & SHIPPING-4.8%
AMERCO (a) 100 2,350
Carey International, Inc. (a) 10,800 193,050
Consolidated Freightways Corp. (a) 28,400 307,075
Knightsbridge Tankers, Ltd. 3,000 65,250
OMI Corp. (a) 66,200 248,250
Teekay Shipping Corp. 9,900 173,250
------------
989,225
------------
2,281,050
17
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE QUASAR INSTITUTIONAL FUND
_______________________________________________________________________________
COMPANY SHARES VALUE
- -------------------------------------------------------------------------
TECHNOLOGY-10.4%
COMMUNICATION EQUIPMENT-1.1%
Comverse Technology, Inc. (a) 4,600 $ 211,600
COMPUTER SOFTWARE & SERVICES-3.5%
DBT Online, Inc. (a) 9,700 196,425
Harbinger Corp. (a) 17,580 116,468
Information Management Resources, Inc. (a) 4,400 103,400
Insight Enterprises, Inc. (a) 3,650 105,850
Saville Systems Plc (ADR) (a)(c) 3,800 64,125
Transaction Systems Architects, Inc. C1.A (a) 3,800 137,156
------------
723,424
NETWORKING SOFTWARE-2.2%
Apex PC Solutions, Inc. (a) 12,500 326,562
Xylan Corp. (a) 8,025 128,400
------------
454,962
SEMI-CONDUCTOR EQUIPMENT-1.5%
Uniphase Corp. (a) 3,200 158,400
Vitesse Semiconductor Corp. (a) 4,700 151,575
------------
309,975
TELECOMMUNICATIONS-1.6%
GST Telecommunications, Inc. (a) 12,000 83,250
Millicom International Cellular, SA (a)(d) 7,400 246,975
------------
330,225
MISCELLANEOUS-0.5%
Engineering Animation, Inc. (a) 1,400 61,338
Excalibur Technologies Corp. (a) 8,200 47,150
------------
108,488
------------
2,138,674
HEALTH CARE-9.6%
BIOTECHNOLOGY-6.4%
Centocor, Inc. (a) 11,200 498,400
GelTex Pharmaceuticals, Inc. (a) 19,300 482,500
Gensia Sicor, Inc. (a) 11,500 43,125
MedImmune, Inc. (a) 4,100 275,725
------------
1,299,750
DRUGS, HOSPITAL SUPPLIES &
MEDICAL SERVICES-3.2%
Aradigm Corp. (a) 10,400 120,900
St. Jude Medical, Inc. (a) 6,400 180,800
Synetic, Inc. (a) 4,400 189,750
Veterinary Centers of America, Inc. (a) 9,200 163,300
------------
654,750
------------
1,954,500
FINANCIAL SERVICES-9.2%
BROKERAGE & MONEY MANAGEMENT-2.0%
Legg Mason, Inc. 15,300 406,406
INSURANCE-0.4%
Reinsurance Group of America, Inc. 2,000 95,000
REAL ESTATE-6.8%
Chelsea GCA Realty, Inc. 16,300 560,313
Glenborough Realty Trust, Inc. 11,500 246,531
Golf Trust of America, Inc. 7,700 205,975
Taubman Centers, Inc. 27,500 376,406
------------
1,389,225
------------
1,890,631
CONSUMER MANUFACTURING-8.3%
AUTO & RELATED-8.3%
Budget Group, Inc. Cl.A (a) 33,300 597,319
Dollar Thrifty Automotive Group, Inc. (a) 25,200 341,775
Group 1 Automotive, Inc. (a) 16,700 285,987
Miller Industries, Inc. (a) 13,600 71,400
Monaco Coach Corp. (a) 8,550 259,706
United Auto Group, Inc. (a) 10,800 148,500
------------
1,704,687
ENERGY-2.7%
OIL & GAS SERVICES-2.7%
Parker Drilling Co. (a) 24,800 122,450
Southern Union Co. 18,200 422,013
------------
544,463
Total Common Stocks (cost $21,392,880) 17,942,671
18
ALLIANCE QUASAR INSTITUTIONAL FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- -------------------------------------------------------------------------
SHORT-TERM INVESTMENT-17.5%
U.S. GOVERNMENT & AGENCY-17.5%
Student Loan Marketing Assn.
5.42%, 11/02/98
(amortized cost $3,599,458) $3,600 $ 3,599,458
TOTAL INVESTMENTS-105.0%
(cost $24,992,338) $21,542,129
Other assets less liabilities-(5.0%) (1,029,101)
NET ASSETS-100% $20,513,028
(a) Non-income producing security.
(b) Country of origin--Italy.
(c) Country of origin--Ireland.
(d) Country of origin--Luxembourg.
Glossary:
ADR - American Depositary Receipt
See notes to financial statements.
19
PORTFOLIO OF INVESTMENTS ALLIANCE REAL ESTATE INVESTMENT
OCTOBER 31, 1998 INSTITUTIONAL FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- -------------------------------------------------------------------------
COMMON STOCKS-97.3%
REAL ESTATE INVESTMENT TRUSTS-97.3%
APARTMENTS-8.5%
AvalonBay Communities, Inc. 21,500 $ 690,688
Essex Property Trust, Inc. 22,800 715,350
Irvine Apartment Communities, Inc. 5,400 141,750
------------
1,547,788
CORRECTIONAL FACILITIES-2.2%
Correctional Properties Trust 21,100 410,131
DIVERSIFIED-11.6%
Entertainment Properties Trust 27,200 452,200
Glenborough Realty Trust, Inc. 29,900 640,981
Golf Trust of America, Inc. 14,600 390,550
Vornado Realty Trust 18,600 626,588
------------
2,110,319
HOTELS & RESTAURANTS-10.6%
Innkeepers USA Trust 33,700 387,550
MeriStar Hospitality Corp. 25,755 476,468
Patriot American Hospitality, Inc. 45,000 399,375
Starwood Hotels & Resorts 20,200 571,912
Sunstone Hotel Investors, Inc. 9,600 87,000
------------
1,922,305
OFFICE-26.0%
Arden Realty, Inc. 29,700 642,262
Boston Properties, Inc. 18,100 515,850
Brookfield Properties Corp. (a) 55,500 593,487
Crescent Real Estate Equities Co. 27,800 696,737
Equity Office Properties Trust 37,900 909,600
Great Lakes REIT, Inc. 14,400 236,700
Mack-Cali Realty Corp. 14,000 414,750
SL Green Realty Corp. 38,100 721,519
------------
4,730,905
OFFICE - INDUSTRIAL MIX-13.5%
Brandywine Realty Trust 28,500 509,437
Duke Realty Investments, Inc. 15,200 362,900
Highwoods Properties, Inc. 16,900 472,144
Reckson Associates Realty
Corp. 24,400 553,575
Spieker Properties, Inc. 16,100 555,450
------------
2,453,506
REAL ESTATE DEVELOPMENT & MANAGEMENT-.2%
Excel Legacy Corp. (b) 5,000 13,750
Reckson Services Industries, Inc. (b) 10,416 20,181
------------
33,931
REGIONAL MALLS-6.1%
Macerich Co. 21,400 589,837
Mills Corp. 24,200 524,838
------------
1,114,675
SHOPPING CENTERS-9.0%
Burnham Pacific Properties, Inc. 31,900 418,687
New Plan Excel Realty Trust, Inc. 18,260 415,415
Pacific Retail Trust Co. (b)(c) 7,500 82,800
Pan Pacific Retail Properties, Inc. 38,800 725,075
------------
1,641,977
STORAGE-3.7%
Public Storage, Inc. 25,400 677,863
WAREHOUSE & INDUSTRIAL-5.9%
Cabot Industrial Trust 23,400 468,000
ProLogis Trust 27,600 602,025
------------
1,070,025
Total Common Stocks (cost $21,740,670) 17,713,425
SHORT-TERM INVESTMENT-4.3%
TIME DEPOSIT-4.3%
State Street Cayman Islands
4.75%, 11/02/98
(cost $778,000) $778 778,000
TOTAL INVESTMENTS-101.6%
(cost $22,518,670) 18,491,425
Other assets less liabilities-(1.6%) (298,082)
NET ASSETS-100% $18,193,343
(a) Country of origin--Canada.
(b) Non-income producing security.
(c) Illiquid security, valued at fair market value (see Note A).
See notes to financial statements.
20
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1998 ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
<TABLE>
<CAPTION>
REAL ESTATE
PREMIER GROWTH QUASAR INVESTMENT
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
FUND FUND FUND
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at value
(cost $54,720,190, $24,992,338 and
$22,518,670, respectively) $59,927,485 $21,542,129 $ 18,491,425
Cash 500 129,765 2,074
Receivable for capital stock sold 549,317 6,139,085 59,455
Receivable for investment securities sold 129,313 80,883 58,482
Deferred organization expenses 61,218 63,938 60,098
Interest and dividends receivable 19,671 3,059 25,042
Receivable due from adviser 27,685 17,741 2,822
Total assets 60,715,189 27,976,600 18,699,398
LIABILITIES
Payable for investment securities purchased 587,186 1,453,412 193,240
Payable for capital stock redeemed 53,279 5,883,750 196,807
Distribution fee payable 649 467 -0-
Accrued expenses 165,765 125,943 116,008
Total liabilities 806,879 7,463,572 506,055
NET ASSETS $59,908,310 $20,513,028 $ 18,193,343
COMPOSITION OF NET ASSETS
Capital stock, at par $ 4,748 $ 2,766 $ 2,340
Additional paid-in capital 55,567,622 25,245,229 22,501,152
Undistributed net investment income 16,136 2,356 40,785
Accumulated net realized loss on
investments and foreign currency
transactions (887,491) (1,287,114) (323,689)
Net unrealized appreciation
(depreciation) of investments 5,207,295 (3,450,209) (4,027,245)
$59,908,310 $20,513,028 $18,193,343
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS I SHARES
Net asset value, redemption and offering
price per share ($56,893,921 / 4,508,047,
$20,512,745 / 2,765,729 and $18,193,023 /
2,339,663 shares of capital stock issued
and outstanding, respectively) $12.62 $ 7.42 $ 7.78
CLASS II SHARES
Net asset value, redemption and offering
price per share ($3,014,389 / 239,539,
$283 / 38.2 and $320 / 41.2 shares of
capital stock issued and outstanding,
respectively) $12.58 $ 7.40 $ 7.77
</TABLE>
See notes to financial statements.
21
STATEMENTS OF OPERATIONS
PERIOD ENDED OCTOBER 31, 1998 ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
<TABLE>
<CAPTION>
REAL ESTATE
PREMIER GROWTH QUASAR INVESTMENT
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
FUND(A) FUND(B) FUND(C)
-------------- ------------- -------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends (Net of foreign taxes withheld
of $5,953, $1,197 and $250, respectively) $ 201,882 $ 67,134 $ 799,152
Interest 66,174 47,911 34,834
Total income 268,056 115,045 833,986
EXPENSES
Advisory fee 274,226 93,387 123,142
Distribution fee - Class II 3,838 468 1
Administrative 102,500 71,750 112,750
Audit and legal 71,176 63,757 61,936
Custodian 66,455 47,624 51,166
Printing 41,874 21,246 21,809
Registration 29,926 20,539 18,171
Transfer agency 15,683 5,408 7,508
Directors' fees 13,000 5,000 13,000
Amortization of organization expenses 11,880 9,160 13,000
Miscellaneous 2,640 749 976
Total expenses 633,198 339,088 423,459
Less: expenses waived and reimbursed
by adviser (See Note B) (381,278) (226,399) (286,633)
Net expenses 251,920 112,689 136,826
Net investment income 16,136 2,356 697,160
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Net realized loss on investment transactions (887,491) (1,287,114) (323,689)
Net realized loss on foreign currency
transactions -0- -0- (1,254)
Net unrealized appreciation (depreciation)
of investments 5,207,295 (3,450,209) (4,027,245)
Net gain (loss) on investments and foreign
currency transactions 4,319,804 (4,737,323) (4,352,188)
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $4,335,940 $(4,734,967) $(3,655,028)
</TABLE>
(a) Commencement of operations, January 7, 1998.
(b) Commencement of operations, March 17, 1998.
(c) Commencement of operations, December 9, 1997.
22
STATEMENT OF CHANGES IN NET ASSETS
PERIOD ENDED OCTOBER 31, 1998 ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
<TABLE>
<CAPTION>
REAL ESTATE
PREMIER GROWTH QUASAR INVESTMENT
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
FUND(A) FUND(B) FUND(C)
-------------- ------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income $ 16,136 $ 2,356 $ 697,160
Net realized loss on investments and
foreign currency transactions (887,491) (1,287,114) (324,943)
Net unrealized appreciation (depreciation)
of investments 5,207,295 (3,450,209) (4,027,245)
Net increase (decrease) in net assets
from operations 4,335,940 (4,734,967) (3,655,028)
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income
Class I -0- -0- (655,108)
Class II -0- -0- (13)
CAPITAL STOCK TRANSACTIONS
Net increase 55,539,040 25,214,665 22,470,152
Total increase 59,874,980 20,479,698 18,160,003
NET ASSETS
Beginning of period 33,330 33,330 33,340
End of period (including undistributed net
investment income of $16,136, $2,356
and $114,408, respectively) $59,908,310 $20,513,028 $18,193,343
</TABLE>
(a) Commencement of operations, January 7, 1998.
(b) Commencement of operations, March 17, 1998.
(c) Commencement of operations, December 9, 1997.
23
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998 ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Institutional Funds, Inc. (the "Company") was organized as a Maryland
corporation on October 3, 1997 and is registered under the Investment Company
Act of 1940 as an open-end series investment company. The Company is comprised
of three funds, Alliance Premier Growth Institutional Fund, Alliance Quasar
Institutional Fund and Alliance Real Estate Investment Institutional Fund (the
"Funds"). Each Fund has different investment objectives and policies. Prior to
the commencement of operations on January 7, 1998, March 17, 1998 and December
9, 1997, respectively, the Funds had no operations other than the sale to
Alliance Capital Management L.P. (the "Adviser") of 3,300 shares of Class I
common stock of each Fund for $33,000, and 33 shares of Class II common stock
of the Alliance Premier Growth Institutional Fund and the Alliance Quasar
Institutional Fund for $330 and 34 shares of Class II common stock of the
Alliance Real Estate Investment Institutional Fund for $340 in each case on
November 12, 1997. Each Fund offers Class I and Class II shares. Sales are made
without a sales charge, at each Fund's net asset value per share. Each class of
shares have identical voting, dividend, liquidation and other rights, except
that each class bears different distribution expenses and has exclusive voting
rights with respect to its distribution plan. The financial statements have
been prepared in conformity with generally accepted accounting principles which
require management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities in the financial statements and
amounts of income and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of significant
accounting policies followed by the Funds.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sale price or if no sale occurred, at the
mean of the closing bid and asked price on that day. Readily marketable
securities traded in the over-the-counter market, securities listed on a
foreign securities exchange whose operations are similar to the U.S.
over-the-counter market, and securities listed on a national securities
exchange whose primary market is believed to be over-the-counter, are valued at
the mean of the current bid and asked prices. U.S. government and fixed income
securities which mature in 60 days or less are valued at amortized cost, unless
this method does not represent fair value. Securities for which current market
quotations are not readily available are valued at their fair value as
determined in good faith by, or in accordance with procedures adopted by, the
Board of Directors. Fixed income securities may be valued on the basis of
prices obtained from a pricing service when such prices are believed to reflect
the fair market value of such securities.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the
mean of the quoted bid and asked price of such currencies against the U.S.
dollar. Purchases and sales of portfolio securities are translated into U.S.
dollars at the rates of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated into U.S. dollars at rates of
exchange prevailing when accrued.
Net realized foreign currency gains and losses represent foreign exchange gains
and losses from sales and maturities of securities, closed forward exchange
currency contracts, holding of foreign currencies, options on foreign
currencies, exchange gains and losses realized between the trade and settlement
dates on security transactions, and the difference between the amounts of
interest and dividends recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net currency gains and losses
from valuing foreign currency denominated assets and liabilities at period end
exchange rates are reflected as a component of net unrealized appreciation
(depreciation) of investments and foreign currency denominated assets and
liabilities.
3. ORGANIZATION EXPENSES
Organization expenses of approximately $73,099 for the Real Estate Investment
Institutional Fund, $73,098 for the Premier Growth Institutional Fund and
$73,098 for the Quasar Institutional Fund have been deferred and are being
amortized on a straight-line basis through December 2002, January and March
2003, respectively.
24
ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
4. TAXES
It is each Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
5. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Investment transactions are accounted for on the trade date securities
are purchased or sold. The Fund accretes discounts and amortizes premiums as
adjustments to interest income. Investment gains and losses are determined on
the identified cost basis.
6. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each outstanding class of shares, based on the proportionate interest
in the Fund represented by the net assets of such class, except that Class II
shares bear higher transfer agent fees. Expenses of the Trust are charged to
each Fund in proportion to net assets.
7. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Income dividends and capital gains distributions are determined in accordance
with federal tax regulations and may differ from those determined in accordance
with generally accepted accounting principles. To the extent these differences
are permanent, such amounts are reclassified within the capital accounts based
on their federal tax basis treatment; temporary differences, do not require
such reclassification.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Funds pay Alliance
Capital Management L.P. (the "Adviser"), an advisory fee at an annual rate of
.90% of the Real Estate Investment Institutional Fund's average daily net
assets and 1% of the Premier Growth Institutional Fund and Quasar Institutional
Fund's average daily net assets. Such fees are accrued daily and paid monthly.
The Adviser has agreed to voluntarily waive its fees and bear certain expenses
so that total expenses do not exceed on an annual basis .90% and 1.30% of
average daily net assets for Class I and Class II of the Premier Growth
Institutional Fund; 1.20% and 1.60% of average daily net assets for Class I and
Class IIof the Quasar Institutional Fund and 1.00% and 1.40% of average daily
net assets for Class Iand Class II for the Real Estate Investment Institutional
Fund. Effective November 1, 1998, the voluntary fee was increased so that total
expenses do not exceed on an annual basis 1.35% of average daily net assets for
Class II of the Quasar Institutional Fund. For the period ended October 31,
1998 such reimbursement amounted to: Premier Growth Institutional Fund
$278,778; Quasar Institutional Fund $154,649 and Real Estate Investment
Institutional Fund $173,883.
Pursuant to the advisory agreement, the Adviser provides to each Fund certain
legal and accounting services. For the period ended October 31, 1998, the
Adviser agreed to waive its fees for such services. Such waiver amounted to:
Premier Growth Institutional Fund $102,500; Quasar Institutional Fund $71,750
and Real Estate Investment Institutional Fund $112,750.
The Funds compensate Alliance Fund Services, Inc., a wholly-owned subsidiary of
the Adviser, under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Funds. Such compensation
amounted to $14,991, $4,825 and $6,841, respectively for the Premier Growth
Institutional Fund, the Quasar Institutional Fund and the Real Estate
Investment Institutional Fund for the period ended October 31, 1998.
Brokerage commissions paid on investment transactions for the period ended
October 31, 1998 amounted to $85,675 for the Premier Growth Institutional Fund;
$58,337 for the Quasar Institutional Fund and $51,639 for the Real Estate
Investment Institutional Fund, of which $660 for the Premier Growth
Institutional Fund was paid to the Pershing Division of Donaldson, Lufkin &
Jenrette Securities Corp., an affiliate of the Adviser and $115 for the Quasar
Institutional Fund was paid to Donaldson, Lufkin & Jenrette Securities Corp.,
directly.
25
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Funds have adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Funds pay a distribution fee to the Distributor at an annual
rate of up to .30% of average daily net assets attributable to Class II shares.
There is no distribution fee on Class I shares. The fees are accrued daily and
paid monthly. The Agreement provides that the Distributor will use such
payments in their entirety for distribution assistance and promotional
activities. In accordance with the Agreement, there is no provision for
recovery of unreimbursed distribution costs incurred by the Distributor beyond
the current fiscal year for Class II shares. The Agreement also provides that
the Adviser may use its own resources to finance the distribution of the Fund's
shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
for the period ended October 31, 1998 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------------------------------- -----------------------------------
STOCKS AND U.S. GOVERNMENT STOCKS AND U.S. GOVERNMENT
FUND DEBT OBLIGATIONS AND AGENCIES DEBT OBLIGATIONS AND AGENCIES
- ------------------------------------ ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Premier Growth Institutional $83,703,108 $1,676,700 $29,727,168 $347,108
Quasar Institutional 31,168,054 -0- 8,488,059 -0-
Real Estate Investment Institutional 23,790,192 -0- 1,649,731 -0-
</TABLE>
At October 31, 1998, the cost of investments for federal income tax purposes
and the tax basis gross unrealized appreciation, depreciation and net
unrealized appreciation (depreciation), excluding foreign currency
transactions, were as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED NET UNREALIZED
------------------------------- APPRECIATION
FUND COST APPRECIATION DEPRECIATION (DEPRECIATION)
- ------------------------------------ --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Premier Growth Institutional $55,008,826 $6,826,419 $(1,907,760) $4,918,659
Quasar Institutional 25,284,080 550,698 (4,292,649) (3,741,951)
Real Estate Investment Institutional 22,634,636 9,548 (4,152,759) (4,143,211)
</TABLE>
For Federal income tax purposes at October 31, 1998, the Fund had capital loss
carry forwards for the Portfolios as follows: $598,855 expiring in 2006 for the
Premier Growth Institutional Fund $995,373 expiring 2006 for the Quasar
Institutional Fund, and $280,232 expiring in 2006 for the Real Estate
Investment Institutional Fund.
26
ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
NOTE E: CAPITAL STOCK
There are 18,000,000,000 shares of $.001 par value capital stock authorized,
6,000,000,000 shares each for Premier Growth Institutional Fund, Quasar
Institutional Fund and Real Estate Investment Institutional Fund. Each Fund
consists of two classes designated Class I and Class II, each with
3,000,000,000 authorized shares. Transactions in shares of capital stock were
as follows:
PREMIER GROWTH INSTITUTIONAL FUND
--------------------------------------
SHARES AMOUNT
------------------ ------------------
JANUARY 7, 1998(A) JANUARY 7, 1998(A)
TO TO
OCTOBER 31, 1998 OCTOBER 31, 1998
------------------ ------------------
CLASS I
Shares sold 4,846,318 $56,837,599
Shares redeemed (341,571) (4,198,789)
Net increase 4,504,747 $52,638,810
CLASS II
Shares sold 307,955 $3,782,004
Shares redeemed (68,449) (881,774)
Net increase 239,506 $2,900,230
QUASAR INSTITUTIONAL FUND
-------------------------------------
SHARES AMOUNT
----------------- -----------------
MARCH 17, 1998(A) MARCH 17, 1998(A)
TO TO
OCTOBER 31, 1998 OCTOBER 31, 1998
----------------- -----------------
CLASS I
Shares sold 3,009,763 $27,395,135
Shares redeemed (247,334) (1,985,986)
Net increase 2,762,429 $25,409,149
CLASS II
Shares sold 785,381 $ 5,617,297
Shares redeemed (785,376) (5,811,781)
Net increase (decrease) 5 $ (194,484)
(a) Commencement of operations.
27
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
REAL ESTATE INVESTMENT
INSTITUTIONAL FUND
---------------------------------
SHARES AMOUNT
--------------- ---------------
DEC. 9, 1997(A) DEC. 9, 1997(A)
TO TO
OCT. 31, 1998 OCT. 31, 1998
--------------- ---------------
CLASS I
Shares sold 2,486,932 $23,779,985
Shares issued in reinvestment of dividends 78,721 655,108
Shares redeemed (229,290) (1,965,003)
Net increase 2,336,363 $22,470,090
CLASS II
Shares sold 6 $ 50
Shares issued in reinvestment of dividends 1 12
Net increase 7 $ 62
(a) Commencement of operations.
28
FINANCIAL HIGHLIGHTS ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
REAL ESTATE
PREMIER GROWTH QUASAR INVESTMENT
INSTITUTIONAL FUND INSTITUTIONAL FUND INSTITUTIONAL FUND
CLASS I CLASS I CLASS I
JANUARY 7, 1998(A) MARCH 17, 1998(A) DECEMBER 9, 1997(A)
TO TO TO
OCTOBER 31, 1998 OCTOBER 31, 1998 OCTOBER 31, 1998
------------------ ------------------ -------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.00 $10.00 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .01 -0- .43
Net realized and unrealized gain (loss)
on investment transactions 2.61 (2.58) (2.26)
Net increase (decrease) in net asset
value from operations 2.62 (2.58) (1.83)
LESS: DIVIDENDS
Dividends from net investment income -0- -0- (.39)
Net asset value, end of period $12.62 $7.42 $7.78
TOTAL RETURN
Total investment return based on net
asset value (c) 26.20% (25.80)% (18.61)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $56,894 $20,513 $18,193
Ratios to average net assets of:
Expenses, net of waivers/
reimbursements (d) .90% 1.20% 1.00%
Expenses, before waivers/
reimbursements (d) 2.29% 3.82% 3.09%
Net investment income (d) .08% .03% 5.62%
Portfolio turnover rate 86% 61% 11%
</TABLE>
See footnote summary on page 30.
29
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
REAL ESTATE
PREMIER GROWTH QUASAR INVESTMENT
INSTITUTIONAL FUND INSTITUTIONAL FUND INSTITUTIONAL FUND
CLASS II CLASS II CLASS II
JANUARY 7, 1998(A) MARCH 17, 1998(A) DECEMBER 9, 1997(A)
TO TO TO
OCTOBER 31, 1998 OCTOBER 31, 1998 OCTOBER 31, 1998
------------------ ------------------ -------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.00 $10.00 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (b) (.03) (5.89) .41
Net realized and unrealized gain (loss)
on investment transactions 2.61 3.29 (2.28)
Net increase (decrease) in net asset
value from operations 2.58 (2.60) (1.87)
LESS: DIVIDENDS
Dividends from net investment income -0- -0- (.36)
Net asset value, end of period $12.58 $7.40 $7.77
TOTAL RETURN
Total investment return based on net
asset value (c) 25.80% (26.00)% (19.02)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $3,014 (e) $283$320
Ratios to average net assets of:
Expenses, net of waivers/
reimbursements (d) 1.30% 1.60% 1.40%
Expenses, before waivers/
reimbursements (d) 2.65% 4.62% 3.59%
Net investment income (loss) (d) (.38)% (.14)% 5.04%
Portfolio turnover rate 86% 61% 11%
</TABLE>
(a) Commencement of operations.
(b) Based on average shares outstanding.
(c) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Total investment return calculated
for a period of less than one year is not annualized.
(d) Annualized.
(e) 000's omitted.
30
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE INSTITUTIONAL FUNDS
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS ALLIANCE INSTITUTIONAL FUNDS
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Alliance Institutional Funds
(comprising, respectively, the Alliance Premier Growth Institutional Fund,
Alliance Quasar Institutional Fund and Alliance Real Estate Investment
Institutional Fund) as of October 31, 1998, and the related statements of
operations, changes in net assets and financial highlights for the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1998, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting the Alliance Institutional Funds as of
October 31, 1998, the results of their operations, changes in their net assets,
and the financial highlights for the periods indicated therein, in conformity
with generally accepted accounting principles.
New York, New York
December 9, 1998
31
<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 333-37177 and 811-08403.
<PAGE>
(LOGO) ALLIANCE INSTITUTIONAL FUNDS, INC.
- ALLIANCE SPECIAL EQUITY INSTITUTIONAL FUND
_________________________________________________________________
c/o Alliance Fund Services, Inc.
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
May 1, 1999
_________________________________________________________________
This Statement of Additional Information is not a
prospectus but supplements and should be read in conjunction with
the Prospectus dated May 1, 1999 (the "Prospectus") for Alliance
Institutional Funds, Inc. - Alliance Special Equity Institutional
Fund. Copies of the Prospectus may be obtained by contacting
Alliance Fund Services, Inc. at the address or the "For
Literature" telephone number shown above.
TABLE OF CONTENTS
PAGE
DESCRIPTION OF THE FUND.....................................
MANAGEMENT OF THE FUND......................................
EXPENSES OF THE FUND........................................
PURCHASE OF SHARES..........................................
REDEMPTION AND REPURCHASE OF SHARES.........................
SHAREHOLDER SERVICES........................................
NET ASSET VALUE.............................................
DIVIDENDS, DISTRIBUTIONS AND TAXES..........................
PORTFOLIO TRANSACTIONS......................................
GENERAL INFORMATION.........................................
(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 herein 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 four portfolios: Alliance
Special Equity Institutional Fund (the "Fund"), which is
described in this Statement of Additional Information, and
Alliance Premier Growth Institutional Fund, 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.
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.
The following investment policies and restrictions
supplement those set forth in the Prospectus. Except as
otherwise noted, the Fund's investment policies described below
are not designated "fundamental policies" within the meaning of
the Investment Company Act of 1940, as amended, (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 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,
2
<PAGE>
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
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
buy 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 Alliance Capital Management L.P., the
Fund's adviser (the "Adviser") for inclusion in the Fund's
portfolio. 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 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 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, a change in perception as to the potential of the
underlying security, or any combination of these factors. If the
market price of the underlying security is below the exercise
price of 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.
3
<PAGE>
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 are affected by exchange control regulations as well
as by changes in governmental administration, economic or
monetary policy (in the United States and abroad) and changed
circumstances in dealings between nations. Currency exchange
rate movements 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
comparable 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 United States, including
expropriation, confiscatory taxation and potential difficulties
in enforcing contractual obligations.
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, the
portion of the Fund's investment portfolio invested in foreign
securities may experience greater price volatility and
significantly lower liquidity than a portfolio invested solely in
equity securities of U. S. 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. 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 issuers 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 the 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
4
<PAGE>
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.
The 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 the Fund to adopt special procedures that may involve
additional costs to the Fund. These factors may affect the
liquidity of the Fund's investments in any country in which any
of these factors exists. The Adviser will monitor the effect of
any such factor or factors on the Funds 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 and the Fund's investments. In
the event of expropriation, nationalization, or other
confiscation, the 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.
Illiquid Securities. The Fund will not 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
5
<PAGE>
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.
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 such 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 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 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.
6
<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 has already produced enhanced
liquidity for many restricted securities, and market liquidity
for such securities may continue to expand as a result of this
regulation 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. 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 the Fund's Directors.
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").
Because of the absence of a trading market for illiquid
securities, the Fund may not be able to realize their full value
upon sale. 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 the
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.
7
<PAGE>
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.
Loans of Portfolio Securities. The risk in lending
portfolio securities, as with other extensions of credit,
consists of the possible loss of rights in the collateral should
the borrower fail financially. In determining whether to lend
securities to a particular borrower, the Adviser 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 from the securities.
The Fund may invest any cash collateral in portfolio securities
and earn additional income, or receive an agreed-upon amount of
income from a borrower who has delivered equivalent collateral.
The 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. The Fund may pay
reasonable finders, administrative and custodial fees in
connection with a loan.
Repurchase Agreements. The Fund may enter into
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
buyers money is invested in the security. 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. If a vendor defaults on its repurchase obligation, the
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, the Fund might be delayed in, or prevented
from, selling the collateral for its benefit. The Adviser
monitors the creditworthiness of the vendors with which the Fund
enters into repurchase agreements.
Portfolio Turnover. The Fund's investment policies 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
8
<PAGE>
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 greater brokerage commission expenses than would
a lower rate, which expenses must be borne by the Fund and its
shareholders. See "Dividends, Distributions and Taxes."
Certain Fundamental Investment Policies
The following restrictions may not be changed without a
vote of a majority of the Fund's outstanding voting securities.
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.
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 from banks 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 to secure permitted
borrowings;
(e) 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;
9
<PAGE>
(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 a security if, as a result (unless
the security is acquired pursuant to a plan of
reorganization, merger, consolidation or an offer of
exchange), the Fund would own more than 3% of the total
outstanding voting stock of any investment company, more
than 5% of the value of the Fund's total assets would be
invested in securities of any one investment company or
more than 10% of the value of the Fund's total assets
would be invested in securities of any one or more
investment companies; 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, (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 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
10
<PAGE>
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. (the "Adviser"), a
Delaware limited partnership with principal offices at 1345
Avenue of the Americas, New York, New York 10105, has been
retained under an investment advisory agreement (the "Advisory
Agreement") to provide investment advice and, in general, to
conduct the management and investment program of the Fund under
the supervision of the Fund's Board of Directors (see "Management
of the Fund" in the Prospectus).
The Adviser is a leading international investment
manager supervising client accounts with assets as of
December 31, 1998, totaling more than $286 billion (of which more
than $118 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. The 54
registered investment companies managed by the Adviser,
comprising 118 separate investment portfolios, currently have
more than 3.6 million shareholder accounts. As of December 31,
1998, the Adviser and its subsidiaries employed approximately
2,000 employees who operate out of domestic offices and the
offices of subsidiaries in Bahrain, Bangalore, Cairo, Chennai,
Hong Kong, Istanbul, Johannesburg, London, Luxembourg, Madrid,
Moscow, Mumbai, New Delhi, Paris, Pune, Sao Paolo, Seoul,
Singapore, Sydney, Tokyo, Toronto, Vienna and Warsaw. As of
December 31, 1998, the Adviser was retained as an investment
manager for employee benefit plan assets of 35 of the FORTUNE 100
companies.
Alliance Capital Management Corporation ("ACMC"), the
sole general partner of, and the owner of a 1% general
partnership interest in the Adviser, is an indirect wholly-owned
subsidiary of the Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies
in the United States and a wholly-owned subsidiary of the
Equitable Companies Incorporated ("ECI"). ECI is a holding
company controlled by AXA-UAP ("AXA") a French insurance holding
company which at March 1, 1998, beneficially owned approximately
59% of the outstanding voting shares of ECI. As of June 30,
1998, ACMC, Inc. and Equitable Capital Management Corporation,
each a wholly-owned direct or indirect subsidiary of Equitable,
11
<PAGE>
together with Equitable, owned in the aggregate approximately 57%
of the issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser.
AXA is a holding company for an international group of
insurance and related financial services companies. AXA'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 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, as of March 31,
1998, more than 30% of the voting power of AXA was controlled
directly and indirectly by FINAXA, a French holding company. As
of March 31, 1998 approximately 74% of the voting power of FINAXA
was controlled directly and indirectly by four French mutual
insurance companies (the "Mutuelles AXA"), one of which, AXA
Assurances I.A.R.D. Mutuelle, itself controlled directly and
indirectly more than 42% of the voting power of FINAXA. Acting
as a group, the Mutuelles AXA control AXA and FINAXA.
Under the Advisory Agreement between the Company and the
Adviser (the "Advisory Agreement"), the Adviser furnishes advice
and recommendations with respect to the Fund's portfolio of
securities and investments and provides persons satisfactory to
the Board of Directors to act as officers and employees of the
Company. Such officers and employees may be employees of the
Adviser or its affiliates.
The Adviser is, under the Advisory Agreement,
responsible for certain expenses incurred by the Fund, including,
for example, office facilities and certain administrative
services, and any expenses incurred in promoting the sale of Fund
shares (other than the portion of the promotional expenses borne
by the Fund in accordance with an effective plan pursuant to Rule
12b-1 under the 1940 Act, and the costs of printing Company
prospectuses and other reports to shareholders and fees related
to registration with the Commission and with state regulatory
authorities).
The Fund has, under the Advisory Agreement, assumed the
obligation for payment of all of its other expenses. As to the
obtaining of services other than those specifically provided to
the Fund by the Adviser, the Fund may utilize personnel employed
by the Adviser or by other subsidiaries of Equitable. The Fund
may employ its own personnel or contract for services to be
12
<PAGE>
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% of the first $50 million, .75 of 1% of the excess over
$50 million up to $100 million and .50 of 1% of the excess over
$100 million of the average daily value of the Fund's net assets.
The fee is accrued daily and paid monthly.
The Advisory Agreement became effective on November 7,
1997, having been approved by the unanimous vote, cast in person,
of the Directors (including the Directors who are not parties to
the Advisory Agreement or interested persons, as defined by the
1940 Act, of any such party) at a meeting called for that purpose
held on that date, and by the Company's initial shareholder on
November 3, 1997. It has been amended with respect to the
establishment of the Fund, such amendment is expected to become
effective as of May 1, 1999.
The Advisory Agreement will remain in effect until
November 5, 1999 and continue in effect thereafter only so long
as its continuance is specifically approved 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 1940 Act.
The Advisory Agreement is terminable without penalty by
a vote of a majority of the Fund's outstanding voting securities
or by a vote of a majority of the Directors on 60 days' written
notice, or by the Adviser on 60 days' written notice, and will
automatically terminate in the event of its assignment. The
Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the
Adviser, or of reckless disregard of its obligations thereunder,
the Adviser shall not be liable for any action or failure to act
in accordance with its duties thereunder.
Certain other clients of the Adviser may 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
13
<PAGE>
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 Alliance 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
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
International Fund, Alliance International Premier Growth Fund,
Inc., 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., Alliance/Regent Sector
Opportunity Fund, Inc., Alliance Select Investor Series, Inc.,
Alliance Technology Fund, Inc., Alliance Utility Income Fund,
Inc., Alliance Variable Products Series Fund, Inc., Alliance
Worldwide Privatization Fund, Inc., The Alliance Portfolios 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 principal 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 of the following is 1345 Avenue of
the Americas, New York, New York 10105.
14
<PAGE>
Directors
JOHN D. CARIFA,**** 53, Chairman of the Board of
Directors, is the President, Chief Operating Officer and a
Director of Alliance Capital Management Corporation ("ACMC"),
with which he has been associated since prior to 1994.
RUTH BLOCK, 68, was formerly Executive Vice President
and Chief Insurance Officer of Equitable. She is a Director of
Ecolab Incorporated (specialty chemicals) and BP Amoco
Corporation (oil and gas). Her address is Box 4657, Stamford,
Connecticut, 06903.
DAVID H. DIEVLER, 69, is an independent consultant. He
was formerly a Senior Vice President of ACMC until 1994. He is
currently an independent consultant. His address is P.O. Box
167, Spring Lake, New Jersey, 07762.
JOHN H. DOBKIN, 57, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1993.
Previously, he was Director of the National Academy of Design.
His address is 150 White Plains Road, Tarrytown, New York 10591.
WILLIAM H. FOULK, JR., 66, is an Investment Advisor and
independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, since
1986. His address is Suite 100, 2 Greenwich Plaza, Greenwich,
Connecticut 06830.
DR. JAMES M. HESTER, 74, is President of the Harry Frank
Guggenheim Foundation, with which he has been associated since
prior to 1993. He was formerly President of New York University,
the New York Botanical Garden and Rector of the United Nations
University. His address is 25 Cleveland Lane, Princeton, New
Jersey 08540.
CLIFFORD L. MICHEL, 59, is a member of the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1993. He is President and Chief Executive Officer of
Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining). His address is St. Bernard's Road,
Gladstone, New Jersey 07934.
DONALD J. ROBINSON, 64, is Senior Counsel to the law
firm of Orrick, Herrington & Sutcliffe and was formerly a senior
partner and a member of the Executive Committee of that firm. His
address is 98 Hell's Peak Road, Weston, Vermont 05161.
____________________
**** An "interested person" of the Fund as defined in the
1940 Act.
15
<PAGE>
Officers
JOHN D. CARIFA, President, see biography under
"Directors" above.
ALFRED HARRISON, Executive Vice President, 61, is Vice
Chairman of the Board of ACMC, with which he has been associated
since prior to 1994.
ALDEN M. STEWART, Executive Vice President, 53, is an
Executive Vice President of ACMC, with which he has been
associated since prior to 1994.
KATHLEEN A. CORBET, Senior Vice President, 39, is an
Executive Vice President of ACMC, with which she has been
associated since prior to 1994.
RANDALL E. HAASE, Senior Vice President, 35, has been a
Vice President of ACMC, with which he has been associated with
since prior to 1994..
DANIEL G. PINE, Senior Vice President, 47, has been
associated with the Adviser since 1996. Previously, he was a
Senior Vice President of Desai Capital Management since prior to
1994.
THOMAS BARDONG, Vice President, 53, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1994.
DAVID KRUTH, Vice President, 34, is a Vice President of
ACMC, with which he has been associated since 1997. Prior
thereto he was a Senior Vice President of the Yarmouth Group.
MARK D. GERSTEN, Treasurer and Chief Financial Officer,
48, is a Senior Vice President of Alliance Fund Services, Inc.
("AFS") with which he has been associated since prior to 1994.
VINCENT S. NOTO, Controller, 34, is a Vice President of
AFS, with which he has been associated since prior to 1994.
EDMUND P. BERGAN, JR., Secretary, 48, is a Senior Vice
President and General Counsel of Alliance Fund Distributors, Inc.
("AFD") and AFS and Vice President and Assistant General Counsel
of ACMC, with which he has been associated since prior to 1994.
DOMENICK PUGLIESE, Assistant Secretary, 37, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since May 1995. Prior thereto, he was Vice
President and Counsel of Concord Holding Corporation since 1994,
16
<PAGE>
Vice President and Associate General Counsel of Prudential
Securities prior to 1994.
ANDREW L. GANGOLF, Assistant Secretary, 44, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since December 1994. Prior thereto he was a Vice
President and Assistant Secretary of Delaware Management Company,
Inc.
EMILIE D. WRAPP, Assistant Secretary, 43, is a Vice
President and Assistant General Counsel of AFD, with which she
has been associated since prior to 1994.
The aggregate compensation paid by the Fund to each of
the Directors during its fiscal year ended October 31, 1998, the
aggregate compensation paid to each of the Directors during
calendar year 1998 by all of the registered investment companies
to which the Adviser provides investment advisory services
(collectively, the "Alliance Fund Complex") and the total number
of registered investment companies (and separate investment
portfolios within those companies) in the Alliance Fund Complex
with respect to which each of the Directors serves as a director
or trustee, are set forth below. Neither the Fund nor any other
fund in the Alliance Fund Complex provides compensation in the
form of pension or retirement benefits to any of its directors or
trustees. Each of the Directors is a director or trustee of one
or more other registered investment companies in the Alliance
Fund Complex.
Total Number Total Number
of Investment of Investment
Companies in Portfolios
the Alliance within the
Total Complex, Alliance Fund
Compensation Including the Complex,
from the Company, as including the
Aggregate Alliance Fund to which the Fund, as to
Compensation Complex, Director is a which the
from the Including the Director or Director is a
Name of Director Company Company Trustee Director or Trustee
John D. Carifa $ -0- $ -0- 50 114
Ruth Block $1,613 $180,763 37 77
David H. Dievler $1,613 $216,288 43 80
John H. Dobkin $1,604 $185,363 41 91
William H. Foulk, Jr. $1,611 $241,003 45 109
Dr. James M. Hester $1,616 $172,913 37 74
Clifford L. Michel $1,616 $187,763 38 90
Donald J. Robinson $1,613 $193,709 41 103
17
<PAGE>
As of May 1, 1999, 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 Company 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 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").
Pursuant to its Rule 12b-1 Plan, the Fund pays to the Principal
Underwriter 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 Funds aggregate average daily net assets for
distribution expenses.
Distribution services fees are accrued daily and paid
monthly and are 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 became effective on November 14, 1997.
The Agreement will continue in effect so long as its 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.
18
<PAGE>
In approving the Rule 12b-1 Plan, the Directors of the
Fund determined that there was a reasonable likelihood that the
Rule 12b-1 Plan would benefit the Fund and its Class II
shareholders. The distribution services fee of a particular
class will not be used to subsidize the provision of distribution
services with respect to any other class.
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.
In the event that the Rule 12b-1 Plan is terminated or
not continued with respect to the Class II shares (i) no
distribution services fee (other than current amounts accrued but
not yet paid) would be owed by the Fund to the Principal
Underwriter with respect to that class, and (ii) the Fund would
not be obligated to pay the Principal Underwriter for any amounts
expended under the Agreement not previously recovered by the
Principal Underwriter from distribution services fees in respect
of shares of such class.
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.
Transfer Agency Agreement
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser located at 500 Plaza Drive, Secaucus,
New Jersey 07094 ("AFS"), acts as the Fund's registrar, transfer
agent and dividend-disbursing agent. AFS receives a transfer
agency fee per account holder of each of the Class I and Class II
shares of the Fund, plus reimbursement for 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.
19
<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 $10 million in assets, (iii) by investment advisory
clients of the Adviser or its affiliates, (iv) by (a) officers
and present or former Directors of the Company, (b) present or
former directors and trustees of other investment companies
managed by the Adviser, (c) present or retired full-time
employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates, (d) officers and
directors of ACMC, the Principal Underwriter, Alliance Fund
Services, Inc. and their affiliates, (e) (1) the spouse, sibling,
direct ancestor or direct descendant (collectively "relatives")
of any person listed in (a) through (d), (2) any trust,
individual retirement account or retirement plan account for the
benefit of any person listed in (a) through (d) or a relative of
such person, or (3) the estate of any person listed in (a)
through (d) or a relative of such person, if such shares are
purchased for investment purposes (such shares may not be resold
except to the Fund), (v) by (a) the Adviser, the Principal
Underwriter, Alliance Fund Services, Inc. and their affiliates or
(b) certain employee benefit plans for employees of the Adviser,
the Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates, and (vi) through registered investment advisers or
other financial intermediaries who charge a management,
consulting or other fee for their service and who purchase shares
through a broker or agent approved by the Principal Underwriter,
and clients of such registered investment advisers or financial
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
20
<PAGE>
established by the Principal Underwriter, and (ii) Employee Plans
that have at least $10 million in assets.
The shares of the Fund are offered on a continuous basis
at a price equal to their net asset value. The minimum initial
investment in the Company is $2,000,000, which may be invested in
any one or more of the Funds. Investments made through fee-based
or "wrap fee" programs will satisfy the minimum initial
investment requirement if the fee-based or "wrap fee" program, as
a whole, invests at least $2,000,000 in one or more of the Funds.
There is no minimum for subsequent investments. The minimum
initial investment may be waived in the discretion of the
Company.
Investors may purchase shares of the Fund through their
financial representatives. A transaction, service,
administrative or other similar fee may be charged by your
financial representative with respect to the purchase, sale or
exchange of shares made through such financial representative.
Such 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
21
<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. Eastern time. 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
subscriber's account in the amount purchased by the subscriber.
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 subscriber's financial representative.
This facilitates later redemption and relieves the shareholder of
the responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
although such shares remain in the shareholder's account on the
books of the Fund.
In addition to the discount or commission which may be
paid to dealers or agents in connection with the sale of Fund
shares, the Principal Underwriter from time to time may pay
additional cash or other incentives to dealers or agents,
including EQ Financial Consultants, Inc., formerly Equico
22
<PAGE>
Securities, Inc., an affiliate of the Principal Underwriter, in
connection with such sales. Such additional amounts may be
utilized, in whole or in part, to provide additional compensation
to registered representatives who sell shares of the Fund. On
some occasions, cash or other incentives will be conditioned upon
the sale of a specified minimum dollar amount of the shares of
the Fund and/or other Alliance Mutual Funds, as defined below,
during a specific period of time. On some occasions, such cash
or other incentives may take the form of payment for attendance
at seminars, meals, sporting events or theater performances, or
payment for travel, lodging and entertainment incurred in
connection with travel taken by persons associated with a dealer
or agent and their immediate family members to urban or resort
locations within or outside the United States. Such dealer or
agent may elect to receive cash incentives of equivalent amount
in lieu of such payments.
Class I and Class II shares each represent an interest
in the same portfolio of investments of the Fund, have the same
rights and are identical in all respects, except that
(i) Class II has exclusive voting rights with respect to
provisions of the Rule 12b-1 Plan pursuant to which its
distribution services fees are paid and other matters for which
separate class voting is appropriate under applicable law,
provided that, if the Fund submits to a vote of the Class II
shareholders an amendment to the Rule 12b-1 Plan that would
materially increase the amount to be paid thereunder with respect
to the Class II shares, then such amendment will also be
submitted to the Class I shareholders and the Class II and Class
I shareholders will vote separately thereon by class and
(ii) Class I shares are subject to a conversion feature.
The Directors have determined that currently no conflict
of interest exists between Class I and Class II shares. On an
ongoing basis, the Directors, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
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
23
<PAGE>
described in this Statement of Additional Information (each, a
"Conversion Event"), then all Class I shares held by the
shareholder will convert automatically and without notice to the
shareholder, other than the notice contained in this Statement of
Additional Information, to Class II shares of the Fund during the
calendar month following the month in which the Fund is informed
or otherwise learns of the occurrence of the Conversion Event.
The failure of a shareholder or a fee-based program to satisfy
the minimum investment requirements to purchase Class I shares
will not constitute a Conversion Event. The conversion would
occur on the basis of the relative net asset values of the two
classes and without the imposition of any sales load, fee or
other charge. Class II shares currently bear a .30% distribution
services fee and have a higher expense ratio than Class I shares.
As a result, Class II shares may pay correspondingly lower
dividends and have a lower net asset value than Class I shares.
The conversion of Class I shares to Class II shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class I shares to Class II
shares does not constitute a taxable event under federal income
tax law. The conversion of Class I shares to Class II shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, the Class I
shareholder would be required to redeem his Class I shares, which
would constitute a taxable event under federal income tax law.
_________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in
the Prospectus under the heading "Purchase and Sale of Shares-
- -How to Sell Shares." If you are a shareholder through an
account established under a fee-based program, your fee-based
program may impose requirements with respect to the purchase,
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
24
<PAGE>
program or employee benefit plan, the shareholder should contact
the shareholder's financial representative.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the Commission determines
that trading thereon is restricted, or for any period during
which an emergency (as determined by the Commission) exists as a
result of which disposal by the Fund of securities owned by it is
not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Commission
may by order permit for the protection of security holders of the
Fund.
Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
repurchase. Payment received by a shareholder upon redemption or
repurchase of the shareholder's shares, assuming the shares
constitute capital assets in the shareholder's hands, will result
in long-term or short-term capital gains (or loss) depending upon
the shareholder's holding period and basis in respect of the
shares redeemed.
To redeem shares of the Fund for which no stock
certificates have been issued, the registered owner or owners
should forward a letter to the Company containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an institution that is an "eligible guarantor
institution" as defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended.
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.
25
<PAGE>
Telephone Redemption by Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer once in any 30-day period (except for certain
omnibus accounts), of shares for which no stock certificates have
been issued by telephone at (800) 221-5672 by a shareholder who
has completed the appropriate portion of the Subscription
Application or, in the case of an existing shareholder, an
"Autosell" application obtained from Alliance Fund Services, Inc.
A telephone redemption request may not exceed $100,000 (except
for certain omnibus accounts) and must be made by 4:00 p.m.
Eastern time on a Company business day as defined above.
Proceeds of telephone redemptions will be sent by electronic
funds transfer to a shareholder's designated bank account at a
bank selected by the shareholder that is a member of the NACHA.
Telephone Redemption by Check. Except for certain
omnibus accounts or as noted below, each Fund shareholder is
eligible to request redemption by check, once in any 30-day
period, of shares for which no stock certificates have been
issued by telephone at (800) 221-5672 before 4:00 p.m. Eastern
time on a Company business day in an amount not exceeding
$50,000. Proceeds of such redemptions are remitted by check to
the shareholder's address of record. Telephone redemption by
check is not available with respect to shares (i) for which
certificates have been issued, (ii) held in nominee or "street
name" accounts, (iii) held by a shareholder who has changed his
or her address of record within the preceding 30 calendar days or
(iv) held in any retirement plan account. A shareholder
otherwise eligible for telephone redemption by check may cancel
the privilege by written instruction to Alliance Fund Services,
Inc., or by checking the appropriate box on the Subscription
Application found in the Prospectus.
Telephone Redemptions - General. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
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
26
<PAGE>
resulting transactions to be sent to shareholders. If the
Company did not employ such procedures, it could be liable for
losses arising from unauthorized or fraudulent telephone
instructions. Financial representatives may charge a commission
for handling telephone requests for redemptions.
Repurchase
The Company may repurchase shares through the Principal
Underwriter or selected financial intermediaries. The repurchase
price will be the net asset value next determined after the
Principal Underwriter receives the request, except that requests
placed through selected financial representatives before the
close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary is
responsible for transmitting the request to the Principal
Underwriter by 5:00 p.m. If the financial intermediary fails to
do so, the shareholder's right to receive that day's closing
price must be settled between the shareholder and the financial
representative. A shareholder may offer shares of the Fund to
the Principal Underwriter either directly or through the
shareholder's financial representative. Neither the Company nor
the Principal Underwriter charges a fee or commission in
connection with the repurchase of shares. Normally, if shares of
the Fund are offered through a financial intermediary, the
repurchase is settled by the shareholder as an ordinary
transaction with or through the financial representative, who may
charge the shareholder for this service. The repurchase of
shares of the Fund as described above is a voluntary service of
the Fund and the Fund may suspend or terminate this practice at
any time.
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.
27
<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
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
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 International Fund
Alliance International Premier Growth Fund, Inc.
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
28
<PAGE>
-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 Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Short-Term U.S. Government Fund
Please read carefully the portions of the prospectus of
the Fund or 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 Fund or Alliance Mutual Fund
whose shares are being acquired, as applicable. An exchange is
effected through the redemption of the shares tendered for
exchange and the purchase of shares being acquired at their
respective net asset values as next determined following receipt
by the Fund or the Alliance Mutual Fund, as applicable, whose
shares are being exchanged of (i) proper instructions and all
necessary supporting documents as described in that fund's
prospectus, or (ii) a telephone request for such exchange in
accordance with the procedures set forth in the following
paragraph. Exchanges involving the redemption of shares recently
purchased by check will be permitted only after the fund whose
shares have been tendered for exchange is reasonably assured that
29
<PAGE>
the check has cleared, normally up to 15 calendar days following
the purchase date. Exchanges of shares of Funds or Alliance
Mutual Funds will generally result in the realization of a
capital gain or loss for federal income tax purposes.
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 before
4:00 p.m., Eastern time, 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
on 60 days' notice to its shareholders, to reject any order to
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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.
Distributions from retirement plans are subject to
certain Code requirements in addition to normal redemption
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procedures. For additional information please contact Alliance
Fund Services, Inc.
Statements and Reports
Each shareholder of the Fund receives semi-annual and
annual reports which include a listing of the Fund's investments,
financial statements and, in the case of the annual report, the
report of the Company's independent auditors, Ernst & Young LLP,
as well as a confirmation of each purchase and redemption of
shares by the shareholder. By contacting his or her broker or
Alliance Fund Services, Inc., a shareholder can arrange for
copies of his or her account statements to be sent to another
person.
_________________________________________________________________
NET ASSET VALUE
_________________________________________________________________
The Fund's 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
(ordinarily 4:00 p.m. Eastern time) following receipt of a
purchase or redemption order by the Company, on each Company
business day on which such an order is received and on such other
days as the Board of Directors deems appropriate or 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. A Company business day is
any weekday on which the Exchange is open for trading.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Board's duties with respect to the following procedures.
Readily marketable securities listed on the Exchange or on a
foreign securities exchange (other than foreign securities
exchanges whose operations are similar to those of the United
States over-the-counter market) are valued, except as indicted
below, at the last sale price reflected on the consolidated tape
at the close of the Exchange or, in the case of a foreign
securities exchange, at the last quoted sale price, in each case
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 in good faith at fair value by, or in accordance with
procedures established by, the Board of Directors. Readily
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marketable securities not listed on the Exchange or on a foreign
securities exchange but listed on other United States national
securities exchanges or traded on The Nasdaq Stock Market, Inc.
are valued in like manner. Portfolio securities traded on the
Exchange and on one or more foreign or other national securities
exchanges, and portfolio securities not traded on the Exchange
but traded on one or more foreign or other national securities
exchanges are valued in accordance with these procedures by
reference to the principal exchange on which the securities are
traded.
Readily marketable securities traded in the over-the-
counter market, securities listed on a foreign securities
exchange whose operations are similar to those of the United
States over-the-counter market, and securities listed on a U.S.
national securities exchange whose primary market is believed to
be over-the-counter (but excluding securities traded on The
Nasdaq Stock Market, Inc.), 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
another comparable sources.
Listed put or call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that
day, such securities will be valued at the closing bid prices on
that day.
Open futures contracts and options thereon will be
valued using the closing settlement price or, in the absence of
such a price, the most recent quoted bid price. If there are no
quotations available for that day of valuations, the last
available closing settlement price will be used.
U.S. Government securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that
this method does not represent fair value).
Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
The prices provided by pricing service take into account many
factors, including institutional size trading in similar groups
of securities and any developments related to specific
securities.
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All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund business
day. In addition, trading in foreign markets may not take place
on all Fund business days. Furthermore, trading may take place
in various foreign markets on days that are not Fund business
days. The Fund's calculation of the net asset value per share,
therefore, does not always take place contemporaneously with the
most recent determination of the prices of portfolio securities
in these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are
determined in accordance with the above procedures and the close
of the Exchange will not be reflected in the Fund's calculation
of net asset value unless it is believed that these prices do not
reflect current market value, in which case the securities will
be valued in good faith by, or in accordance with procedures
established by, the Board of Directors at fair value.
The Board of Directors may suspend the determination of
the Fund's, net asset value (and the offering and sale of
shares), subject to the rules of the Commission and other
governmental rules and regulations, at a time when: (1) the
Exchange is closed, other than customary weekend and holiday
closings, (2) an emergency exists as a result of which it is not
reasonably practicable for the Fund to dispose of securities
owned by it or to determine fairly the value of its net assets,
or (3) for the protection of shareholders, the Commission by
order permits a suspension of the right of redemption or a
postponement of the date of payment on redemption.
For purposes of determining the Fund's net asset value
per share, all assets and liabilities initially expressed in a
foreign currency 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 relevant 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. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
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
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adopted by the Fund in accordance with Rule 18f-3 under the 1940
Act.
_________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_________________________________________________________________
United States Federal Income Taxation of Dividends and
Distributions
General
The Fund intends for each taxable year to qualify to be
taxed as a "regulated investment company" under the Code. Such
qualification relieves the Fund of federal income tax liability
on the 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 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
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 own 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
35
<PAGE>
income from the preceding calendar year that was not distributed
during such year. For this purpose, income or gain retained by
the Fund that is subject to corporate income tax will be
considered to have been distributed by the Fund by year-end. For
federal income and excise tax purposes, dividends declared and
payable to shareholders of record as of a date in October,
November or December but actually paid during the following
January will be taxable to these shareholders for the year
declared, and not for the subsequent calendar year in which the
shareholders actually receive the dividend.
Dividends of the Fund's net ordinary income and
distributions of any 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 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.
Distributions of net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) are
taxable as long-term capital gain, 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
shares by a shareholder, although in effect a return of capital
to that particular 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 net capital gain, 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.
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
36
<PAGE>
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.
A dividend or capital gains distribution with respect to
shares of the Fund held by a tax-deferred or qualified plan, 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.
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.
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
37
<PAGE>
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 responsibilities with respect to all its client
accounts.
The Fund may deal in some instances in securities which
are not listed on a national stock exchange but are traded in the
over-the-counter market. The Fund may also purchase listed
securities through the third market, i.e., from a dealer which is
not a member of the exchange on which a security is listed.
Where transactions are executed in the over-the-counter market or
third market, the Fund will seek to deal with the primary market
makers; but when necessary in order to obtain the best price and
execution, it will utilize the services of others. In all cases,
the Fund will attempt to negotiate best execution.
The extent to which commissions that will be charged by
broker-dealers selected by the Fund may reflect an element of
value for research cannot presently be determined. To the extent
that research services of value are provided by broker-dealers
with or through whom the Fund places portfolio transactions, the
Adviser may be relieved of expenses which it might otherwise
bear. Research services furnished by broker-dealers could be
useful and of value to the Adviser in servicing its other clients
38
<PAGE>
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 broker-dealers 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
permit an affiliated person of a registered investment company
(such as the Company), or any affiliated person of such person,
to receive a brokerage commission from such registered investment
company, provided that such commission is reasonable and fair
compared to the commissions received by other brokers in
connection with comparable transactions involving similar
securities during a comparable period of time.
_________________________________________________________________
GENERAL INFORMATION
_________________________________________________________________
Capitalization
The Company is a Maryland corporation organized on
October 3, 1997. The authorized capital stock of the Company
consists of 24,000,000,000 shares, of which 3,000,000,000 shares
are Class I shares of the Fund and 3,000,000,000 shares are Class
II shares of the Fund, each having $.001 par value. The balance
of the shares of the Company are Class I and Class II shares of
the Company's other three portfolios.
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.
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<PAGE>
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.
A shareholder in the 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 Fund, each
share of the portfolio or class would normally be entitled to one
vote for all purposes. Generally, shares of each portfolio and
class would vote together as a single class on matters, such as
the election of Directors, that affect each portfolio and class
in substantially the same manner. Each class has identical
voting, dividend, liquidation and other rights, except that each
class bears its own transfer agency expenses, Class II shares
bear their own distribution expenses and Class I shares convert
to Class II shares under certain circumstances. Each class of
shares votes separately with respect to mattes 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 the Fund, are entitled to
receive the net assets of the Fund.
40
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Custodian
State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, will act as the Fund's
custodian for the assets of the Fund but plays no part in
deciding the purchase or sale of portfolio securities. Subject
to the supervision of the Directors, State Street Bank and Trust
Company may enter into sub-custodial agreements for the holding
of the Fund's foreign securities.
Principal Underwriter
Alliance Fund Distributors, Inc., an indirect wholly-
owned subsidiary of the Adviser, located at 1345 Avenue of the
Americas, New York, New York 10105, is the principal underwriter
of 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
shares of Common Stock offered hereby are passed upon by Seward &
Kissel LLP, New York, New York. Seward & Kissel LLP has relied
upon the opinion of Venable, Baetjer and Howard, LLP, Baltimore,
Maryland, for matters relating to Maryland law.
Independent Auditors
Ernst & Young LLP, New York, New York, has appointed as
independent auditors for the Company.
Performance Information
From time to time the Fund advertises its "total
return." Computed separately for each class, the Fund's "total
return" is its average annual compounded total return for its
most recently completed one, five and ten-year periods (or the
period since the Fund's inception). The Fund's total return for
such a period is computed by finding, through the use of a
formula prescribed by the Commission, the average annual
compounded rate of return over the period that would equate an
assumed initial amount invested to the value of such investment
at the end of the period. For purposes of computing total
return, income dividends and capital gains distributions paid on
shares of the Fund are assumed to have been reinvested in Fund
shares when paid.
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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.
42
00250237.AL5
