<PAGE>
As filed with the Securities and Exchange
Commission on January 31, 1996
File No. 2-33889
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM N-lA
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF l933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 51 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF l940 X
Amendment No. 31
__________________________________
Fiduciary Management Associates
(Exact Name of Registrant as Specified in Charter)
Alliance Capital Management L.P.
1345 Avenue of the Americas, New York, New York l0105
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number,
including Area Code: (800) 221-5672
__________________________________
EDMUND P. BERGAN, JR.
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York l0105
(Name and address of agent for service)
It is proposed that this filing will become effective
(check appropriate box)
__X__immediately upon filing pursuant to paragraph (b)
_____on (date) pursuant to paragraph (b)
<PAGE>
_____60 days after filing pursuant to paragraph (a) (1)
_____on (date) pursuant to paragraph (a) (1)
_____75 days after filing pursuant to paragraph (a) (2)
_____on (date) pursuant to paragraph (a) (2) of rule 485.
If appropriate, check the following box:
_____this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Registrant has registered an indefinite number of shares of
Beneficial Interest pursuant to Rule 24f-2 under the Investment
Company Act of 1940. Registrant filed a notice pursuant to such
Rule for its fiscal year ended September 30, 1995 on November 29,
1995.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
Location in Prospectus
N-lA Item No. (Caption)
_____________ ______________________
PART A
Item l. Cover Page....................... Cover Page
Item 2. Synopsis......................... Expense Information
Item 3. Condensed Financial Information.. Financial Highlights
Item 4. General Description of Registrant Description of the
Fund; General
Information
Item 5. Management of the Fund.......... Management of the
Fund; General
Information
Item 6. Capital Stock and Other
Securities...................... General Information;
Dividends,
Distributions and
Taxes
Item 7. Purchase of Securities Being
Offered....................... Purchase and
Redemption of Shares;
General Information
Item 8. Redemption or Repurchase........ Purchase and
Redemption of Shares
Item 9. Pending Legal Proceedings........ Not Applicable
Location in Statement
of Additional
Information (Caption)
PART B _____________________
Item l0. Cover Page....................... Cover Page
Item ll. Table of Contents................ Cover Page
Item l2. General Information and History.. Investment Policies
and Restrictions;
Management of the
<PAGE>
Fund; General
Information
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
Location in Statement
of Additional
N-lA Item No. Information (Caption)
_____________ _____________________
PART B (continued)
Item l3. Investment Objectives and
Policies....................... Investment Policies
and Restrictions
Item l4. Management of the Registrant..... Management of the
Fund
Item l5. Control Persons and Principal
Holders of Securities.......... Management of the
Fund
Item l6. Investment Advisory and
Other Services................. Management of the
Fund
Item l7. Brokerage Allocation and
Other Practices................ Portfolio
Transactions
Item l8. Capital Stock and Other
Securities..................... General Information
Item l9. Purchase, Redemption and Pricing
of Securities Being Offered.... Purchase and
Redemption of Shares
Item 20. Tax Status....................... Dividends,
Distributions and
Taxes
Item 21. Underwriters..................... General Information
Item 22. Calculation of Performance Data.. General Information
Item 23. Financial Statements............. Financial Statements;
Report of Independent
Auditors
<PAGE>
<PAGE>
FIDUCIARY MANAGEMENT ASSOCIATES
- --------------------------------------------------------------------------------
P.O. Box 1520 Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
- --------------------------------------------------------------------------------
Fiduciary Management Associates (the "Fund") is a diversified, open-end manage-
ment investment company designed to afford institutional investors the opportu-
nity to choose among three separately managed pools of assets ("Portfolios")
which have differing investment objectives and policies. This Prospectus offers
only shares of the two Portfolios mentioned below. Shares of the Fund's other
Portfolio are offered by a separate prospectus.
- --------------------------------------------------------------------------------
A DIVERSIFIED SELECTION OF INVESTMENT ALTERNATIVES
- --------------------------------------------------------------------------------
Growth Portfolio--seeks capital appreciation by investing principally in equity
securities. Current income is incidental to the objective of capital growth.
This Portfolio is designed for investors seeking superior gains and willing to
accept the relatively greater risks associated with aggressive investment
techniques.
Short-Term Global Income Portfolio--seeks the highest level of current income,
consistent with what Alliance Capital Management L.P., the Fund's investment
adviser (the "Adviser"), considers to be prudent investment risk, that is
available from a portfolio of high quality debt securities having remaining ma-
turities not exceeding three years and an average weighted maturity not exceed-
ing one year. The Short-Term Global Income Portfolio has not commenced invest-
ment operations as of the date of this Prospectus.
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PURCHASE INFORMATION
- --------------------------------------------------------------------------------
Shares of the Portfolios may be purchased only by investment management clients
of the Adviser or its affiliates and by institutional investors. The minimum
initial investment in each Portfolio is $5,000,000, except that investment man-
agement clients of the Adviser or its affiliates may invest in any amount.
There is no minimum for subsequent investments. Further information can be ob-
tained from Alliance Fund Services, Inc. at the telephone number or address
shown above.
An investment in the Fund is not a deposit or obligation of, or guaranteed or
endorsed by, any bank and is not federally insured by the Federal Deposit In-
surance Corporation, the Federal Reserve Board or any other agency.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
This Prospectus sets forth concisely the information which a prospective in-
vestor should know about the Portfolios before investing. A "Statement of Addi-
tional Information" dated February 1, 1996, which provides further information
regarding certain matters discussed in this Prospectus and other matters which
may be of interest to some investors, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. For a free copy,
call or write Alliance Fund Services, Inc. at the address or telephone number
shown above.
(R)/SM : These are registerd marks used under licenses from the owner, Alliance
Capital Management L.P.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROSPECTUS/February 1, 1996
Investors are advised to read this Prospectus carefully and to retain it for
future reference.
<PAGE>
EXPENSE INFORMATION
SHAREHOLDER TRANSACTION EXPENSES
The Portfolios have no sales load or deferred sales load on purchases or re-
invested dividends.
The Portfolios have no redemption fee.
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
<TABLE>
<CAPTION>
SHORT-TERM
GLOBAL INCOME GROWTH
------------- ------
<S> <C> <C>
Management Fees.......................................... .45% .75%
12b-1 Fees............................................... 0% 0%
Other Expenses........................................... .40% .36%
--- ----
Total Fund Operating Expenses............................. .85% 1.11%
</TABLE>
EXAMPLE:
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return (cumulatively through the end of each time period):
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Portfolio................................ $11 $35 $61 $135
Short-Term Global Income Portfolio.............. $ 9 $27 -- --
</TABLE>
The purpose of the foregoing table is to assist the investor in understand-
ing the various costs and expenses that an investor will bear directly or in-
directly. "Other Expenses" for the Short-Term Global Income Portfolio, which
has not yet commenced operations, are based on estimated amounts for the cur-
rent fiscal year. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS--GROWTH PORTFOLIO
PER SHARE INCOME AND CAPITAL CHANGES
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
The following information as to net asset value, ratios and certain supple-
mental data for each of the periods shown below has been audited by Ernst &
Young LLP, the Fund's independent auditors, whose unqualified report thereon
(referring to financial highlights) for each of the five years in the period
ended September 30, 1995 appears in the Statement of Additional Information.
The following information should be read in conjunction with the financial
statements and related notes included in the Statement of Additional Informa-
tion.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year...... $29.94 $31.29 $27.41 $30.93 $23.09 $40.61 $29.08 $47.26 $47.51 $36.35
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income
(loss)................. (.07) (.20) (.10) (.07) .07 .08 .11 (.02) (.01) .02
Net realized and
unrealized gain (loss)
on investments......... 7.51 (.93) 7.29 (2.24) 8.28 (10.45) 11.87 (8.08) 10.93 12.93
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net increase (decrease)
in net asset value from
operations............. 7.44 (1.13) 7.19 (2.31) 8.35 (10.37) 11.98 (8.10) 10.92 12.95
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
LESS: DISTRIBUTIONS
Dividends from net
investment income...... -0- -0- -0- (.07) (.10) (.07) (.05) -0- -0- (.18)
Distributions from net
realized gains......... (4.48) (.22) (3.31) (1.14) (.41) (7.08) (.40) (10.08) (11.17) (1.61)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions.......... (4.48) (.22) (3.31) (1.21) (.51) (7.15) (.45) (10.08) (11.17) (1.79)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year................... $32.90 $29.94 $31.29 $27.41 $30.93 $23.09 $40.61 $29.08 $47.26 $47.51
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN
Total investment return
based on net asset
value(a)............... 30.94% (3.63)% 27.79 % (7.52)% 37.03% (29.53)% 41.94% (9.51)% 28.90% 41.92%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(000's omitted)........ $128,135 $106,435 $138,932 $129,188 $183,538 $130,082 $187,046 $135,357 $181,786 $167,429
Ratio of expenses to
average net assets..... 1.11 % .98 % .97 % .92 % .96% .90 % .96% .93 % .89 % .91%
Ratio of net investment
income (loss) to
average net assets..... (.26)% (.42)% (.31)% (.19)% .25% .30 % .31% (.05)% (.02) % .02%
Portfolio turnover rate. 159 % 116 % 100 % 122 % 102% 87 % 101% 60 % 75 % 74%
</TABLE>
- --------
(a) 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 re-
demption on the last day of the period.
Further information about the Growth Portfolio's performance is contained in
the Portfolio's annual report to shareholders which may be obtained by share-
holders without charge by contacting Alliance Fund Services, Inc. at the ad-
dress or telephone number shown on the cover of the Prospectus.
3
<PAGE>
DESCRIPTION OF THE FUND
INTRODUCTION TO THE FUND
The Fund is a diversified, open-end management investment company commonly
known as a "mutual fund" whose shares are offered in separate series referred
to as "Portfolios." Because the Fund offers multiple Portfolios, it is known as
a "series fund." Each Portfolio is a separate pool of assets constituting, in
effect, a separate fund with its own investment objectives and policies. A
shareholder in a Portfolio will be entitled to its pro rata share of all divi-
dends and distributions arising from that Portfolio's assets and, upon redeem-
ing shares of that Portfolio, the shareholder will receive the then current net
asset value of that Portfolio represented by the redeemed shares. (See "Pur-
chase and Redemption of Shares," below). The Fund is empowered to establish,
without shareholder approval, additional Portfolios which may have different
investment objectives.
The investment objectives and policies of each Portfolio are set forth below.
Except as otherwise provided below, the Fund's investment policies are not des-
ignated "fundamental policies" within the meaning of the Investment Company Act
of 1940, as amended (the "1940 Act") and may, therefore, be changed by the
Trustees without a shareholder vote. However, the Fund will not change its in-
vestment policies without contemporaneous written notice to shareholders. There
can be, of course, no assurance that any of the Portfolios will achieve their
respective investment objectives.
INVESTMENT OBJECTIVE AND POLICIES OF THE GROWTH PORTFOLIO
General. The investment objective of the Growth Portfolio, which may not be
changed without shareholder approval, is to emphasize growth of capital and in-
vestments will be made based upon their potential for capital appreciation.
Therefore, current income will be incidental to the objective of capital
growth.
Within this basic framework, the policy of the Portfolio will be to invest in
any companies and industries and in any type 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 compa-
nies, but the Portfolio may invest in the securities of a new company with a
record of less than three years of continuous operation only if immediately
thereafter less than 10% of the Portfolio's assets are invested in the securi-
ties of such new companies.
The Portfolio will invest in both listed and unlisted securities and in for-
eign as well as domestic securities. While the Portfolio has no present inten-
tion of investing any significant portion of its assets in foreign securities,
it reserves the right to invest in foreign securities if purchase thereof would
not cause more than 15% of the value of the Portfolio's total assets, at the
time of purchase, to be invested in foreign securities.
Critical factors which will be considered in the selection of securities will
include the economic and political outlook, the values of individual securities
relative to other investment alternatives, trends in the determinants of corpo-
rate profits, and management capability and practices. Generally speaking, dis-
posal of a security will be based upon factors such as (i) actual or potential
deterioration of the issuer's earning power which the Fund believes may ad-
versely affect the price of the issuer's securities, (ii) increases in the
price level of the security or of securities generally which the Fund believes
reflect earnings growth too far in advance, and (iii) changes in the relative
opportunities offered by various securities.
It is expected that under normal circumstances substantially all of the Port-
folio's assets
4
<PAGE>
will be invested in equity securities (common stocks, securities convertible
into common stocks or rights or warrants to subscribe for or purchase common
stocks). The Portfolio at times may also invest in debt securities and pre-
ferred stocks offering a significant opportunity for price appreciation. The
average dollar weighted maturity of the Portfolio's portfolio of debt securi-
ties is expected to vary between 1 and 30 years.
The Portfolio may invest in warrants which entitle the holder to buy equity
securities at a specific price for a specific period of time. 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 as-
sets of the issuing company. Also, the value of a warrant does not necessarily
change with the value of the underlying securities and a warrant ceases to have
value if it is not exercised prior to the expiration date.
Defensive Position. When business or financial conditions warrant, the Port-
folio may assume a temporary defensive position and invest without limit in in-
vestment grade debt securities or preferred stocks or hold its assets in cash
equivalents. Such cash equivalents may include (i) obligations of the U.S. Gov-
ernment and its agencies or instrumentalities, (ii) certificates of deposit,
bankers' acceptances and interest-bearing savings deposits of banks having to-
tal assets of more than $1 billion and which are members of the Federal Deposit
Insurance Corporation, and (iii) commercial paper of prime quality rated A-1 or
higher by Standard & Poor's Ratings Services ("S&P") or Prime-1 or higher by
Moody's Investors Services, Inc. ("Moody's") or, if not rated, issued by compa-
nies which have an outstanding debt issue rated A or higher by Moody's or S&P.
Restricted Securities. The Portfolio may invest in restricted securities
(i.e., securities that must be registered under the Securities Act of 1933 be-
fore they may be offered or sold to the public) and in other assets having no
ready market if such purchases at the time thereof would not cause more than
10% of the value of the Portfolio's net assets to be invested in all such re-
stricted or not readily marketable (or other illiquid) assets. Unless so regis-
tered, restricted securities may be sold only in privately negotiated transac-
tions or pursuant to Rule 144 or 144A under such Act.
Portfolio Turnover. The Portfolio will actively use trading to achieve its
investment objectives and policies, and the effect on its shareholders of the
different tax treatment of long and short-term capital gains will not be a fac-
tor in the Portfolio's decision to dispose of any security. Accordingly, the
Portfolio may be subject to a greater degree of turnover and, therefore, a
higher incidence of short-term capital gain taxable as ordinary income than
might be expected from investment companies which invest substantially all of
their funds on a long-term basis, and correspondingly larger brokerage or mark-
up charges can be expected to be borne by the Portfolio. See "Dividends Distri-
bution and Taxes" and "General Information--Portfolio Transactions." Management
anticipates that the annual turnover in the Portfolio may be in excess of 100%
in future years, but turnover is not expected to exceed 200%. An annual turn-
over rate of 200% occurs, for example, when all of the securities in the Port-
folio are replaced twice in a period of one year. Such a turnover rate is
greater than that of many other investment companies.
Certain Fundamental Investment Policies of the Growth Portfolio. To maintain
portfolio diversification and reduce investment risk, as a matter of fundamen-
tal policy, the Portfolio may not: (i) invest more than 5% of the value of its
total assets in the securities of any one issuer, other than securities issued
or guaranteed by the U.S. government, its agencies or instrumentalities, except
that up to 25% of the value of the Portfolio's total assets may be invested
without
5
<PAGE>
regard to this limitation; (ii) purchase the securities of any one issuer
(other than the U.S. government and its agencies or instrumentalities) if imme-
diately after and as a result of such purchase the Portfolio owns more than 10%
of the outstanding securities or of any one class of securities of such issuer;
(iii) purchase securities on margin, but it may obtain such short-term credits
from banks as may be necessary for the clearance of purchases and sales of se-
curities; or (iv) borrow money except for the short-term credits from banks re-
ferred to in (iii) above and except for temporary or emergency purposes and
then only from banks and in an aggregate amount not exceeding 5% of the value
of its total assets at the time any such borrowing is made.
INVESTMENT OBJECTIVE AND POLICIES OF THE SHORT-TERM GLOBAL INCOME PORTFOLIO
General
The investment objective of the Short-Term Global Income Portfolio is to seek
the highest level of current income, consistent with what the Adviser considers
to be prudent investment risk, that is available from a portfolio of high-qual-
ity debt securities having remaining maturities not exceeding three years and
an average weighted maturity not exceeding one year. The Portfolio seeks high
current yields by investing in a portfolio of debt securities denominated in
the U.S. Dollar and selected foreign currencies. Accordingly, the Portfolio
will seek investment opportunities in foreign, as well as domestic, securities
markets and will invest in issuers located in at least three countries. While
the Portfolio normally will maintain a substantial portion of its assets in
debt securities denominated in foreign currencies, the Portfolio will maintain
at least 25% of its net assets in U.S. Dollar-denominated securities. The Port-
folio is designed for the investor who seeks a higher yield than a money market
fund and less fluctuation in net asset value than a longer-term bond fund.
In pursuing its investment objective, the Portfolio seeks to minimize credit
risk and fluctuations in net asset value by investing only in short-term debt
securities. Normally, a high proportion of the Portfolio's holdings consists of
money market instruments. The Adviser actively manages the Portfolio in accor-
dance with a multi-market investment strategy, allocating the Portfolio's in-
vestments among securities denominated in the U.S. Dollar and the currencies of
a number of foreign countries and, within each such country, among different
types of debt securities. The Adviser adjusts the Portfolio's exposure to each
currency based on its perception of the most favorable markets and issuers. In
this regard, the percentage of assets invested in securities of a particular
country or denominated in a particular currency will vary in accordance with
the Adviser's assessment of the relative yield and appreciation potential of
such securities and the relationship of a country's currency to the U.S. Dol-
lar. Fundamental economic strength, credit quality and interest rate trends are
the principal factors considered by the Adviser in determining whether to in-
crease or decrease the emphasis placed upon a particular type of security or
industry sector within the Portfolio's investment portfolio. The Portfolio will
not invest more than 25% of its net assets in debt securities denominated in a
single currency other than the U.S. Dollar.
The returns currently available from short-term foreign currency-denominated
debt instruments can be adversely affected by changes in exchange rates. The
Adviser believes that the use of foreign currency hedging techniques, including
"cross-hedges" (see "Investment Practices of the Short-Term Global Income Port-
folio--Forward Foreign Currency Exchange Contracts," below), can help protect
against declines in the U.S. Dollar value of income available for distribution
to shareholders and declines in the net asset value of the Portfolio's shares
resulting from adverse changes in currency exchange rates. For example, the re-
turn available from securities denominated in a particular foreign currency
would diminish in the event the value of the
6
<PAGE>
U.S. Dollar increased against such currency. Such a decline could be partially
or completely offset by an increase in value of a cross-hedge involving a for-
ward exchange contract to sell a different foreign currency, where such con-
tract is available on terms more advantageous to the Portfolio than a contract
to sell the currency in which the position being hedged is denominated. It is
the Adviser's belief that cross-hedges can therefore provide significant pro-
tection of net asset value in the event of a general rise in the U.S. Dollar
against foreign currencies. However, a cross-hedge cannot protect against ex-
change rate risks perfectly, and if the Adviser is incorrect in its judgment of
future exchange rate relationships, the Portfolio could be in a less advanta-
geous position than if such a hedge had not been established.
The Portfolio invests in debt securities denominated in the currencies of
countries whose governments are considered stable by the Adviser. In addition
to the U.S. Dollar, such currencies include, among others, the Australian Dol-
lar, Austrian Schilling, British Pound Sterling, Canadian Dollar, Danish Krone,
Dutch Guilder, European Currency Unit ("ECU"), French Franc, German Mark, Irish
Pound, Italian Lira, Japanese Yen, Mexican Peso, New Zealand Dollar, Norwegian
Krone, Spanish Peseta, Swedish Krona and Swiss Franc. An issuer of debt securi-
ties purchased by the Portfolio may be domiciled in a country other than the
country in whose currency the instrument is denominated.
The Portfolio seeks to minimize investment risk by limiting its portfolio in-
vestments to income producing debt securities of high quality and will invest
at least 65% (and normally substantially all) of its total assets in such secu-
rities. The securities held by the Portfolio will consist only of: (i) debt se-
curities issued or guaranteed by the U.S. government, its agencies or
instrumentalities ("U.S. Government Securities"); (ii) obligations issued or
guaranteed by a foreign government or any of its political subdivisions, au-
thorities, agencies, or instrumentalities, all of which are rated AAA or AA by
S&P or Aaa or Aa by Moody's ("High Quality Ratings") or, if unrated, determined
by the Adviser to be of equivalent quality; (iii) obligations issued or guaran-
teed by supranational entities and corporate debt securities, all of which have
at least one High Quality Rating or, if unrated, determined by the Adviser to
be of equivalent quality; (iv) certificates of deposit and bankers' acceptances
issued or guaranteed by, or time deposits maintained at, banks (including for-
eign branches of U.S. banks or U.S. or foreign branches of foreign banks) hav-
ing total assets of more than $500 million and determined by the Adviser to be
of high quality; and (v) commercial paper rated A-1 by S&P, Prime-1 by Moody's,
Fitch-1 by Fitch Investors Service, Inc., or Duff 1 by Duff & Phelps Inc. or,
if not rated, issued by U.S. or foreign companies having outstanding debt secu-
rities rated AAA or AA by S&P or Aaa or Aa by Moody's and determined by the Ad-
viser to be of equivalent quality.
The Portfolio may invest without limitation in commercial paper which is in-
dexed to certain specific foreign currency exchange rates. The terms of such
commercial paper provide that its principal amount is adjusted upwards or down-
wards (but not below zero) at maturity to reflect changes in the exchange rate
between two currencies while the obligation is outstanding. The Portfolio will
purchase such commercial paper with the currency in which it is denominated
and, at maturity, will receive interest and principal payments thereon in that
currency, but the amount of principal payable by the issuer at maturity will
change in proportion to the change (if any) in the exchange rate between the
two specified currencies between the date the instrument is issued and the date
the instrument matures. While such commercial paper entails the risk of loss of
principal, the potential for realizing gains as a result of changes in foreign
currency exchange rates enables the Portfolio to hedge (or cross-hedge) against
a decline in the U.S. Dollar value of in-
7
<PAGE>
vestments denominated in foreign currencies while providing an attractive
money market rate of return. The Portfolio will purchase such commercial paper
for hedging purposes only, not for speculation.
Under normal circumstances, and as a matter of fundamental policy, the Port-
folio "concentrates" at least 25% of its total assets in debt instruments is-
sued by domestic and foreign companies engaged in the banking industry, in-
cluding bank holding companies. Such investments may include certificates of
deposit, time deposits, bankers' acceptances, and obligations issued by bank
holding companies, as well as repurchase agreements entered into with banks
(as distinct from non-bank dealers) in accordance with the policies set forth
in "Repurchase Agreements" below. However, when business or financial condi-
tions warrant the Portfolio may, for temporary defensive purposes, vary from
its policy of investing at least 25% of its total assets in the banking indus-
try. For example, the Portfolio may reduce its position in debt instruments
issued by domestic and foreign banks and bank holding companies and increase
its position in U.S. Government Securities or cash equivalents.
Due to the Portfolio's investment policy with respect to investments in the
banking industry, the Portfolio will have greater exposure to the risk factors
which are characteristic of such investments. In particular, the value of and
investment return on the Portfolio's shares will be affected by economic or
regulatory developments in or related to the banking industry. Sustained in-
creases in interest rates can adversely affect the availability and cost of
funds for a bank's lending activities, and a deterioration in general economic
conditions could increase the exposure to credit losses. The banking industry
is also subject to the effects of: the concentration of loan portfolios in
particular businesses such as real estate, energy, agriculture or high tech-
nology-related companies; national and local regulation; and competition
within those industries as well as with other types of financial institutions.
In addition, the Portfolio's investments in commercial banks located in sev-
eral foreign countries are subject to additional risks due to the combination
in such banks of commercial banking and diversified securities activities. As
discussed above, however, the Portfolio will seek to minimize its exposure to
such risks by investing only in debt securities which are determined to be of
high quality.
The Portfolio may invest in debt securities denominated in the ECU, which is
a "basket" consisting of specified amounts of the currencies of certain of the
member states of the European Community, a twelve-nation organization engaged
in cooperative economic activities. The specific amounts of currencies com-
prising the ECU may be adjusted by the Council of Ministers of the European
Community to reflect changes in relative values of the underlying currencies.
The Adviser does not believe that such adjustments will adversely affect hold-
ers of ECU-denominated obligations or the marketability of such securities.
European governments and supranational organizations (discussed below), in
particular, issue ECU-denominated obligations.
The Portfolio may invest in debt securities issued by supranational organi-
zations such as: the International Bank for Reconstruction and Development
(commonly referred to as the "World Bank"), which was chartered to finance de-
velopment projects in developing member countries; the European Community; the
European Coal and Steel Community, which is an economic union of various Euro-
pean nations' steel and coal industries; and the Asian Development Bank, which
is an international development bank established to lend funds, promote in-
vestment and provide technical assistance to member nations in the Asian and
Pacific regions.
Investing in securities issued by foreign governments and corporations in-
volves considerations and possible risks not typically associated
8
<PAGE>
with investing in obligations issued by the U.S. government and domestic corpo-
rations. The values of foreign investments are affected by changes in currency
rates or exchange control regulations, application of foreign tax laws, in-
cluding withholding taxes, changes in governmental administration or economic
or monetary policy (in the United States or abroad) or changed circumstances in
dealings between nations. Costs are incurred in connection with conversions be-
tween various currencies. In addition, foreign brokerage commissions are gener-
ally higher than in the United States, and foreign securities markets may 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, lack of uniform accounting and auditing standards and potential dif-
ficulties in enforcing contractual obligations and could be subject to extended
settlement periods.
The Portfolio will not invest in illiquid securities if immediately after
such investment more than 10% of the Portfolio's total assets (taken at market
value) would be invested in such securities. In addition, the Portfolio will
not maintain more than 15% of its net assets in illiquid securities. For this
purpose, illiquid securities include, among others, (a) direct placements or
other securities which are subject to legal or contractual restrictions on re-
sale 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), (b) options purchased by the
Portfolio over-the-counter and the cover for options written by the Portfolio
over-the-counter, and (c) repurchase agreements not terminable within seven
days. Securities eligible for resale under Rule 144A of the Securities Act of
1933, as amended, that have legal or contractual restrictions on resale but
have a readily available market are not deemed illiquid for purposes of this
limitation. The Adviser will monitor the liquidity of such restricted securi-
ties under the supervision of the Trustees. See the Statement of Additional In-
formation for further discussion of illiquid securities.
The net asset value of the Portfolio's shares will change as the general lev-
els of interest rates fluctuate. When interest rates decline, the value of a
portfolio primarily invested in debt securities can be expected to rise. Con-
versely, when interest rates rise, the value of a portfolio primarily invested
in debt securities can be expected to decline. However, a shorter average matu-
rity is generally associated with a lower level of market value volatility and,
accordingly, it is expected that the net asset value of the Portfolio's shares
normally will fluctuate less than that of a longer-term bond fund.
The Portfolio is "non-diversified," which means the Portfolio is not limited
in the proportion of its assets that may be invested in the securities of a
single issuer. However, the Portfolio conducts, and intends to continue to con-
duct, its operations so as to qualify as a "regulated investment company" for
purposes of the Internal Revenue Code of 1986, as amended (the "Code"), which
will relieve the Portfolio of any liability for Federal income tax to the ex-
tent its earnings are distributed to shareholders. See "Dividends, Distribu-
tions and Taxes--U.S. Federal Income Taxes." To so qualify, among other re-
quirements, the Portfolio will limit its investments so that, at the close of
each quarter of the taxable year, (i) not more than 25 percent of the market
value of the Portfolio's total assets will be invested in the securities of a
single issuer, and (ii) with respect to 50 percent of the market value of its
total assets, not more than five percent of the market value of its total as-
sets will be invested in the securities of a single issuer and the Portfolio
will not own more than 10 percent of the outstanding voting securities of a
single issuer. The Portfolio's investments in U.S. Government Securities are
not subject to these limitations.
9
<PAGE>
Because the Portfolio, as a non-diversified investment company, may invest in a
smaller number of individual issuers than a diversified investment company, an
investment in the Portfolio may, under certain circumstances, present greater
risk to an investor than an investment in a diversified company.
Investment Practices of the Short-Term Global Income Portfolio
Futures Contracts and Options on Futures Contracts. The Portfolio may enter
into contracts for the purchase or sale for future delivery of fixed-income se-
curities or foreign currencies, or contracts based on financial indices includ-
ing any index of U.S. Government Securities, foreign government securities or
corporate debt securities ("futures contracts") and may purchase and write put
and call options to buy or sell futures contracts ("options on futures con-
tracts"). A "sale" of a futures contract means the acquisition of a contractual
obligation to deliver the securities or foreign currencies called for by the
contract at a specified price on a specified date. A "purchase" of a futures
contract means the incurring of a contractual obligation to acquire the securi-
ties or foreign currencies 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 speci-
fied 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 fixed-income securities under-
lying the index is made. Options on futures contracts to be written or pur-
chased by the Portfolio will be traded on U.S. or foreign exchanges or over-
the-counter. These investment techniques will be used only to hedge against
anticipated future changes in interest or exchange rates which otherwise might
either adversely affect the value of portfolio securities or adversely affect
the prices of securities which the Portfolio intends to purchase at a later
date. See the Statement of Additional Information for further discussion of the
use, risks and costs of futures contracts and options on futures contracts.
The Portfolio will not (i) enter into any futures contracts or options on
futures contracts if immediately thereafter the aggregate of margin deposits on
all the outstanding futures contracts of the Portfolio and premiums paid on
outstanding options on futures contracts would exceed 5% of the market value of
the total assets of the Portfolio, or (ii) enter into any futures contracts or
options on futures contracts if the aggregate of the market value of the out-
standing futures contracts of the Portfolio and the market value of the curren-
cies and futures contracts subject to outstanding options written by the Port-
folio would exceed 50% of the market value of the total assets of the
Portfolio.
Options on Foreign Currencies. The Portfolio may purchase and write put and
call options on foreign currencies for the purpose of protecting against de-
clines in the U.S. Dollar value of foreign currency-denominated portfolio secu-
rities and against increases in the U.S. Dollar cost of such securities to be
acquired. As in the case of other kinds of options, however, the writing of an
option on a foreign currency constitutes only a partial hedge, up to the amount
of the premium received, and the Portfolio could be required to purchase or
sell foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on a foreign currency may constitute an ef-
fective hedge against fluctuations in exchange rates although, in the event of
rate movements adverse to the Portfolio's position, it may forfeit the entire
amount of the premium plus related transaction costs. Options on foreign cur-
rencies to be written or purchased by the Portfolio are traded on U.S. and for-
eign exchanges or over-the-counter. There is no specific percentage limitation
on the Portfolio's investments in options on foreign currencies. See the State-
ment of Additional Information
10
<PAGE>
for further discussion of the use, risks and costs of options on foreign cur-
rencies.
Forward Foreign Currency Exchange Contracts. The Portfolio may purchase or
sell forward foreign currency exchange contracts ("forward contracts") to at-
tempt to minimize the risk to the Portfolio from adverse changes in the rela-
tionship between the U.S. Dollar and foreign currencies. A forward contract is
an obligation to purchase or sell a specific currency for an agreed price at a
future date which is individually negotiated and privately traded by currency
traders and their customers. The Portfolio may enter into a forward contract,
for example, when it enters into a contract for the purchase or sale of a secu-
rity denominated in a foreign currency in order to "lock in" the U.S. Dollar
price of the security ("transaction hedge"). Additionally, for example, when
the Portfolio believes that a foreign currency may suffer a substantial decline
against the U.S. Dollar, the Portfolio may enter into a forward sale contract
to sell an amount of that foreign currency approximating the value of some or
all of the portfolio securities denominated in such foreign currency, or when
the Portfolio believes that the U.S. Dollar may suffer a substantial decline
against a foreign currency, it may enter into a forward purchase contract to
buy that foreign currency for a fixed dollar amount ("position hedge"). In this
situation the Portfolio may, in the alternative, enter into a forward contract
to sell a different foreign currency for a fixed U.S. Dollar amount where the
Portfolio believes that the U.S. Dollar value of the currency to be sold pursu-
ant to the forward contract will fall whenever there is a decline in the U.S.
Dollar value of the currency in which portfolio securities of the Portfolio are
denominated ("cross-hedge"). The Portfolio's Custodian will place cash not
available for investment in U.S. Government Securities or other liquid high
quality debt securities in a separate account of the Portfolio having a value
equal to the aggregate amount of the Portfolio's commitments under forward con-
tracts entered into with respect to position hedges and cross-hedges. If the
value of the securities placed in a separate account declines, additional cash
or securities will be placed in the account on a daily basis so that the value
of the account will equal the amount of the Portfolio's commitments with re-
spect to such contracts. As an alternative to maintaining all or part of the
separate account, the Portfolio may purchase a call option permitting the Port-
folio to purchase the amount of foreign currency being hedged by a forward sale
contract at a price no higher than the forward contract price or the Portfolio
may purchase a put option permitting the Portfolio to sell the amount of for-
eign currency subject to a forward purchase contract at a price as high or
higher than the forward contract price. Unanticipated changes in currency
prices may result in poorer overall performance for the Portfolio than if it
had not entered into such contracts.
Interest Rate Transactions. The Portfolio may enter into interest rate swaps
and may purchase or sell interest rate caps and floors. The Portfolio expects
to enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio. The Portfolio may also enter
into these transactions to protect against any increase in the price of securi-
ties the Portfolio anticipates purchasing at a later date. The Portfolio does
not intend to use these transactions in a speculative manner. Interest rate
swaps involve the exchange by the Portfolio with another party of their respec-
tive commitments to pay or receive interest (e.g., an exchange of floating rate
payments for fixed rate payments). Interest rate swaps are usually entered into
on a net basis (i.e., the two payment streams are netted out, with the Fund re-
ceiving or paying, as the case may be, only the net amount of the two pay-
ments). The purchase of an interest rate cap entitles the purchaser, to the ex-
tent that a specified index exceeds a predetermined interest rate, to receive
payments on a contractually-based principal amount from the party selling such
interest rate cap. The purchase of an interest rate floor entitles the purchas-
er, to
11
<PAGE>
the extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a contractually-based principal amount from the
party selling the interest rate floor.
The Portfolio may enter into interest rate swaps, caps and floors on either
an asset-based or liability-based basis, depending on whether it is hedging its
assets or its liabilities. The net amount of the excess, if any, of the Portfo-
lio's obligations over its entitlements with respect to each interest rate swap
will be accrued on a daily basis and an amount of cash or high quality liquid
debt securities having an aggregate net asset value at least equal to the ac-
crued excess will be maintained in a segregated account by the Fund's Custodi-
an. The Portfolio will not enter into any interest rate swap, cap or floor
transaction unless it is with its Custodian, or with any other counterparty if:
(i) for transactions with maturities under one year, the counterparty has out-
standing short-term paper rated at least A-1 by S&P or Prime-1 by Moody's, or
(ii) for transactions with maturities greater than one year, the counterparty
has outstanding debt securities rated at least AA by S&P or Aa by Moody's, if
there is a default by the other party to such a transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and agents utiliz-
ing standardized swap documentation. As a result, the swap market has become
well established and provides a degree of liquidity. Caps and floors are more
recent innovations for which documentation is not as standardized and, accord-
ingly, they are less liquid than swaps.
General. The successful use of the foregoing investment practices draws upon
the Adviser's special skills and experience with respect to such instruments
and usually depends on the Adviser's ability to forecast interest rate and cur-
rency exchange rate movements correctly. Should interest or exchange rates move
in an unexpected manner, the Portfolio may not achieve the anticipated benefits
of futures contracts, options or forward contracts or may realize losses and
thus be in a worse position than if such strategies had not been used. Unlike
many exchange-traded futures contracts and options on futures contracts, there
are no daily price fluctuation limits with respect to options on currencies 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 such instruments and movements in the prices of the
securities and currencies hedged or used for cover will not be perfect and
could produce unanticipated losses.
The Portfolio's ability to dispose of its positions in futures contracts, op-
tions and forward contracts will depend on the availability of liquid markets
in such instruments. Markets in options and futures with respect to a number of
fixed-income securities and currencies are relatively new and still developing.
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 second-
ary market does not exist with respect to an option purchased or written by the
Portfolio over-the-counter, it might not be possible to effect a closing trans-
action in the option (i.e., dispose of the option) with the result that (i) an
option purchased by the Portfolio would have to be exercised in order for the
Portfolio to realize any profit and (ii) the Portfolio may not be able to sell
currencies or portfolio securities covering an option written by the Portfolio
until the option expires or it delivers the underlying futures contract or cur-
rency upon exercise. Therefore, no assurance can be given that the Portfolio
will be able to utilize these instruments effectively for the purposes set
forth above. Furthermore, the Portfolio's ability to engage in options and
futures transactions may be limited by tax considerations. See "Dividends, Dis-
tributions and Taxes--U.S. Federal Income Taxes."
12
<PAGE>
Loans of Portfolio Securities. The Portfolio may make secured loans of its
portfolio securities to brokers, dealers and financial institutions provided
that cash, U.S. Government Securities or bank letters of credit equal to at
least 100% of the market value of the securities loaned is deposited and main-
tained by the borrower with the Portfolio. The risks in lending portfolio secu-
rities, as with other extensions of credit, consist of possible loss of rights
in the collateral should the borrower fail financially. In determining whether
to lend securities to a particular borrower, the Adviser (subject to review by
the Trustees) will consider all relevant facts and circumstances, including the
creditworthiness of the borrower. While securities are on loan, the borrower
will pay the Portfolio any income earned thereon and the Portfolio may invest
any cash collateral in portfolio securities, thereby earning additional income,
or receive an agreed upon amount of income from a borrower who has delivered
equivalent collateral. The Portfolio may pay reasonable finders, administrative
and custodial fees in connection with a loan. The Portfolio will not lend port-
folio securities in excess of 20% of the value of its total assets, nor will
the Portfolio lend its portfolio securities to any officer, director, employee
or affiliate of the Fund or the Adviser. The Trustees will monitor the Portfo-
lio's lending of portfolio securities.
Repurchase Agreements. The Portfolio may enter into "repurchase agreements"
pertaining to U.S. Government Securities with member banks of the Federal Re-
serve System or "primary dealers" (as designated by the Federal Reserve Bank of
New York) in such securities. There is no percentage restriction on the Portfo-
lio's ability to enter into repurchase agreements. Currently, the Portfolio en-
ters into repurchase agreements only with its Custodian and such primary deal-
ers. A repurchase agreement arises when a buyer such as the Portfolio 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 secu-
rity and which is related to the current market rate rather than the coupon
rate on the purchased security. Such agreements permit the Portfolio to keep
all of its assets at work while retaining "overnight" flexibility in pursuit of
investments of a longer-term nature. The Portfolio requires continual mainte-
nance by its Custodian for its account in the Federal Reserve/Treasury Book En-
try 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 Port-
folio 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 Portfolio might be delayed in, or prevented from, selling the
collateral for the Portfolio's benefit. The Trustees have established proce-
dures, which are periodically reviewed by the Trustees, pursuant to which the
Adviser monitors the creditworthiness of the dealers with which the Portfolio
enters into repurchase agreement transactions.
Portfolio Turnover. The Portfolio may engage in active short-term trading to
benefit from yield disparities among different issues of securities, to seek
short-term profits during periods of fluctuating interest rates, or for other
reasons. Such trading will increase the Portfolio's rate of turnover and the
incidence of short-term capital gain taxable as ordinary income. Management an-
ticipates that the annual turnover in the Portfolio will not be in excess of
500%. An annual turnover rate of 500% occurs, for example, when all of the se-
curities in the portfolio are replaced five times in a period of one year. A
high rate of portfolio turnover involves correspondingly greater expenses than
a lower rate, which expenses must be borne by the Portfolio and its sharehold-
ers. High portfolio turnover also may result in the realization of substantial
net short-term capital gains. In order to continue to qualify
13
<PAGE>
as a regulated investment company for Federal tax purposes, less than 30% of
the annual gross income of the Portfolio must be derived from the sale of secu-
rities held by the Portfolio for less than three months. See "Dividends, Dis-
tributions and Taxes" and "General Information--Portfolio Transactions."
Certain Fundamental Investment Policies of the Short-Term Global Income Port-
folio. To maintain portfolio diversification and reduce investment risk, as a
matter of fundamental policy, the Portfolio may not: (i) invest 25% or more of
its total assets in securities of companies engaged principally in any one in-
dustry other than the banking industry, except that this restriction does not
apply to U.S. Government Securities; or (ii) borrow money except from banks for
temporary or emergency purposes, including the meeting of redemption requests
which might require the untimely disposition of securities; borrowing in the
aggregate may not exceed 15%, and borrowing for purposes other than meeting re-
demptions may not exceed 5%, of the value of the Portfolio's total assets (in-
cluding the amount borrowed) less liabilities (not including the amount borrow-
ed) at the time the borrowing is made; securities will not be purchased while
borrowings in excess of 5% of the value of the Portfolio's total assets are
outstanding.
MANAGEMENT OF THE FUND
ADVISER
Alliance Capital Management L.P., a Delaware limited partnership with princi-
pal offices at 1345 Avenue of the Americas, New York, New York 10105, has been
retained under an advisory agreement (the "Advisory Agreement") to provide in-
vestment advice and, in general, to conduct the management and investment pro-
gram of each of the Fund's Portfolios subject to the general supervision and
control of the Trustees. The employees of the Adviser principally responsible
for the Fund's investment program are (i) for the Growth Portfolio, Alden M.
Stewart and Randall E. Haase, who are, respectively, an Executive Vice Presi-
dent and a Senior Vice President of ACMC, and (ii) for the Short-Term Global
Income Portfolio, Doug Peebles, who is Vice President of ACMC.
The Adviser is a leading international investment manager supervising client
accounts with assets as of September 30, 1995 totaling more than $140 billion
(of which approximately $47 billion represented the assets of investment compa-
nies). The Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies, foundations
and endowment funds. The 51 registered investment companies managed by the Ad-
viser comprising 106 separate investment portfolios currently have over two
million shareholders. As of September 30, 1995, the Adviser was retained as an
investment manager for 29 of the Fortune 100 companies.
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 Equita-
ble Life Assurance Society of the United States ("Equitable"), one of the larg-
est life insurance companies in the United States, which is a wholly-owned sub-
sidiary of The Equitable Companies Incorporated, a holding company controlled
by AXA, a French insurance holding company. Certain information concerning the
ownership and control of Equitable by AXA is set forth in the Fund's Statement
of Additional Information under "Management of the Fund."
The Advisory Agreement between the Fund and the Adviser provides that the Ad-
viser will furnish advice and recommendations with respect
14
<PAGE>
to each of the Fund's Portfolios and will provide persons satisfactory to the
Fund's Trustees to act as officers and employees of the Fund. Such officers
and employees, as well as certain Trustees of the Fund, may be employees of
the Adviser or its affiliates. For the services rendered by the Adviser under
the Advisory Agreement, the Fund pays as follows: (i) for the Growth Portfo-
lio, a quarterly fee on the first business day of July, October, January and
April in each year of .1875 of 1% (approximately .75 of 1% on an annualized
basis) of the Portfolio's net assets; and (ii) for the Short-Term Global In-
come Portfolio, a fee at an annual rate of .45 of 1% of the average daily
value of the Portfolio's net assets computed daily and paid monthly. For the
fiscal year ended September 30, 1995, the Adviser received from the Growth
Portfolio, the only Portfolio of the Fund then in operation, a fee equivalent
to .75% of that Portfolio's average net assets.
EXPENSES OF THE FUND
In addition to the payments to the Adviser under the Advisory Agreement de-
scribed above, the Fund pays certain other costs including (a) custody, trans-
fer and dividend-disbursing expenses; (b) fees of Trustees who are not affili-
ated with the Adviser; (c) legal and auditing expenses; (d) clerical,
accounting and other office costs; (e) costs of printing the Fund's prospec-
tuses and shareholder reports; (f) cost of maintaining the Fund's existence;
(g) interest charges, taxes, brokerage fees and commissions; (h) costs of sta-
tionery and supplies; (i) expenses and fees related to registration and filing
with the Securities and Exchange Commission (the "Commission") and with state
regulatory authorities; and (j) such promotional expenses as may be contem-
plated by any effective plan pursuant to Rule 12b-1 under the 1940 Act, as
amended.
As to the obtaining of clerical and accounting services not required to be
provided to the Fund by the Adviser under the Advisory Agreement, the Fund may
employ its own personnel. For such services, it also may utilize personnel em-
ployed by the Adviser or by its affiliates; in such event, the services are
provided to the Fund at cost and the payments therefor must be specifically
approved in advance by the Fund's Trustees.
The Advisory Agreement further provides that the Adviser will reimburse the
Fund for its net expenses (except interest, taxes, brokerage, distribution
services fees, and extraordinary expenses, all to the extent permitted by ap-
plicable state securities laws and regulations) which in any year exceed the
limits prescribed by any state in which each Portfolio's shares are qualified
for sale. The Fund believes that presently, the most restrictive expense ratio
limitation imposed by any state in which each Portfolio's shares have been
qualified for sale is 2.5% of the first $30 million of a Portfolio's average
net assets, 2% of the next $70 million of its average net assets and 1.5% of
its average net assets in excess of $100 million. For the fiscal year ended
September 30, 1995, the ordinary operating expenses of the Growth Portfolio,
the only Portfolio of the Fund then in operation, were 1.11% of the Portfo-
lio's average net assets.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE OF SHARES
Shares of the Fund are offered on a continuous basis at net asset value,
without any sales or other charge, directly by the Fund and by Alliance Fund
Distributors, Inc., the Fund's Distributor, acting as agent for the Fund. The
minimum for initial investments in a Portfolio is $5,000,000, except that in-
vestment management clients of the Adviser or its affiliates may invest in any
amount. There is no minimum for subsequent investments.
15
<PAGE>
Shares of the Portfolios may be purchased only by investment management cli-
ents of the Adviser or its affiliates and by institutional investors, which for
this purpose are persons other than (i) individuals, sole proprietors or pro-
fessional corporations or (ii) individual retirement accounts and employer-
sponsored retirement plans of the types commonly referred to as Keogh or H.R.
10 plans.
The subscriber should use the subscription application found at the back of
this Prospectus for its initial investment and enclose with the subscription
application a check in the amount of its subscription. Shareholders wishing to
purchase additional shares of the Fund should send a check payable to the Fund
directly to the Fund at the address listed on the cover of this Prospectus.
Orders for shares of a Portfolio received by the Fund or by the Distributor
prior to the close of business on a Fund business day as defined below are
priced at the net asset value of shares of that Portfolio computed as of the
close of regular trading on the New York Stock Exchange (the "Exchange") (cur-
rently 4:00 p.m. New York time) on that day. If orders are received after the
close of a Fund business day, such orders are priced as of the close of regular
trading on the Exchange on the next succeeding Fund business day. The Fund re-
serves the right to reject any subscription in its sole discretion or to sus-
pend the sale of its shares to the public in response to market conditions or
for other reasons.
Full and fractional shares are credited to a subscriber's account in the
amount of its subscription. As a convenience to the subscriber, and to avoid
unnecessary expense to the Fund, certificates representing shares of the Fund
are not issued except upon written request of the shareholder. This facilitates
later redemption and relieves the shareholder of the responsibility and incon-
venience of preventing the share certificates from becoming lost or stolen. No
certificates are issued for fractional shares, although such shares remain in
the shareholder's account on the books of the Fund.
REDEMPTION
The Fund redeems its shares 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 re-
demption.
To redeem shares of the Fund for which no share certificates have been is-
sued, the registered owner or owners should forward a letter to the Fund con-
taining a request for redemption. The signature or signatures on the letter
must be guaranteed by a national bank, other bank or by a savings and loan as-
sociation which is insured by the Federal Deposit Insurance Corporation or by
an institution that is an "eligible guarantor " as defined in Rule 17Ad-15 un-
der the Securities Exchange Act of 1934, as amended.
To redeem shares represented by share certificates, the investor should for-
ward the appropriate share certificate or certificates, endorsed in blank or
with blank stock powers attached, to the Fund with the request that the shares
represented thereby, or a specified portion thereof, be redeemed. The stock as-
signment form on the reverse side of each share certificate surrendered to the
Fund 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 certificate or
certificates or, where tender is made by mail, separately mailed to the Fund.
The signature or signatures on the assignment form must be guaranteed in the
manner described above.
GENERAL
The Fund reserves the right to close out an account of a Portfolio that
through redemption
16
<PAGE>
has remained below $1,000,000 after at least 60 days' written notice to the
shareholder unless the balance in such account is increased to at least that
amount during such period. In the case of a redemption of shares recently pur-
chased by check, redemption proceeds will not be made available until the Fund
is reasonably assured that the check has cleared, normally up to 15 calendar
days following the purchase date.
The net asset value per share for purchases and redemptions of shares of each
Portfolio is determined in accordance with the Fund's Agreement and Declaration
of Trust and By-Laws at the next close of regular trading on the Exchange (cur-
rently 4:00 p.m. New York time) following receipt of a purchase order or re-
demption order for shares of that Portfolio, on any Fund business day on which
such an order is received and trading in the types of securities in which such
Portfolio invests might materially affect the value of its shares. A Fund busi-
ness day is any weekday exclusive of national holidays on which the Exchange is
closed and Good Friday. Net asset value per share of each Portfolio is calcu-
lated by adding the market value of all securities held in such Portfolio and
other assets, subtracting such Portfolio's liabilities incurred or accrued, and
dividing by the number of shares of that Portfolio outstanding.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to distribute to shareholders of the Growth Portfolio, after
the end of each fiscal year of the Fund, substantially all of such Portfolio's
respective net investment income for such year.
Dividends on shares of the Short-Term Global Income Portfolio will be de-
clared from its net investment income on each Fund business day. The Portfolio
declares dividends for Saturdays, Sundays and holidays on the previous business
day. Dividends on shares of the Portfolio are paid at approximately the close
of business on the last business day of each month.
Net capital gains realized by a Portfolio during a fiscal year of the Fund
will usually be distributed to its shareholders after the end of such fiscal
year.
U.S. FEDERAL INCOME TAXES
Each Portfolio intends to qualify to be taxed as a "regulated investment com-
pany" under the Code. Qualification as a regulated investment company relieves
each Portfolio of Federal income and excise taxes on the portion of its invest-
ment company taxable income and net capital gain distributed to its sharehold-
ers. To so qualify, a Portfolio 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 currencies, 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 currencies;
(ii) derive less than 30% of its gross income in each taxable year from the
sale or other disposition of stock, securities or certain other investments
held less than three months; and (iii) 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 total value of a Portfolio's assets is represented by
cash, U.S. Government Securities, securities of other regulated investment com-
panies and other securities (for this purpose, such other securities will qual-
ify only if a Portfolio's investment is limited, in respect of any one issuer,
to an amount not greater than 5% of the Portfolio's total assets and 10% of the
outstanding voting securities of such issuer) and (b) not
17
<PAGE>
more than 25% of the total value of a Portfolio's assets is invested in secu-
rities of any one issuer (other than U.S. Government Securities or securities
of other regulated investment companies). These requirements will limit the
ability of the Short-Term Global Income Portfolio to pursue hedging strate-
gies.
The Treasury Department is authorized to issue regulations to provide that
foreign currency gains that are "not directly related" to a Portfolio's prin-
cipal business of investing in stock or securities may be excluded from the
income that qualifies for purposes of the 90% gross income requirement de-
scribed above with respect to a Portfolio's qualification as a "regulated in-
vestment company." No such regulations have yet been issued.
Each income dividend and capital gains distribution, if any, declared by the
Fund on the outstanding shares of any Portfolio will, at the election of each
shareholder, be paid in cash or reinvested in additional full and fractional
shares of that Portfolio. Election to receive dividends and distributions in
cash or shares is made at the time the shares are subscribed for and may be
changed by notice received by the Fund from a shareholder at least 30 days
prior to the record date for a particular dividend or distribution. There is
no charge in connection with the reinvestment of dividends and capital gains
distributions.
There is no fixed dividend rate and there can be no assurance that any Port-
folio will pay any dividends or realize any capital gains. The amount of any
dividend or distribution paid by a Portfolio must necessarily depend upon the
realization by the Fund of income and capital gains from that Portfolio's in-
vestments. All dividends and distributions will be made to shareholders of a
Portfolio solely from assets of that Portfolio. Such dividends or distribu-
tions are subject to applicable taxes to the extent that the investor is sub-
ject to such taxes.
For Federal income tax purposes, dividends of net ordinary income and dis-
tributions of any net realized short-term capital gain, whether paid in cash
or reinvested in shares of a Portfolio, are taxable to shareholders as ordi-
nary income. In the case of corporate shareholders, such dividends are eligi-
ble for the dividends-received deduction, except that the amount eligible for
the deduction is limited to the amount of qualifying dividends received by the
Portfolio. Since the Short-Term Global Income Portfolio expects to derive sub-
stantially all of its gross income (exclusive of capital gains) from sources
other than dividends, it is expected that none of such Portfolio's dividends
or distributions will qualify for the dividends-received deduction for corpo-
rations. A corporation's dividends-received deduction will be disallowed un-
less the corporation holds shares in the Portfolio at least 46 days. Further-
more, provisions of the tax law disallow the dividends-received deduction to
the extent a corporation's investment in Portfolio shares of the Fund is
financed with indebtedness.
Distributions of net realized long-term capital gains, whether paid in cash
or reinvested in shares of a Portfolio, are taxable to shareholders as long-
term capital gains irrespective of the length of time the shareholder has held
its shares. Such long-term capital gains distributions are not eligible for
the dividends-received deduction referred to above.
A dividend or capital gains distribution with respect to Portfolio shares
held by a tax-deferred or qualified plan, such as a corporate pension or
profit sharing plan, 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.
Under current Federal income tax law, the amount of an income dividend or
capital gain distribution declared by the Fund during October, November and
December of a year to shareholders of record as of a specified date in such a
month
18
<PAGE>
that is paid during January of the following year is includable in the prior
year's taxable income of shareholders that are calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of a Portfo-
lio 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 distribu-
tion 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 the shareholder as described above. If a shareholder held shares for six
months or less and during that period received a distribution taxable to such
shareholder as long-term capital gain, any loss realized on the sale of such
shares during such six-month period would be a long-term loss to the extent of
such distribution.
Shareholders will be advised annually as to the Federal tax status of divi-
dends and capital gains distributions made by the Portfolios for the preceding
year. Distributions by a Portfolio may be subject to state and local taxes.
FOREIGN INCOME TAXES
Investment income received by a Portfolio from sources within foreign coun-
tries may be subject to foreign income taxes withheld at the source. To the ex-
tent that the Short-Term Global Income Portfolio is liable for foreign income
taxes withheld at the source, the Portfolio intends to operate so as to meet
the requirements of the Code to "pass through" to the Portfolio's shareholders
credits for foreign income taxes paid, but there can be no assurance that the
Portfolio will be able to do so.
GENERAL INFORMATION
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Trustees of the Fund, the Adviser
is responsible for the investment decisions and the placing of the orders for
portfolio transactions for the Fund. Portfolio transactions for the Short-Term
Global Income Portfolio occur primarily with issuers, underwriters or major
dealers acting as principals. Such transactions are normally on a net basis
which do not involve payment of brokerage commissions. The cost of securities
purchased from an underwriter usually includes a commission paid by the issuer
to the underwriters; transactions with dealers normally reflect the spread be-
tween bid and asked prices. Premiums are paid with respect to options purchased
by the Portfolio and brokerage commissions are payable with respect to transac-
tions in exchange-traded futures contracts. Transactions for the Growth Portfo-
lio are normally effected by brokers.
The Fund has no obligation to enter into transactions in portfolio securities
with any broker, dealer, issuer, underwriter or other entity. In placing or-
ders, it is the policy of the Fund to obtain the best price and execution for
its transactions. Where best price and execution may be obtained from more than
one broker or dealer, the Adviser may, in its discretion, purchase and sell se-
curities through brokers and dealers who provide research, statistical and
other information to the Adviser. Such services may be used by the Adviser for
all of its investment advisory accounts and, accordingly, not all such services
may be used by the Adviser in connection with the Fund. 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 broker-
age and research and statistical services provided by the executing broker. The
supplemental information received from a broker or dealer is in addition to the
services required to be performed by the Adviser under the Advisory Agreement,
and the ex-
19
<PAGE>
penses of the Adviser will not necessarily be reduced as a result of the re-
ceipt of such information. 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 its shares as a factor in the selec-
tion of brokers and dealers to execute portfolio transactions for the Fund.
The Fund may from time to time place orders for the purchase or sale of secu-
rities with Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), an af-
filiate 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 accordance with Section 11(a)
of the Securities Exchange Act of 1934. In such instances, the placement of or-
ders with such brokers will be consistent with the Fund's objective of ob-
taining best price and execution and will not be dependent upon the fact that
DLJ is an affiliate of the Adviser.
CAPITALIZATION
The Fund was organized as a Delaware corporation on May 12, 1969 under the
name "Fiduciary Growth Associates, Incorporated." As of March 12, 1986, the
Fund was reorganized under its current name as a business trust under the laws
of Massachusetts. The Fund has an unlimited number of authorized shares of ben-
eficial interest, par value $.01 per share, which may, without shareholder ap-
proval, be divided into an unlimited number of series. Such shares are cur-
rently divided into several series, one underlying each Portfolio. Shares of
each Portfolio are normally entitled to one vote for all purposes. Generally,
shares of each Portfolio would vote as a single series on matters, such as the
election of Trustees, that affected all Portfolios in substantially the same
manner. Massachusetts law does not require annual meetings of shareholders and
it is anticipated that shareholder meetings will be held only when required by
Federal law. Shareholders have available certain procedures for the removal of
Trustees. Shares of each Portfolio are freely transferable, are entitled to
dividends as determined by the Trustees and, in liquidation of the Fund, are
entitled to receive the net assets of that Portfolio. Shareholders have no pre-
emptive rights.
DISTRIBUTOR
Alliance Fund Distributors, Inc., 1345 Avenue of the Americas, New York, New
York, 10105, the Fund's distributor, is an indirect wholly-owned subsidiary of
the Adviser. The Adviser may, from time to time and from its own resources,
make payments for distribution services to Alliance Fund Distributors, Inc.;
the latter may in turn pay part or all of such compensation to brokers (which
may include DLJ) or other persons for their distribution assistance.
CUSTODIANS
State Street Bank and Trust Company, 225 Franklin Street, Boston Massachu-
setts 02110, acts as custodian for the securities and cash of the Growth Port-
folio, but plays no part in deciding on the purchase or sale of securities.
Brown Brothers Harriman & Co. acts as custodian for the securities and cash
of the Short-Term Global Income Portfolio, but plays no part in deciding on the
purchase or sale of portfolio securities. Subject to the supervision of the
Fund's Trustees, Brown Brothers Harriman & Co. may enter into sub-custodial
agreements for the holding of the Portfolio's foreign securities.
REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
Alliance Fund Services, Inc., an indirect wholly-owned subsidiary of the Ad-
viser, located at 500 Plaza Drive, Secaucus, New Jersey 07094, is the Fund's
registrar, transfer agent and dividend-disbursing agent for a fee based upon
the number of shareholder accounts maintained for the Fund.
20
<PAGE>
PERFORMANCE INFORMATION
From time to time the Fund advertises the "yield" of the Short-Term Global
Income Portfolio and the "total return" of all Portfolios. The Short-Term
Global Income Portfolio's yield for any 30-day (or one-month) period is com-
puted by dividing the net investment income per share earned during such pe-
riod by the net asset value per share on the last day of the period, and then
annualizing such 30-day (or one-month) yield in accordance with a formula pre-
scribed by the Securities and Exchange Commission which provides for com-
pounding on a semi-annual basis. The Short-Term Global Income Portfolio may
also advertise in sales literature an "actual distribution rate" which is com-
puted in the same manner as yield except that actual income dividends declared
per share during the period in question are substituted for net investment in-
come per share.
Advertisements of each Portfolio's total return disclose its average annual
compounded total return for recent one, five and ten-year periods, in the case
of the Growth Portfolio, and, in the case of the Short-Term Global Income
Portfolio, the period since inception. A Portfolio's total return for such pe-
riod is computed by finding, through the use of a formula prescribed by the
Securities and Exchange Commission, the average annual compounded rate of re-
turn over the period that would equate an assumed initial amount invested to
the value of the investment at the end of the period. For purposes of comput-
ing total return, income dividends and capital gains distributions paid on
shares of a Portfolio are assumed to have been reinvested when paid.
ADDITIONAL INFORMATION
Shareholder inquiries may be directed to the shareholder's broker or to Al-
liance Fund Services, Inc. at the address or telephone number listed on the
cover of this Prospectus. This Prospectus and the Statement of Additional In-
formation, which has been incorporated by reference herein, does not contain
all the information set forth in the Registration Statement filed by the Fund
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended. Copies of the Registration Statement may be obtained at a reason-
able charge from the Commission or may be examined, without charge, at the of-
fice of the Commission in Washington, D.C.
21
<PAGE>
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22
<PAGE>
FIDUCIARY MANAGEMENT ASSOCIATES
SUBSCRIPTION APPLICATION
(SEE INSTRUCTIONS ON PAGE 25)
1. NAME (IMPORTANT: PLEASE PRINT)
-------------------------------------------- ----------------
-------------------------------------------- ----------------
Indicate name of corporation, other Tax Ident. No.
organization or fiduciary capacity; if
trustee, include date of trust instrument
2. ADDRESS
- ------------------------------------- -------------------------------------
street city state zip
- -------------------------------------
area code telephone
3. INITIAL INVESTMENT
We hereby subscribe for the largest number of full and fractional shares of
Fiduciary Management Associates that may be purchased with the enclosed check
or draft payable to Fiduciary Management Associates for $ .
Such check or draft is to be allocated to the purchase of the largest possible
number of full and fractional shares of the following Portfolio:
[_] Growth Portfolio.
[_] Short-Term Global Income Portfolio.
4. DISTRIBUTION OPTIONS
Income Dividends Capital Gains Distributions
- ------------------------------------- -------------------------------------
ELECT [_] reinvest dividends ELECT [_] reinvest capital gains
ONE [_] pay dividends in cash ONE [_] pay capital gains in cash
If no election is made, dividends and capital gains will be automatically re-
invested in additional shares at net asset value.
5. SIGNATURE AND TAXPAYER IDENTIFICATION NUMBER CERTIFICATION
We certify under penalty of perjury that the taxpayer identification number
shown in Part 1 of this form is correct and that we have not been notified that
this account is subject to backup withholding.
We are of legal age and capacity and have received and read the Prospectus
and agree to its terms.
- --------------------------------- ---------------------
Authorized Signature date
- --------------------------------- --------------------- Acceptance Date: ____
Authorized Signature date
23
<PAGE>
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24
<PAGE>
INSTRUCTIONS FOR SUBSCRIPTION APPLICATION
OPENING YOUR ACCOUNT
Complete the application and mail it to:
Fiduciary Management Associates
P.O. Box 1520
Secaucus, New Jersey, 07096
Please enclose with your subscription application your check payable to Fi-
duciary Management Associates in the amount of your investment. The Fund will
not accept checks drawn on banks outside the United States.
MINIMUM INVESTMENTS
Except as provided in the Prospectus, the minimum initial investment is
$5,000,000 in a Portfolio, except that investment management clients of the
Adviser or its affiliates may invest in any amount. There is no minimum for
subsequent investments.
REDEMPTIONS
Shares can be redeemed in any amount and at any time by the methods de-
scribed in the Prospectus. In the case of redemptions of shares recently pur-
chased by check, redemption proceeds will not be made available until the Fund
is reasonably assured that the check has cleared, normally up to fifteen cal-
endar days following the purchase date.
Certain legal documents will be required from corporations or other organi-
zations, executors and trustees, or if redemption is requested by anyone other
than the shareholder of record. If you have any questions concerning a redemp-
tion, contact Alliance Fund Services, Inc. toll-free at (800) 221-5672.
SIGNATURES--BE SURE TO SIGN THE APPLICATION
If shares are registered in the name of:
--a corporation or other organization, an authorized officer should sign
(please indicate corporate office or title).
--a trustee or other fiduciary, the fiduciary or fiduciaries should sign
(please indicate capacity).
25
<PAGE>
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26
<PAGE>
FMA PRO 2/96
This prospectus does not constitute an
offering in any state in which such
offering may not lawfully be made.
TABLE OF CONTENTS PAGE
- ---------------------------------------
Expense Information 2
Financial Highlights 3
Description of the Fund 4
Management of the Fund 14
Purchase and Redemption of Shares 15
Dividends, Distributions and Taxes 17
General Information 19
Subscription Application 23
INVESTMENT ADVISER
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, NY 10105
Fiduciary
- ---------------------------------------
Management
- ---------------------------------------
Associates
- ---------------------------------------
Prospectus and Application
February 1, 1996
Goal: A
diversified
selection of
investment
alternatives for
institutional
investors.
Alliance/R/
Mutual funds without the Mystery./SM/
-------------------------------------
<PAGE>
ALLIANCE ARM FUND
FOR FINANCIAL INSTITUTIONS
________________________________________________________________
P.O. Box 1520, Secaucus, New Jersey 07096-1520
For Information: (800) 221-5672
________________________________________________________________
INVESTMENT OBJECTIVE AND POLICIES
________________________________________________________________
The Alliance ARM Fund for Financial Institutions (the "Fund")
seeks the highest level of current income, consistent with low
volatility of net asset value, that is available from a portfolio
of securities of high quality.
The Fund is one of the three series of Fiduciary Management
Associates. This Prospectus offers only shares of the Fund.
Shares of the other two portfolios, each of which has its own
investment objectives and policies, are offered by a separate
Prospectus.
________________________________________________________________
PURCHASE INFORMATION
________________________________________________________________
Shares of the Fund are eligible for purchase by Federal
savings associations, national banks and other institutional
investors. The minimum initial investment in the Fund is
$1,000,000, except that investment management clients of Alliance
Capital Management L.P., the Fund's investment adviser (the
"Adviser"), or its affiliates may invest in any amount. The Fund
may, in its discretion, waive the minimum initial investment.
There is no minimum for subsequent investments. For further
information, contact Alliance Fund Services, Inc. at the
telephone number or address shown above.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OR OBLIGATION OF,
OR GUARANTEED OR ENDORSED BY, ANY BANK AND IS NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
________________________________________________________________
ADDITIONAL INFORMATION
________________________________________________________________
This Prospectus sets forth concisely the information which a
prospective investor should know about the Fund before investing.
<PAGE>
A "Statement of Additional Information" which provides further
information regarding certain matters discussed in this
Prospectus and other matters which may be of interest to some
investors, has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. For a free
copy, call or write Alliance Fund Services, Inc. at the telephone
number or address shown above.
(R)/SM These are registered marks used under licenses from the
owner, Alliance Capital Management L.P.
________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROSPECTUS/February 1, 1996
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS CAREFULLY AND
TO RETAIN IT FOR FUTURE REFERENCE.
2
<PAGE>
EXPENSE INFORMATION
Shareholder Transaction Expenses
The Fund has no sales load or deferred sales load on
purchases or reinvested dividends. The Fund has no redemption
fee.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees .......... .45%
12b-1 Fees................ .15%
Other Expenses............ .10%
- --- Total Operating Expenses.. .70%
Example: 1 Year 3 Years 5 Years 10 Years
______ _______ _______ ________
You would pay the following
expenses on a $1,000
investment, assuming a
5% annual return (cumulatively
through the end of each time
period): $7 $22 $39 $87
The purpose of the foregoing table is to assist the investor
in understanding the various costs and expenses that an investor
will bear directly or indirectly. Long-term shareholders of the
Fund may pay aggregate sales charges totaling more than the
economic equivalent of the maximum initial sales charges
permitted by the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. See "Management of the
Fund--Distribution Services Agreement." "Other Expenses" are
based on estimated amounts for the Fund's current fiscal year.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
________________________________________________________________
DESCRIPTION OF THE FUND
________________________________________________________________
Introduction to the Fund
The investment objective and policies of the Fund are set
forth below. Except as otherwise provided below, 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 may, therefore, be changed by the
3
<PAGE>
Trustees without a shareholder vote. However, the Fund will not
change its investment policies without contemporaneous written
notice to shareholders. There can be, of course, no assurance
the Fund will achieve its investment objective.
Investment Objective and Policies
General. The investment objective of the Fund is to seek the
highest level of current income, consistent with low volatility
of net asset value, that is available from a portfolio of
securities of high quality. In seeking to achieve its investment
objective, the Fund will invest at least 65% of its total assets
in adjustable rate mortgage securities. The Fund will only
purchase securities that are issued or guaranteed by the United
States Government, its agencies or instrumentalities, or are
rated AA or higher by Standard & Poor's Ratings Services ("S&P")
or Aa or higher by Moody's Investors Service, Inc. ("Moody's"),
or are rated of equivalent credit quality by a nationally
recognized rating organization. The Fund invests primarily in
"securities backed by or representing an interest in mortgages on
domestic residential housing or manufactured housing" meeting the
definition of such assets for purposes of the qualified thrift
lender ("QTL") test under the current regulations of the Office
of Thrift Supervision of the Department of the Treasury ("OTS
Regulations"). Pending any revisions of the current OTS
Regulations, the Fund expects that absent extraordinary market
developments, at least 65% of its assets will qualify for QTL
purposes as an investment for savings associations, although
actual percentages may be higher. In addition, the Fund will not
purchase any securities having a risk-based weighting in excess
of 20% under the current risk-based capital regulations
established by the OTS. Furthermore, the Fund's risk-based
weighting for banks, under current Federal regulations, will not
exceed 50%. In addition, the Fund does not intend to invest in
securities defined as "high-risk" under guidelines issued by the
Federal Financial Institutions Examination Council.
The mortgage-related securities the Fund may invest in may be
classified into the following principal categories according to
the issuer or guarantor:
- - Governmental mortgage-related securities that are backed by
the full faith and credit of the U.S. Government. The
Government National Mortgage Association ("GNMA"), the
principal U.S. Government guarantor of such securities, is a
wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA is
authorized to guarantee, with the full faith and credit of
the United States, the timely payment of principal and
interest, but not of market value, on securities issued by
4
<PAGE>
approved institutions and backed by pools of FHA-insured or
VA-guaranteed mortgages.
- - Government-related mortgage-related securities that are not
backed by the full faith and credit of the U.S. Government.
Issuers include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"). FNMA is a U.S. Government-sponsored corporation
owned entirely by private stockholders. Pass-through
securities issued by FNMA are guaranteed as to timely payment
of principal and interest by FNMA. FHLMC issues
mortgage-related securities representing interests in
residential mortgage loans pooled by it. FHLMC is a U.S.
Government-sponsored corporation and guarantees the timely
payment of interest and ultimate collection of principal.
- - Private mortgage-related securities that represent interests
in, or are collateralized by, pools consisting principally of
residential mortgage loans created by non-governmental
issuers. These securities generally offer a higher rate of
interest than governmental and government-related
mortgage-related securities because there are no direct or
indirect government guarantees of payment as in the former
securities, although certain credit enhancements may exist.
Securities issued by private organizations may not have the
same degree of liquidity as those with direct or indirect
government guarantees. Private mortgage-related securities
purchased by the Fund must be rated in one of the two highest
rating categories by at least one nationally recognized
statistical rating organization.
The Adviser seeks to provide a relatively stable net asset
value by investing the Fund's assets in a portfolio of securities
which the Adviser believes, in the aggregate, will experience
relatively low price volatility. A group of mortgage-related
securities may, in the aggregate, experience lower price
volatility if, for example, the group contains adjustable rate
securities the value of which tends to fluctuate less
significantly as compared to fixed-rate securities of comparable
maturities, and securities the value of which tends to move in
opposite directions relative to other mortgage-related securities
in response to changes in interest rates. See "Adjustable Rate
Mortgage Securities," below.
Under normal circumstances, the Fund expects that the
duration of its portfolio securities will range from less than
three months to one and one-half years. The Fund's duration
(sometimes referred to as "option-adjusted" or "effective"
duration) is a measure of the price sensitivity of its investment
portfolio, including expected cash flow and mortgage prepayments
under a wide range of interest rate conditions. The maturity of
5
<PAGE>
a security measures only the time until final payment is due; it
takes no account of the pattern of the security's cash flows over
time, including how cash flow is affected by prepayments and by
changes in interest rates. In computing the duration of the
Fund's investment portfolio, the Adviser will estimate the
duration of obligations that are subject to prepayment or
redemption by the issuer taking into account the influence of
interest rates on cash flows and prepayments. There can be no
assurance that the Fund will always achieve its targeted
duration, because the Adviser's computation of the Fund's
duration is based in part on estimated rather than known factors,
including, among others, expected prepayment rates, valuation of
homeowners' prepayment options and the degree of correlation
between the markets for securities and the hedging instruments
held by the Fund.
The Adviser believes that by investing in mortgage-related
securities from a variety of market sectors on a selective basis
and adjusting the effective duration of the portfolio to one-year
or less, the Fund will achieve a more consistent and less
volatile net asset value than is characteristic of mutual funds
that invest primarily in mortgage-related securities paying a
fixed rate of interest.
The Adviser believes that because of the nature of the Fund's
assets, it is not exposed to any material risk of loss as a
result of default on any securities held by the Fund. Like all
investors in interest-bearing securities, however, the Fund is
exposed to the risk that the prices of individual securities held
by it can fluctuate, in some cases significantly, in response to
changes in prevailing interest rates.
The Fund's investment policy of investing at least 65% of the
value of its total assets in adjustable rate mortgage securities
(except when in a temporary defensive posture) is deemed
fundamental and may not be changed without shareholder approval.
The Fund's other investment policies are not fundamental and,
therefore, may be changed by the Trustees without shareholder
approval. The Fund is a non-diversified investment company,
which means that it has greater latitude than a diversified fund
with respect to the investment of its assets in the securities of
a relatively few issuers. As a non-diversified investment
company, the Fund may present greater risks than a diversified
company.
Pass-Through Mortgage-Related Securities. The
mortgage-related securities in which the Fund may invest provide
funds for mortgage loans made to residential home buyers. These
include securities which represent interests in pools of mortgage
loans made by lenders such as savings and loan institutions,
mortgage bankers and commercial banks. Pools of mortgage loans
6
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are assembled for sale to investors (such as the Fund) by various
governmental, government-related and private organizations.
Interests in pools of mortgage-related securities differ from
other forms of traditional debt securities, which normally
provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead,
mortgage-related securities provide a monthly payment which
consists of both interest and principal. In effect, these
payments are a "pass-through" of the monthly interest and
principal payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid to the issuer or
guarantor of such securities. Additional payments result from
repayments of principal resulting from the sale of the underlying
residential property, refinancing or foreclosure, net of fees or
costs which may be incurred. Some mortgage-related securities,
such as securities issued by the Government National Mortgage
Association ("GNMA"), are described as "modified pass-through."
These securities entitle the holder to receive all interest and
principal payments owed on the mortgage pool, net of certain
fees, regardless of whether or not the mortgagors actually make
mortgage payments when due.
The investment characteristics of pass-through
mortgage-related securities differ from those of traditional
fixed income securities. The major differences include the
payment of interest and income on the mortgage-related securities
on a more frequent schedule, and the possibility that principal
may be prepaid at any time due to prepayments on the underlying
mortgage loans or other assets. These differences can result in
significantly greater price and yield volatility than is the case
with traditional fixed income securities.
The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social
and demographic conditions. Generally, prepayments on
pass-through mortgage-related securities increase during periods
of falling mortgage interest rates and decrease during periods of
rising mortgage interest rates. Reinvestment of prepayments may
occur at higher or lower interest rates than the original
investment, thus affecting the yield of the Fund.
Collateralized Mortgage Obligations and Multi-Class
Pass-Through Securities. Mortgage-related securities in which
the Fund may invest may also include collateralized mortgage
obligations ("CMOs") and multi-class pass-through securities.
CMOs are debt obligations issued by special purpose entities that
are secured by mortgage-backed certificates, including, in many
cases, certificates issued by governmental and government-related
guarantors, including GNMA, FNMA and FHLMC, together with certain
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funds and other collateral. Multi-class pass-through securities
are equity interests in a trust composed of mortgage loans or
other mortgage-related securities. Payments of principal and
interest on underlying collateral provides the funds to pay debt
service on the CMO or make scheduled distributions on the
multi-class pass-through security. CMOs and multi-class
pass-through securities (collectively CMOs unless the context
indicates otherwise) may be issued by agencies or
instrumentalities of the United States Government or by private
organizations. The issuer of a CMO may elect to be treated as a
Real Estate Mortgage Investment Conduit ("REMIC").
In a CMO, a series of bonds or certificates is issued in
multiple classes. Each class of a CMO, often referred to as a
"tranche," is issued at a specific coupon rate and has a stated
maturity or final distribution date. Principal prepayments on
collateral underlying a CMO may cause it to be retired
substantially earlier than the stated maturities or final
distribution dates. Interest is paid or accrues on all classes
of a CMO on a monthly, quarterly or semi-annual basis. The
principal and interest on the underlying mortgages may be
allocated among the several classes of a series of a CMO in many
ways. In a common structure, payments of principal, including
any principal prepayments, on the underlying mortgages are
applied to the classes of the series of a CMO in the order of
their respective stated maturities or final distribution dates,
so that no payment of principal will be made on any class of a
CMO until all other classes having an earlier stated maturity or
final distribution date have been paid in full.
One or more tranches of a CMO may have coupon rates which
reset periodically at a specified increment over an index such as
the London Interbank Offered Rate ("LIBOR"). These adjustable
rate tranches known as "floating rate CMOs" will be considered as
ARMS by the Fund. Floating rate CMOs may be backed by fixed or
adjustable rate mortgages. To date, fixed-rate mortgages have
been more commonly utilized for this purpose. Floating rate CMOs
are typically issued with lifetime caps on the coupon rate
thereon. These caps, similar to the caps on adjustable rate
mortgages described in "Adjustable Rate Mortgage Securities"
below represent a ceiling beyond which the coupon rate on a
floating rate CMO may not be increased regardless of increases in
the interest rate index to which the floating rate CMO is geared.
Adjustable Rate Mortgage Securities. Adjustable rate
mortgage securities ("ARMS") in which the Fund may invest include
(i) pass-through securities backed by adjustable rate mortgages
and issued by GNMA, FNMA, FHLMC and by private organizations and
(ii) floating rate CMOs. The interest rates on ARMS are reset at
periodic intervals to an increment over some predetermined
interest rate index. The Adviser intends to invest in ARMs with
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reset periods ranging from one month to 36 months with a bias
towards reset periods ranging from one month to twelve months.
There are two main categories of indices: (i) those based on U.S.
Treasury securities and (ii) those derived from a calculated
measure such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year
Treasury rate, the three-month Treasury bill rate, the six-month
Treasury bill rate, rates on longer-term Treasury securities, the
11th District Federal Home Loan Bank Cost of Funds Index, the
National Median Cost of Funds, the one-month or three-month
LIBOR, the prime rate of a specific bank or commercial paper
rates. Some indices, such as the one-year Treasury rate, closely
mirror changes in market interest rate levels. Others, such as
the 11th District Home Loan Bank Cost of Funds Index (often
related to ARMS issued by FNMA), tend to lag changes in market
rate levels and tend to be somewhat less volatile. The Adviser
will seek to diversify the Fund's investments in ARMS among a
variety of indices and reset periods so that the Fund is not at
any one time unduly exposed to the risk of interest rate
fluctuations. In selecting a type of ARMS for investment, the
Adviser will also consider the liquidity of the market for such
ARMS.
The underlying adjustable rate mortgages which back ARMS in
which the Fund may invest will frequently have caps and floors
which limit the maximum amount by which the loan rate to the
residential borrower may change up or down (i) per reset or
adjustment interval and (ii) over the life of the loan. Some
residential adjustable rate mortgage loans restrict periodic
adjustments by limiting changes in the borrower's monthly
principal and interest payments rather than limiting interest
rate changes. These payment caps may result in negative
amortization, i.e., an increase in the balance of the mortgage
loan. ARMS in which the Fund may invest may also be backed by
fixed-rate mortgages. Such ARMS, known as floating rate CMOs (as
described above), generally have lifetime caps on the coupon rate
thereon.
The Fund believes that ARMS are particularly well-suited to
facilitate its ability to accomplish the Fund's investment
objective of high current income, consistent with low volatility
of net asset value, because the value of ARMS should remain
relatively stable as compared to that of traditional fixed-rate
debt securities paying comparable rates of interest. While the
value of ARMS, like other debt securities, generally varies
inversely with changes in market interest rates (increasing in
value during periods of declining interest rates and decreasing
in value during periods of increasing interest rates), the value
of ARMS should generally be more resistant to price swings than
other debt securities because the interest rates of ARMS move
with market interest rates. Accordingly, as interest rates
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change, the value of the Fund's shares should be more stable than
that of funds which invest primarily in securities backed by
fixed-rate mortgages or in other non-mortgage-related debt
securities, which do not provide for adjustment in the interest
rates thereon in response to changes in interest rates.
The ARMS in which the Fund may invest include pass-through
mortgage-related securities backed by adjustable rate mortgages
and floating rate CMOs. As described above, adjustable rate
mortgages typically have caps, which limit the maximum amount by
which the interest rate may be increased or decreased at periodic
intervals or over the life of the loan. Floating rate CMOs have
similar lifetime caps. To the extent that interest rates rise
faster than the allowable caps on ARMS, such ARMS will behave
more like securities backed by fixed-rate mortgages than by
adjustable rate mortgage loans. Consequently, interest rate
increases in excess of caps can be expected to cause ARMS to
behave more like traditional debt securities than adjustable rate
securities and, accordingly, to decline in value to a greater
extent than would be the case in the absence of such caps.
As noted above, because the interest rates on ARMS are
adjusted in response to changing interest rates, fluctuations in
prices of ARMS due to changes in interest rates will be less than
in the case of traditional debt securities. The adjustable rate
feature of ARMS will not, however, eliminate such price
fluctuations, particularly during periods of extreme fluctuations
in interest rates. Also, since many adjustable rate mortgages
only reset on an annual basis, it can be expected that the prices
of ARMS will fluctuate to the extent that changes in prevailing
interest rates are not immediately reflected in the interest
rates payable on the underlying adjustable rate mortgages.
ARMS, like other mortgage-related securities, differ from
conventional bonds in that principal is to be paid back over the
life of ARMS rather than at maturity. As a result, the holder of
the ARMS (i.e., the Fund) receives monthly scheduled payments of
principal and interest and may receive unscheduled principal
payments representing prepayments on the underlying mortgages.
When the holder reinvests the payments and any unscheduled
prepayments it receives, it may receive a rate of interest on the
reinvestment which is lower than the rate on the existing ARMS.
ARMS, while having less risk of price decline during periods
of rapidly rising rates than certain fixed-rate mortgage-related
securities of comparable maturities, will have less potential for
capital appreciation than such securities. In addition, to the
extent ARMS are purchased at a premium, mortgage foreclosures and
unscheduled principal prepayments will result in some loss of the
holders' principal investment to the extent of the premium paid.
On the other hand, if ARMS are purchased at a discount, an
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unscheduled prepayment of principal will increase total return
and accelerate the recognition of income to the Fund and, as a
result, will increase the amount of income received by
shareholders to the extent that the Fund distributes such income.
For a discussion of the tax treatment of the distribution of
income to shareholders, see "Dividends, Distributions and Taxes."
Types of Credit Support. To lessen the effect of failures by
obligors on underlying mortgages to make payments,
mortgage-related securities may contain credit support. Such
credit support falls into two categories: (i) liquidity
protection and (ii) protection against losses resulting from
ultimate default by an obligor on underlying assets. Liquidity
protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the
pass-through of payments due on the underlying pool occurs in a
timely fashion. Protection against losses resulting from ultimate
default enhances the likelihood of ultimate payment of the
obligations on at least a portion of the assets in the pool. The
protections may be provided through guarantees, insurance
policies or letters of credit obtained by the issuer or sponsor
from third parties, through various means of structuring the
transaction or through a combination of these approaches. The
Fund will not pay any additional fees for such credit support,
although the existence of credit support may increase the price
of a security.
The ratings of securities for which third-party credit
enhancement provides liquidity protection or protection against
losses from default are generally dependent upon the continued
creditworthiness of the enhancement provider. The ratings of
such securities could be subject to reduction in the event of
deterioration in the creditworthiness of the enhancement provider
even in cases where the delinquency and loss experience on the
underlying pool of assets is better than expected.
Examples of credit support arising out of the structure of
the transaction include "senior-subordinated securities"
(multiple class securities with one or more classes subordinate
to other classes as to the payment of principal thereof and
interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class),
creation of "reserve funds" (where cash or investments, sometimes
funded from a portion of the payments on the underlying assets,
are held in reserve against future losses) and "over
collateralization" (where the scheduled payments on, or the
principal amount of, the underlying assets exceed those expected
to be required to make payment on the securities and pay any
servicing or other fees). The degree of credit support provided
for each issue is generally based on historical information with
respect to the level of credit risk associated with the
underlying assets. Other information which may be considered
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<PAGE>
includes demographic factors, loan underwriting practices and
general market and economic conditions. Delinquency or loss in
excess of that which is anticipated could adversely affect the
return on an investment in such a security.
Other Securities-General. The Fund may also invest in (i)
non-mortgage-related securities issued or guaranteed by the
United States Government, its agencies and instrumentalities,
including certain "zero coupon" Treasury securities described in
" 'Zero Coupon' Treasury Securities," below, (ii) "zero coupon"
Treasury securities issued by private corporate issuers,
described in "'Zero Coupon' Treasury Securities," below, (iii)
certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of commercial banks, savings
bank or savings association whose deposits are insured by the
Federal Deposit Insurance Corporation ("FDIC"), (iv) commercial
paper rated A-2 or higher by S&P or Prime-2 or higher by Moody's
or are rated of equivalent credit quality by a nationally
recognized rating organization or, if not rated, issued by
companies which have an outstanding debt issue rated AA by S&P or
Aa by Moody's and (vi) debt securities which, although not
mortgage-related securities, are secured by mortgages on
commercial real estate or residential rental properties, provided
such securities are rated AA by S&P or Aa by Moody's or are rated
of equivalent credit quality by a nationally recognized rating
organization; such securities may entitle the holder to
participate in income derived from the mortgaged properties or
from sales thereof. When business or financial conditions
warrant, the Fund may take a temporary defensive position and
invest without limit in the foregoing securities.
"Zero Coupon" Treasury Securities. The Fund may invest in
"zero coupon" Treasury securities, which are U.S. Treasury bills
issued without interest coupons, U.S. Treasury notes and bonds
which have been stripped of their unmatured interest coupons, and
receipts or certificates representing interests in such stripped
debt obligations and coupons. A zero coupon security pays no
interest to its holder during its life. Its value to an investor
consists of the difference between its face value at the time of
maturity and the price for which it was acquired, which is
generally an amount significantly less than its face value
(sometimes referred to as a "deep discount" price). Such
securities usually trade at a deep discount from their face or
par value and will be subject to greater fluctuations of market
value in response to changing interest rates than debt
obligations of comparable maturities which make current
distributions of interest. On the other hand, because there are
no periodic interest payments to be reinvested prior to maturity,
zero coupon securities eliminate reinvestment risk and lock in a
rate of return to maturity. For a discussion of the tax
treatment of "zero coupon" Treasury securities see "Dividends,
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Distributions and Taxes-Zero Coupon Treasury Securities" in the
Fund's Statement of Additional Information.
Currently, the only U.S. Treasury security issued without
coupons is the Treasury bill. Although the U.S. Treasury does
not itself issue Treasury notes and bonds without coupons, under
the U.S. Treasury STRIPS program interest and principal payments
on certain long-term Treasury securities may be maintained
separately in the Federal Reserve Book Entry System and may be
separately traded and owned. In addition, in the last few years
a number of banks and brokerage firms have separated ("stripped")
the principal portions ("corpus") from the coupon portions of
U.S. Treasury bonds and notes and sold them separately in the
form of receipts or certificates representing undivided interests
in these instruments (which instruments are generally held by a
bank in a custodial or trust account). The staff of the
Commission has indicated that, in its view, these receipts or
certificates should be considered as securities issued by the
bank or brokerage firm involved and, therefore, should not be
included in the Fund's categorization of U.S. Government
Securities (as defined below in "Certain Fundamental Investment
Policies").
New Instruments. The Fund expects that new types of ARMS,
other mortgage-related securities, asset-backed securities and
other securities in which the Fund may invest will be developed
and marketed from time to time. Consistent with the Fund's
investment objective, policies and quality standards, the Adviser
will consider making investments in such new types of securities.
Additional Investment Policies and Practices
Futures Contracts and Options on Futures Contracts. The Fund
may enter into contracts for the purchase or sale for future
delivery of fixed-income securities, or contracts based on
financial indices including any index of (i) securities issued or
guaranteed by the United States Government, its agencies or
instrumentalities or (ii) corporate debt securities ("futures
contracts"), and may purchase and write put and call options to
buy or sell futures contracts ("options on futures contracts").
A "sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities called for by
the contract at a specified price on a specified date. A
"purchase" of a futures contract means the incurring of a
contractual obligation to acquire the securities 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
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<PAGE>
physical delivery of the fixed-income securities underlying the
index is made. Options on futures contracts to be written or
purchased by the Fund will be traded on exchanges or
over-the-counter. These investment techniques will be used only
to hedge against anticipated future changes in interest 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.
See the Fund's Statement of Additional Information for further
discussion of the use, risks and costs of futures contracts and
options on futures contracts.
The Fund will not (i) enter into any futures contracts or
options on futures contracts if immediately thereafter the
aggregate of margin deposits on all the outstanding futures
contracts of the Fund and premiums paid on outstanding options on
futures contracts would exceed 5% of the market value of the
total assets of the Fund or (ii) enter into any futures contracts
or options on futures contracts if the aggregate of the market
value of the outstanding futures contracts of the Fund and the
market value of the futures contracts subject to outstanding
options written by the Fund would exceed 50% of the market value
of the total assets of the Fund.
Forward Commitments. The Fund may enter into forward
commitments for the purchase or sale of securities. Such
transactions 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, which is generally expressed in yield terms, 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 delayed
settlements beyond two months may be negotiated. Securities
purchased or sold under a forward commitment are subject to
market fluctuation, and no interest accrues to the purchaser
prior to the settlement date. At the time, the Fund enters into
a forward commitment, it will record the transaction and
thereafter reflect the value of the security purchased or, if a
sale, the proceeds to be received, in determining its net asset
value. Any unrealized appreciation or depreciation reflected in
such valuation of a "when, as and if issued" security would be
cancelled in the event that the required condition did not occur
and the trade was cancelled.
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<PAGE>
The use of forward commitments enables the Fund to protect
against anticipated changes in interest rates and prices. For
instance, in periods of rising interest rates and falling bond
prices, the Fund might sell securities in its portfolio on a
forward commitment basis to limit its exposure to falling bond
prices. However, if the Adviser were to forecast incorrectly the
direction of interest rate movements, the Fund might be required
to complete such when-issued or forward transactions at prices
less favorable than current market values. 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 the separate account of the Fund,
cash or high quality liquid debt securities 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 can 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.
Interest Rate Transactions. The Fund may enter into interest
rate swaps and may purchase or sell interest rate caps and
floors. The Fund expects to enter into these transactions
primarily to preserve a return or spread on a particular
investment or portion of its portfolio. The Fund may also enter
into these transactions to protect against any increase in the
price of securities the Fund anticipates purchasing at a later
date. The Fund does not intend to use these transactions in a
speculative manner. Interest rate swaps involve the exchange by
the Fund with another party of their respective commitments to
pay or receive interest (e.g., an exchange of floating rate
payments for fixed-rate payments). Interest rate swaps are
usually entered into on a net basis (i.e., the two payment
streams are netted out, with the Fund receiving or paying, as the
case may be, only the net amount of the two payments). The
purchase of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a contractually-based
principal amount from the party selling the interest rate cap.
The purchase of an interest rate floor entitles the purchaser, to
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<PAGE>
the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a
contractually-based principal amount from the party selling the
interest rate floor.
The Fund may enter into interest rate swaps, caps and floors
on either an asset-based or liability-based basis, depending on
whether it is hedging its assets or its liabilities. The net
amount of the excess, if any, of the Fund's obligations over its
entitlements with respect to each interest rate swap will be
accrued on a daily basis and an amount of cash or high quality
liquid debt securities having an aggregate net asset value at
least equal to the accrued excess will be maintained in a
segregated account by the Fund's custodian. The Fund will not
enter into any interest rate swap, cap or floor transaction
unless the unsecured senior debt or the claims-paying ability of
the other party thereto is rated in the highest rating category
of at least one nationally recognized rating organization at the
time of entering into the transaction. The Adviser will monitor
the creditworthiness of counterparties to its interest rate swap,
cap and floor transactions on an ongoing basis. If there is a
default by the other party to such a transaction, the Fund will
have contractual remedies pursuant to the agreements related to
the transaction. The swap market has grown substantially in
recent years with a large number of banks and investment banking
firms acting both as principals and agents utilizing standardized
swap documentation. The Adviser has determined that, as a
result, the swap market has become relatively liquid. Caps and
floors are more recent innovations for which standardized
documentation has not yet been developed and, accordingly, they
are less liquid than swaps. To the extent the Fund sells (i.e.,
writes) caps and floors, it will maintain in a segregated account
cash or high quality liquid debt securities having an aggregate
net asset value at least equal to the full amount, accrued on a
daily basis, of the Fund's obligations with respect to the caps
or floors. The use of interest rate swaps is a highly
specialized activity which involves investment techniques and
risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its
forecasts of the market values, interest rates and other
applicable factors, the investment performance of the Fund would
diminish compared with what it would have been if these
investment techniques were not used. Moreover, even if the
Adviser is correct in its forecasts, there is a risk that the
swap position may correlate imperfectly with the price of the
asset or liability being hedged.
There is no limit on the amount of interest rate swap
transactions that may be entered into by the Fund. These
transactions do not involve the delivery of securities or other
16
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underlying assets or principal. Accordingly, the risk of loss
with respect to interest rate swaps is limited to the net amount
of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate swap defaults, the
Fund's risk of loss consists of the net amount of interest
payments that the Fund contractually is entitled to receive. The
Fund may purchase and sell (i.e., write) caps and floors without
limitation, subject to the segregated account requirement
described above.
Eurodollar Instruments. The Fund may invest in Eurodollar
instruments for hedging purposes. Eurodollar instruments are
essentially U.S. dollar-denominated futures contracts or options
thereon that are linked to the LIBOR. Eurodollar futures
contracts enable purchasers to obtain a fixed-rate for the
lending of funds and sellers to obtain a fixed-rate for
borrowings. The Fund intends to use Eurodollar futures contracts
and options thereon to hedge against changes in the LIBOR to
which many short-term borrowings and floating rate securities are
linked. Eurodollar instruments are subject to the same
limitations and risks as other futures contracts and options
thereon as described above and below and in the Fund's Statement
of Additional Information.
General. The successful use of the foregoing investment
practices draws upon the Adviser's special skills and experience
with respect to such instruments and usually depends on the
Adviser's ability to forecast interest rate movements correctly.
Should interest rates move in an unexpected manner, the Fund may
not achieve the anticipated benefits of futures contracts and
options on 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 price of the securities
hedged or used for cover will not be perfect and could produce
unanticipated losses.
The Fund's ability to dispose of its position in futures
contracts and options on futures contracts will depend on the
availability of liquid markets in such instruments. Markets in
options and futures with respect to a number of fixed-income
securities are relatively new and still developing. It is
impossible to predict the amount of trading interest that may
exist in various types of futures contracts and options on
futures contracts. If a secondary market does not exist with
respect to an option purchased or written by the Fund
over-the-counter, 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 portfolio securities covering an
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option written by the Fund until the option expires or it
delivers the underlying security or futures contract upon
exercise. See "Illiquid Securities," below. Therefore, no
assurance can be given that the Fund will be able to utilize
these instruments effectively for the purposes set forth above.
Furthermore, the Fund's ability to engage in options and futures
transactions may be limited by tax considerations. See
"Dividends, Distributions and Taxes."
Repurchase Agreements. The Fund may enter into "repurchase
agreements," pertaining to the types of securities in which it
invests, with member banks of the Federal Reserve System or
"primary dealers" (as designated by the Federal Reserve Bank of
New York) in U.S. Government Securities (as defined below).
There is no percentage restriction on the Fund's ability to enter
into repurchase agreements. Currently, the Fund enters into
repurchase agreements only with its custodian and such primary
dealers. A repurchase agreement arises when a buyer such as the
Fund 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. 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 the Fund's benefit. The Trustees have
established procedures, which are periodically reviewed by the
Trustees, pursuant to which the Adviser monitors the
creditworthiness of the dealers with which the Fund enters into
repurchase agreement transactions.
Reverse Repurchase Agreements and Dollar Rolls. The Fund may
also use reverse repurchase agreements and dollar rolls as part
of its investment strategy. Reverse repurchase agreements
involve sales by the Fund of portfolio assets concurrently with
an agreement by the Fund to repurchase the same assets at a later
date at a fixed price. Generally, the effect of such a
transaction is that the Fund can recover all or most of the cash
invested in the portfolio securities involved during the term of
the reverse repurchase agreement, while it will be able to keep
the interest income associated with those portfolio securities.
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Such transactions are only advantageous if the interest cost to
the Fund of the reverse repurchase transaction is less than the
cost of obtaining the cash otherwise.
The Fund may enter into dollar rolls in which the Fund sells
securities for delivery in the current month and simultaneously
contracts to repurchase substantially similar (same type and
coupon) securities on a specified future date. During the roll
period, the Fund foregoes principal and interest paid on the
securities. The Fund is compensated by the difference between
the current sales price and the lower forward price for the
future purchase (often referred to as the "drop") as well as by
the interest earned on the cash proceeds of the initial sale.
The Fund will establish a segregated account with its
custodian in which it will maintain cash or high quality liquid
debt securities equal in value to its obligations in respect of
reverse repurchase agreements and dollar rolls. Reverse
repurchase agreements and dollar rolls involve the risk that the
market value of the securities the Fund is obligated to
repurchase under the agreement may decline below the repurchase
price. In the event the buyer of securities under a reverse
repurchase agreement or dollar roll files for bankruptcy or
becomes insolvent, the Fund's use of the proceeds of the
agreement may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities.
Reverse repurchase agreements and dollar rolls are
speculative techniques and are considered borrowings by the Fund.
Under the requirements of the 1940 Act, the Fund is required to
maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings. The Fund may
engage in reverse repurchase agreements and dollar rolls in an
amount up to 50% of the Fund's net assets.
Loans of Portfolio Securities. The Fund may make secured
loans of its portfolio securities to brokers, dealers and
financial institutions provided that cash, securities issued or
guaranteed by the United States Government, its agencies or
instrumentalities or bank letters of credit equal to at least
100% of the market value of the securities loaned is deposited
and maintained by the borrower with the Fund. The risks in
lending portfolio securities, as with other extensions of credit,
consist of possible loss of rights in the collateral should the
borrower fail financially. In determining whether to lend
securities to a particular borrower, the Adviser (subject to
review by the Trustees) will consider all relevant facts and
circumstances, including the creditworthiness of the borrower.
While securities are on loan, the borrower will pay the Fund any
income earned thereon and the Fund may invest any cash collateral
19
<PAGE>
in portfolio securities, thereby earning additional income, or
receive an agreed upon amount of income from a borrower who has
delivered equivalent collateral. The Fund may pay reasonable
finders', administrative and custodial fees in connection with a
loan. The Fund will not lend portfolio securities in excess of
20% of the value of its total assets, nor will the Fund lend its
portfolio securities to any officer, director, employee or
affiliate of the Fund or the Adviser. The Trustees will monitor
the Fund's lending of portfolio securities.
Illiquid Securities. The Fund will not maintain more than
15% of its net assets (taken at market value) in illiquid
securities. For this purpose, illiquid securities include, among
others, (i) 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),
(ii) options purchased by the Fund over-the-counter, and (iii)
repurchase agreements not terminable within seven days.
Securities eligible for resale under Rule 144A under the
Securities Act of 1933, as amended, that have legal or
contractual restrictions on resale but have a readily available
market are not deemed illiquid for purposes of this limitation.
The Adviser will monitor the liquidity of such securities under
the supervision of the Trustees. See the Fund's Statement of
Additional Information for further discussion of illiquid
securities.
Portfolio Turnover
The investment activities described above are likely to
result in the Fund engaging in a considerable amount of trading
of securities held for less than one year. Accordingly, it can
be expected that the Fund will have a higher turnover rate, and,
thus, a higher incidence of short-term capital gains taxable as
ordinary income, than might be expected from investment companies
which invest substantially all of their funds on a long-term
basis. Management anticipates that the annual turnover in the
Fund will not be in excess of 200%. An annual turnover rate of
200% occurs, for example, when all the securities in the Fund's
portfolio are replaced two times in a period of one year. A high
rate of portfolio turnover involves correspondingly greater
expenses than a lower rate, which expenses must be borne by the
Fund and its shareholders. High portfolio turnover also may
result in the realization of substantial net short-term capital
gain. See "Dividends, Distributions and Taxes" and "General
Information-Portfolio Transactions."
20
<PAGE>
Certain Fundamental Investment Policies
As a matter of fundamental policy, the Fund may not: (i)
invest 25% or more of its total assets in securities of companies
engaged principally in any one industry, except that this
restriction does not apply to investments in the mortgage and
mortgage-finance industry (in which more than 25% of the value of
the Fund's total assets will, except for temporary defensive
positions, be invested) or U.S. Government Securities; (ii)
borrow money except from banks for emergency or temporary
purposes in an amount not exceeding 5% of the value of the total
assets of the Fund, except that the Fund may engage in reverse
repurchase agreements and dollar rolls in an amount up to 50% of
the Fund's net assets; and (iii) pledge, hypothecate, mortgage or
otherwise encumber its assets, except to secure permitted
borrowings.
________________________________________________________________
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
advisory agreement (the "Advisory Agreement") to provide
investment advice and, in general, to conduct the management and
investment program of the Fund subject to the general supervision
and control of the Trustees. The employees of the Adviser
principally responsible for the Fund's investment program are
Patricia J. Young, a Senior Vice President of ACMC, and Paul A.
Ullman, a Vice President of ACMC. Ms. Young has been associated
with the Adviser since March 1992; prior thereto, she was a
managing director and portfolio manager for Hyperion Capital
Management, Inc. since March 1991 and a managing director with
Fischer, Francis, Trees & Watts since prior to 1991. Mr. Ullman
has been associated with the Adviser since March 1992; prior
thereto, he was a Vice President at Salomon Brothers, Inc.
since prior to 1991.
The Adviser is a leading international investment manager,
supervising client accounts with assets as of September 30, 1995
totaling more than $140 billion (of which approximately $47
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 51 registered investment
companies managed by the Adviser comprising 107 separate
21
<PAGE>
investment portfolios currently have over two million
shareholders. As of September 30, 1995, the Adviser was retained
as an investment manager for 29 of the Fortune 100 companies.
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, a holding
company which is controlled by AXA, a French insurance holding
group. Certain information concerning the ownership and control
of Equitable by AXA is set forth in the Fund's Statement of
Additional Information.
The Advisory Agreement between the Fund and the Adviser
provides that the Adviser will furnish advice and recommendations
with respect to the Fund and will provide persons satisfactory to
the Fund's Trustees to act as officers and employees of the Fund.
Such officers and employees, as well as certain Trustees of the
Fund, may be employees of the Adviser or its affiliates. For the
services rendered by the Adviser under the Advisory Agreement,
the Fund pays a fee at an annual rate of .45 of 1% of the average
daily value of the net assets of the Fund. The fee is accrued
daily and paid monthly.
Expenses of the Fund
In addition to the payments to the Adviser under the Advisory
Agreement described above, the Fund pays certain other costs
including (i) custody, transfer and dividend-disbursing expenses;
(ii) fees of Trustees who are not affiliated with the Adviser;
(iii) legal and auditing expenses; (iv) clerical, accounting and
other office costs; (v) costs of printing the Fund's prospectuses
and shareholder reports; (vi) cost of maintaining the Fund's
existence; (vii) interest charges, taxes, brokerage fees and
commissions; (viii) costs of stationery and supplies; and (ix)
expenses and fees related to registration and filing with the
Commission and with state regulatory authorities.
The Advisory Agreement further provides that the Adviser will
reimburse the Fund for the net expenses (exclusive of interest,
taxes, brokerage, distribution services fees and extraordinary
expenses, all to the extent permitted by applicable state
securities laws and regulations) which in any year exceed the
limits prescribed by any state in which the Fund's shares are
qualified for sale. The Fund believes that presently the most
restrictive expense ratio limitation imposed by any state in
which the Fund's shares have been qualified for sale is 2.5% of
the first $30 million of the Fund's average net assets, 2% of the
22
<PAGE>
next $70 million of its average net assets and 1.5% of its
average net assets in excess of $100 million.
Distribution Services Agreement
Rule 12b-1 adopted by the Commission under the 1940 Act
permits an investment company to directly or indirectly pay
expenses associated with the distribution of its shares in
accordance with a duly adopted and approved plan. The Fund has
entered into a Distribution Services Agreement (the "Agreement")
with the Principal Underwriter which includes a plan adopted
pursuant to Rule 12b-1 (the "Plan"). Pursuant to the Plan, the
Fund pays to the Principal Underwriter distribution services fee
payments in an amount not to exceed an annual rate of .15 of 1%
of the Fund's aggregate average daily net assets, to reimburse
the Principal Underwriter for certain expenses. The Agreement
provides that a portion of the distribution services fee would
constitute a service fee that the Principal Underwriter will use
for personal service and/or the maintenance of shareholder
accounts.
Under the Agreement, the Fund would not be obligated to pay
any distribution expense in excess of such distribution services
fee, and any distribution expenses accrued by the Principal
Underwriter in one fiscal year of the Fund would not be paid from
distribution services fees received from the Fund in subsequent
fiscal years. Thus, if the Agreement were terminated no amounts
(other than amounts accrued but not yet paid) would be owed by
the Fund to the Principal Underwriter. Distribution services
fees would be accrued daily and paid monthly, and would be
charged as expenses of the Fund as accrued. The Agreement would
also provide that the Principal Underwriter would act as
distributor of the Fund's shares and permit the Adviser to use
its own resources to finance the distribution of shares of the
Fund.
The Agreement would provide that the Principal Underwriter
will use the distribution services fee received from the Fund in
its entirety for payments (i) to compensate broker-dealers or
other persons for providing distribution assistance, (ii) to
otherwise promote the sale of shares of the Portfolio such as by
paying for the preparation, printing and distribution of
prospectuses for other than current shareholders and sales
literature or other promotional activities, and (iii) to
compensate broker-dealers, depository institutions and other
financial intermediaries for providing administrative, accounting
and other services with respect to the Fund's shareholders.
Substantially all distribution services fees received from the
Fund are paid to broker-dealers and other financial
intermediaries for their distribution assistance and to banks and
other depository institutions for administrative services
23
<PAGE>
provided to the Fund, with any remaining amounts being used to
partially defray other expenses incurred by the Principal
Underwriter in distributing Fund shares. Distribution services
fees received from the Fund would not be used to pay any interest
expense, carrying charges or other financing costs or allocation
of overhead of the Principal Underwriter. The administrative and
accounting services provided by banks and other depository
institutions may include, but are not limited to, establishing
and maintaining shareholder accounts, sub-accounting, processing
of purchase and redemption orders, sending confirmations of
transactions, forwarding financial reports and other
communications to shareholders and responding to shareholder
inquiries regarding the Fund.
The Agreement is in compliance with rules of the National
Association of Securities Dealers, Inc. that became effective
July 7, 1993 and limit the annual asset-based sales charges and
service fees that a mutual fund may impose on a class of shares
to .75% and .25%, respectively, of average annual net assets.
The rules also limit the aggregate of all sales charges
(front-end, deferred and asset-based) imposed by a mutual fund
that also charges a service fee to 6.25% of cumulative gross
sales of shares, plus interest at the prime rate plus 1% per
annum.
As interpreted by courts and administrative agencies, the
Glass-Steagall Act and other applicable laws and regulations
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 and regulations do not prohibit such
depository institutions from providing other services for
investment companies such as the shareholder servicing and
account maintenance and other services described in the
Agreement. The State of Texas requires that shares of the Fund
may be sold in that state only by dealers or other financial
institutions that are registered there as broker-dealers.
________________________________________________________________
PURCHASE AND REDEMPTION OF SHARES
________________________________________________________________
Purchase of Shares
Shares of the Fund are eligible for purchase by Federal
savings associations, national banks and other institutional
investors. Shares of the Fund are offered on a continuous basis
at net asset value, without any sales or other charge, directly
by the Fund and by Alliance Fund Distributors, Inc., the Fund's
distributor (the "Distributor"), acting as agent for the Fund.
24
<PAGE>
The minimum for initial investments in the Fund is $1,000,000,
except that investment management clients of the Adviser or its
affiliates may invest in any amount. The Fund may, in its
discretion, waive the minimum for initial investments. There is
no minimum for subsequent investments.
In order to make an initial investment in the Fund, an
investor must establish an account with the Fund by completing
the subscription application found at the back of this
Prospectus. Purchases may be made by wiring Federal funds to the
Fund, as described below. Purchases may also be made by check
(except that a check drawn on a foreign bank will not be
accepted).
Orders for shares of the Fund received by the Fund or by the
Distributor prior to the close of regular trading on New York
Stock Exchange (the "Exchange") (currently 4:00 p.m. New York
time) on a Fund business day as defined below are priced at the
net asset value of shares of the Fund computed as of the close of
regular trading on the Exchange on that day. If orders are
received after the close of regular trading on the Exchange on a
Fund business day, such orders are priced as of the close of
regular trading on the Exchange on the next succeeding Fund
business day. A Fund business day is any weekday, exclusive of
national holidays on which the Exchange is closed and Good
Friday. Requests for purchases by wire must be communicated to
the Distributor prior to 3:00 p.m. New York time on a Fund
business day for purchase orders to receive the applicable public
offering price determined as of the close of regular trading on
the Exchange on that day. The Fund reserves the right to reject
any subscription in its sole discretion or to suspend the sale of
its shares to the public in response to market conditions or for
other reasons.
Full and fractional shares are credited to a subscriber's
account in the amount of its subscription. As a convenience to
the subscriber, and to avoid unnecessary expense to the Fund,
certificates representing shares of the Fund are not issued
except upon written request of the shareholder. 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.
Redemption
The Fund redeems shares 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
25
<PAGE>
charge. Payment of the redemption price will be made within seven
days after the Fund's receipt of such tender for redemption.
To redeem shares of the Fund for which no share certificates
have been issued, the registered owner or owners should forward a
letter to the Fund containing a request for redemption. The
signature or signatures on the letter must be guaranteed by an
institution that is an "eligible guarantor" as defined by Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended.
Requests for redemption of shares of the Fund for which no share
certificates have been issued can also be made by telephone by a
shareholder who has completed the appropriate portion of the
subscription application. Requests for redemption to be sent by
wire via Federal funds to the shareholder's designated bank
account identified on the subscription application must be
received prior to 4:00 p.m. New York time on a Fund business day.
Redemption proceeds will normally be wired on the next Fund
business day but may be made within seven days after receipt of a
properly executed redemption request.
To redeem shares represented by share certificates, the
investor should forward the appropriate share certificate or
certificates, endorsed in blank or with blank stock powers
attached, to the Fund 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 share
certificate surrendered to the Fund 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
certificate or certificates or, where tender is made by mail,
separately mailed to the Fund. The signature or signatures on
the assignment form must be guaranteed in the manner described
above.
General
The Fund reserves the right to close out an account that
through redemption has remained below $1,000,000 after at least
60 days' written notice to the shareholder unless the balance in
such account is increased to at least that amount during such
period. In the case of a redemption of shares of the Fund
recently purchased by check, redemption proceeds will not be made
available until the Fund is reasonably assured that the check has
cleared, normally up to 15 calendar days following the purchase
date.
The net asset value per share for purchases and redemptions
of shares of the Fund is determined in accordance with the Fund's
Agreement and Declaration of Trust and By-Laws at the next close
of regular trading on the Exchange following receipt of a
26
<PAGE>
purchase order or redemption order for shares of the Fund, on any
Fund business day on which such an order is received and trading
in the types of securities in which the Fund invests might
materially affect the value of its shares. The net asset value
per share of the Fund is calculated by adding the market value of
all securities held in the Fund and other assets, subtracting the
Fund's liabilities incurred or accrued, and dividing by the
number of shares of the Fund that are outstanding.
________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
________________________________________________________________
The Fund declares dividends equal to all or substantially all
of its net investment income on each Fund business day. The Fund
declares dividends for Saturdays, Sundays and holidays on the
previous business day. The Fund pays dividends at approximately
the close of business on the last business day of each month.
Capital gains realized by the Fund, if any, are distributed
annually.
Until the Trustees otherwise determine, each income dividend
and capital gains distribution, if any, declared by the Fund on
the outstanding shares of the Fund will, at the election of each
shareholder, be paid in cash or reinvested in additional full and
fractional shares of the Fund. An election to receive dividends
and distributions in cash or shares is made at the time the
shares are initially purchased and may be changed by written
notification to the Fund at least 30 days prior to the record
date for a particular dividend or distribution. There is no
charge in connection with the reinvestment of dividends or
capital gains distributions.
Under current federal income tax law, dividends or capital
gains declared and payable by the Fund to its shareholders of
record as of a specified date during October, November or
December of a year will be taxable to such shareholders for the
year declared, and not for the year in which the shareholders
actually receive the dividend, provided that the dividend is paid
during January of the following year.
The Fund intends to qualify to be taxed as a regulated
investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). Qualification as a regulated investment
company and the satisfaction of certain distribution requirements
contained in the Code relieves the Fund of United States federal
income and excise taxes on the portion of its investment company
taxable income and net capital gain distributed to its
shareholders. In order to qualify as a regulated investment
company for any taxable year, the Fund must, among other things,
27
<PAGE>
(i) derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans and
gains from the sale or other disposition of securities or other
income (including but not limited to gains from options, futures
or forward contracts) derived with respect to its business of
investing in such securities, and (ii) derive less than 30% of
its gross income from the sale or other disposition of
securities, or certain options, futures, or forward contracts,
held for less than three months. These requirements will limit
the Fund's ability to write and purchase options, to purchase and
sell futures contracts, to purchase and sell forward contracts,
and to enter into interest rate swaps and to purchase or sell
interest rate caps and floors.
For federal income tax purposes, dividends of net ordinary
income and distributions of any net realized short-term capital
gain, whether paid in cash or reinvested in shares of the Fund,
are taxable to shareholders as ordinary income. Since the Fund
expects to derive substantially all of its gross income
(exclusive of capital gains) from sources other than dividends,
it is expected that none of the Fund's dividends or distributions
will qualify for the dividends-received deduction for
corporations. Distributions of net realized long-term capital
gains, whether paid in cash or reinvested in shares of the Fund,
are taxable to shareholders as long-term capital gains,
irrespective of the length of time the shareholder has held his
or her Fund shares. If a shareholder held shares for six months
or less and during that period received a distribution taxable to
such shareholder as long-term capital gain, any loss realized on
the sale of such shares during such six-month period would be a
long-term capital loss to the extent of such distribution.
Shareholders will be advised annually as to the tax status of
dividends and capital gains distributions. Distributions on
shares of the Fund may be subject to state and local taxes.
________________________________________________________________
GENERAL INFORMATION
________________________________________________________________
Portfolio Transactions
Subject to the general supervision of the Trustees of the
Fund, the Adviser is responsible for the investment decisions and
the placing of the orders for portfolio transactions for the
Fund. Portfolio transactions for the Fund occur primarily with
issuers, underwriters or major dealers acting as principals. The
transactions are normally on a net basis which do not involve
payment of brokerage commissions. The cost of securities
purchased from an underwriter usually includes a commission paid
28
<PAGE>
by the issuer to the underwriter; transactions with dealers
normally reflect the spread between bid and asked prices.
Premiums are paid with respect to options purchased by the Fund,
and brokerage commissions are payable with respect to
transactions in exchange-traded futures contracts.
The Fund has no obligation to enter into transactions in
portfolio securities with any dealer, issuer, underwriter or
other entity. In placing orders, it is the policy of the Fund to
obtain the best price and execution for its transactions. Where
best price and execution may be obtained from more than one
dealer, the Adviser may, in its discretion, purchase and sell
securities through dealers who provide research, statistical and
other information to the Adviser. Such services may be used by
the Adviser for all of its investment advisory accounts and,
accordingly, not all such services may be used by the Adviser in
connection with the Fund. The supplemental information received
from a dealer is in addition to the services required to be
performed by the Adviser under the Advisory Agreement, and the
expenses of the Adviser will not necessarily be reduced as a
result of the receipt of such information. 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 its shares as a factor in the selection of
dealers to execute portfolio transactions for the Fund.
Portfolio securities will not be purchased from or sold to
Donaldson, Lufkin & Jenrette Securities Corporation, an affiliate
of the Adviser, or any other subsidiary or affiliate of
Equitable.
Capitalization
Fiduciary Management Associates ("FMA"), which is a
diversified, open-end management investment company, was
organized as a Delaware corporation on May 12, 1969 under the
name "Fiduciary Growth Associates, Incorporated." As of
March 12, 1986, FMA was reorganized under its current name as a
business trust under the laws of Massachusetts. FMA has an
unlimited number of authorized shares of beneficial interest, par
value $.01 per share, which may, without shareholder approval, be
divided into an unlimited number of series. Such shares are
currently divided into three series, one underlying each
portfolio of FMA. Shares of each portfolio are normally entitled
to one vote for all purposes. Generally, shares of each
portfolio would vote as a single series on matters that affected
all portfolios in substantially the same manner, such as the
election of Trustees. Massachusetts law does not require annual
meetings of shareholders and it is anticipated that shareholder
meetings will be held only when required by Federal law.
Shareholders have available certain procedures for the removal of
Trustees. Shares of each portfolio are freely transferable, are
29
<PAGE>
entitled to dividends as determined by the Trustees and, in
liquidation of the Fund, are entitled to receive the net assets
of that portfolio. Shareholders have no pre-emptive rights.
Distributor
Alliance Fund Distributors, Inc. ("AFD"), 1345 Avenue of the
Americas, New York, New York, 10105, the Fund's distributor, is
an indirect wholly-owned subsidiary of the Adviser. The Adviser
may, from time to time and from its own resources, make payments
for distribution services to AFD; the latter may in turn pay part
or all of such compensation to brokers (which may include
Donaldson, Lufkin and Jenrette Securities Corporation) or other
persons for their distribution assistance.
Custodian
State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, acts as custodian for the securities
and cash of the Fund, but plays no part in deciding on the
purchase or sale of securities.
Registrar, Transfer Agent and Dividend-Disbursing Agent
Alliance Fund Services, Inc. ("AFS"), 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.
Performance Information
From time to time the Fund advertises its "yield" and the
"total return." The Fund's yield for any 30-day (or one-month)
period is computed by dividing the net investment income per
share earned during such period by the net asset value per share
on the last day of the period, and then annualizing such 30-day
(or one-month) yield in accordance with a formula prescribed by
the Commission which provides for compounding on a semi-annual
basis. The Fund may also advertise in sales literature an
"actual distribution rate" which is computed in the same manner
as yield except that actual income dividends declared per share
during the period in question are substituted for net investment
income per share.
Advertisements of the Fund's total return disclose its
average annual compounded total return for the period since
inception. The Fund's total return for such period is computed
by finding, through the use of a formula prescribed by the
Commission, the average annual compounded rate of return over the
period that would equate an assumed initial amount invested to
the value of the investment at the end of the period. For
30
<PAGE>
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.
Additional Information
Shareholder inquiries may be directed to the shareholder's
broker or to AFS at the address or telephone number listed on the
cover of this Prospectus. This Prospectus and the Fund's
Statement of Additional Information, which has been incorporated
by reference herein, do not contain all the information set forth
in the Registration Statement filed by the Fund with the
Commission under the Securities Act of 1933, as amended. Copies
of the Registration Statement may be obtained at a reasonable
charge from the Commission or may be examined, without charge, at
the office of the Commission in Washington, D.C.
31
<PAGE>
ALLIANCE ARM FUND FOR FINANCIAL INSTITUTIONS
SUBSCRIPTION APPLICATION
(SEE INSTRUCTIONS BELOW)
1. NAME (IMPORTANT: Please Print)
- -----------------------------------------------------
- -----------------------------------------------------
Indicate name of corporation, other organization or fiduciary
capacity; if trustee, include date of trust instrument
Tax Ident. No.
2. ADDRESS
- ----------------------------
- ----------------------------------------------------------------
street
city state zip
- ----------------------------
area code telephone
3. INITIAL INVESTMENT
We hereby subscribe for the largest number of full and fractional
shares of the Alliance ARM Fund for Financial Institutions that
may be purchased with Federal funds or the enclosed check or
draft payable to Alliance ARM Fund for Financial Institutions for
$_______. Such Federal funds, check or draft is to be allocated
to the purchase of the largest possible number of full and
fractional shares of the Portfolio.
4. TELEPHONE TRANSACTIONS
You can call (800) 221-5672 to purchase or redeem shares for your
account. Purchase and redemption requests will be processed via
Federal funds to and from your bank account.
Instructions:
- - Review the information in the Prospectus about telephone
transaction services.
- - Check the box next to the telephone transaction service(s) you
desire.
Purchases
- - Payment by wire transfer. If payment is to be made by wire,
provide wire instructions below:
Agent Bank:
- ----------------------------------------------------------------
32
<PAGE>
ABA or CHIPS Number:
- ----------------------------------------------------------------
Account Number at Agent Bank:
- ----------------------------------------------------------------
Reference:
- ----------------------------------------------------------------
Contact at Agent Bank:
Name:
- ----------------------------------------------------------------
Phone Number:
- ----------------------------------------------------------------
Fax Number:
- ----------------------------------------------------------------
If payment is to be wired outside the United States, please
complete the following information for the U.S. correspondent
bank of the bank listed above: U.S. Correspondent Bank:
- ----------------------------------------------------------------
ABA or CHIPS Number:
- ----------------------------------------------------------------
Acct. Number at Correspondent Bank:
- ----------------------------------------------------------------
Reference:
- ----------------------------------------------------------------
Contact at Correspondent Bank:
- ----------------------------------------------------------------
Name:
- ----------------------------------------------------------------
Phone Number:
- ----------------------------------------------------------------
Fax Number:
- ----------------------------------------------------------------
Redemptions
- - I hereby authorize Alliance Fund Services, Inc. to effect the
redemption of Fund shares from my account according to my
telephone instructions, and to send the proceeds to the bank
account I have selected above.*
5. DISTRIBUTION OPTIONS
Income Dividends
- --------------------------
Elect
- - reinvest dividends one
- - pay dividends in cash
Capital Gains Distributions
- ----------------------------------------------------------------
33
<PAGE>
Elect
- - reinvest capital gains one
- - pay capital gains in cash
If no election is made, dividends and capital gains will be
automatically reinvested in additional shares at net asset value.
6. SIGNATURE AND TAXPAYER IDENTIFICATION NUMBER CERTIFICATION
We certify under penalty of perjury that the taxpayer
identification number shown in Part 1 of this form is correct and
that we have not been notified that this account is subject to
backup withholding.
We are of legal age and capacity and have received and read the
Prospectus and agree to its terms.
- ------------------------
- -------
- -------
Authorized Signature
Title
date
- ------------------------
- -------
- -------
Acceptance Date:
Authorized Signature
Title
date
- ------
* You must designate the same bank account to support all wire
transfer options you select.
34
<PAGE>
INSTRUCTIONS FOR SUBSCRIPTION APPLICATION
OPENING YOUR ACCOUNT
Complete the application and mail it to:
Alliance ARM Fund for Financial Institutions
1345 Avenue of the Americas
New York, NY 10105
If purchasing with a check, please enclose with your
subscription application your check payable to Alliance ARM Fund
for Financial Institutions in the amount of your investment. The
Fund will not accept checks drawn on banks outside the United
States.
MINIMUM INVESTMENTS
Except as provided in the Prospectus, the minimum initial
investment is $1,000,000 in the Fund, except that investment
management clients of the Adviser or its affiliates may invest in
any amount. There is no minimum for subsequent investments.
REDEMPTIONS
Shares can be redeemed in any amount and at any time by the
methods described in the Prospectus. In the case of redemptions
of shares recently purchased by check, redemption proceeds will
not be made available until the Fund is reasonably assured that
the check has cleared, normally up to fifteen calendar days
following the purchase date.
Certain legal documents will be required from corporations or
other organizations, executors and trustees, or if redemption is
requested by anyone other than the shareholder of record. If you
have any questions concerning a redemption, call (800) 221-5672.
SIGNATURES-Be Sure to Sign the Application
If shares are registered in the name of:
-a corporation or other organization, an authorized officer
should sign (please indicate corporate office or title).
-a trustee or other fiduciary, the fiduciary or fiduciaries
should sign (please indicate capacity).
35
00250061.AD2
<PAGE>
ARM PRO 2/96
This Prospectus does not constitute an offering in any state in
which such offering may not lawfully be made.
Table Of Contents
Page
- ----------------------------------------------------------------
Expense Information
Description of the Fund
Management of the Fund
Purchase and Redemption of Shares
Dividends, Distributions and Taxes
General Information
Subscription Application
Adviser
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
Alliance
- ----------------------------------------------------------------
ARM Fund For
- ----------------------------------------------------------------
Financial
- ----------------------------------------------------------------
Institutions
- ----------------------------------------------------------------
Prospectus and
Application
February 1, 1996
Goal: High current income with low volatility through investment
in securities of high quality.
00250061.AD2
<PAGE>
(LOGO) FIDUCIARY MANAGEMENT ASSOCIATES
P.O Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1996
This Statement of Additional Information for the Growth and
Short-Term Global Income Portfolios is not a prospectus, but
supplements, and should be read in conjunction with the Fund's
current Prospectus for the Growth and Short-Term Global Income
Portfolios. A copy of the Prospectus may be obtained by
contacting Alliance Fund Services, Inc. at the address or
telephone number shown above.
TABLE OF CONTENTS
Page
Investment Policies and Restrictions . . . . . . . . . . .
Management of the Fund . . . . . . . . . . . . . . . . . .
Purchase and Redemption of Shares . . . . . . . . . . . .
Net Asset Value . . . . . . . . . . . . . . . . . . . . .
Dividends, Distributions and Taxes . . . . . . . . . . . .
Portfolio Transactions . . . . . . . . . . . . . . . . . .
General Information . . . . . . . . . . . . . . . . . . .
Report of Independent Auditors and Financial Statements . .
Appendix A (Description of Obligations Issued or
Guaranteed by U.S Government Agencies
or Instrumentalities). . . . . . . . . . . . . A-1
Appendix B (Bond and Commercial Paper Ratings) . . . . . . B-1
Appendix C (Futures Contracts and Options on Futures
Contracts and Foreign Currencies). . . . . . . C-1
(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
The following investment policies and restrictions
supplement, and should be read in conjunction with the
information regarding the investment objectives, policies and
restrictions of each pool of assets of the Fund (collectively,
the "Portfolios") set forth in the Prospectus of Fiduciary
Management Associates (the "Fund").
Whenever any investment policy or restriction states a
minimum or maximum percentage of a Portfolio's assets which may
be invested in any security or other asset, it is intended that
such minimum or maximum percentage limitation be determined
immediately after and as a result of the Portfolio's acquisition
of such security or other asset. Accordingly, any later increase
or decrease in percentage beyond the specified limitations
resulting from a change in values or net assets will not be
considered a violation of such percentage limitation.
Investment Policies of the Growth Portfolio
General. In seeking to attain its objective of capital
growth, the Growth Portfolio will make investments based upon
their potential for capital appreciation. Therefore, current
income will be incidental to the objective of capital growth.
There obviously can be no assurance that the Fund's investment
objective will be achieved, and the nature of the Fund's
investment objective and policies may involve a somewhat greater
degree of short-term risk than would be present in a more
conservative investment approach.
There is also no assurance that the Portfolio 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 ability to engage in such
a broad range of activities provides an opportunity which is
deemed to be desirable in order to achieve the Portfolio's
investment objective. The Portfolio does not intend to
concentrate its investments in any one industry, but has reserved
the right to invest up to 25% of its assets in a particular
industry.
The Portfolio may invest in both listed and unlisted
domestic and foreign securities, and in restricted securities,
and in other assets having no ready market, but not more than 10%
of the Portfolio's total assets may be invested in all such
restricted or not readily marketable assets at any one time.
2
<PAGE>
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 the Securities Act of
1933 or pursuant to Rule 144 or 144A promulgated under such Act.
Where registration is required, the Portfolio 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 Portfolio 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 Trustees of the Fund
in good faith deem appropriate to reflect their fair market
value.
Investment Restrictions of the Growth Portfolio
The following restrictions, which supplement those set
forth in the Prospectus, may not be changed as to the Growth
Portfolio without the approval of a majority of the outstanding
voting securities of that Portfolio which means the vote of (i)
67% or more of the shares of that Portfolio represented at a
meeting at which more than 50% of the outstanding shares of that
Portfolio are represented or (ii) more than 50% of the
outstanding shares of that Portfolio, whichever is less.
Whenever any investment restriction 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.
The Growth Portfolio may not:
1. 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 debt securities; except that
the Portfolio may purchase non-publicly distributed
securities subject to the limitations applicable to
restricted or not readily marketable securities;
2. Purchase the securities of any other investment
company or investment trust, except by purchase in
the open market where to the best information of
the Fund no commission or profit to a sponsor or
dealer (other than the customary broker's
commission) results from such purchase, and such
3
<PAGE>
purchase does not result in the securities of any
such issuer exceeding 5% of the value of the
Portfolio's assets, except when such purchase is
part of a merger, consolidation or acquisition of
assets;
3. Act as underwriter of securities of other issuer's,
except that, to the extent consistent with its
investment objective and policies, the Portfolio
may acquire restricted or not readily marketable
securities under circumstances where, if sold, the
Fund might be deemed to be an underwriter for
purposes of the Securities Act of 1933;
4. Invest in the securities of any issuer, other than
securities issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities,
which shall have a record of less than three years
of continuous operations (including the operation
of any predecessor) if such purchase at the time
thereof would cause more than 10% of the value of
the total assets of the Portfolio to be invested in
the securities of such issuer or issuers;
5. Pledge, hypothecate, mortgage or otherwise encumber
its assets, except to secure permitted borrowings,
provided however, that this limitation does not
apply to deposits made in connection with the
entering into and holding of futures contracts;
6. Invest more than 10% of the value of its total
assets in the aggregate in illiquid investments;
7. Make short sales of securities;
8. Purchase or sell real estate, commodities or
commodity contracts;
9. Participate on a joint or a joint and several basis
in any securities trading account; or
10. Invest in companies for the purpose of exercising
control.
Investment Policies of the Short-Term Global Income Portfolio
U.S. Government Securities. For a description of obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, see Appendix A.
4
<PAGE>
Certificates of Deposit and Bankers' Acceptances. Certificates of
deposit are receipts issued by a depository institution in
exchange for the deposit of funds. The issuer agrees to pay the
amount deposited plus interest to the bearer of the receipt on
the date specified on the certificate. The certificate usually
can be traded in the secondary market prior to maturity. Bankers'
acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance
commercial transactions. Generally, an acceptance is a time draft
drawn on a bank by an exporter or an importer to obtain a stated
amount of funds to pay for specific merchandise. The draft is
then "accepted" by a bank that, in effect, unconditionally
guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting
bank as an earning asset or it may be sold in the secondary
market at the going rate of discount for a specific maturity.
Although maturities for acceptance can be as long as 270 days,
most acceptances have maturities of six months or less.
Commercial Paper. Commercial paper consists of short-term
(usually from 1 to 270 days) unsecured promissory notes issued by
corporations in order to finance their current operations. A
variable amount master demand note (which is a type of commercial
paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter
agreement between a commercial paper issuer and an institutional
lender pursuant to which the lender may determine to invest
varying amounts. For a description of commercial paper ratings,
see Appendix B.
Illiquid Securities. The Portfolio has adopted the following
investment policy which may be changed by the vote of the
Trustees.
The Portfolio will not invest in illiquid securities if
immediately after such investment more than 10% of the
Portfolio's total assets (taken at market value) would be
invested in such securities. In addition, the Portfolio will not
maintain more than 15% of its net assets in illiquid securities.
For this purpose, illiquid securities include, among others, (a)
securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restriction on
resale, (b) options purchased by the Portfolio over-the-counter
and the cover for options written by the Portfolio
over-the-counter and (c) 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"), securities which are
5
<PAGE>
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.
During the coming year, the Portfolio may invest up to
5% of its total assets 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 and only
to institutional investors; 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. Alliance Capital Management L.P. (the
"Adviser") anticipates that the market for certain restricted
securities such as institutional commercial paper will expand
further as a result of this regulation and the development of an
automated system for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the NASD.
6
<PAGE>
The Adviser, acting under the supervision of the
Trustees of the Fund, will monitor the liquidity of restricted
securities held by the Portfolio that are eligible for resale
pursuant to Rule 144A. In reaching liquidity decisions, the
Adviser will consider, inter alia, the following factors: (1) the
frequency of trades and quotes for the security; (2) the number
of dealers wishing to purchase or sell the security and the
number of other potential purchasers; (3) dealer undertakings to
make a market in the security and; (4) the nature of the security
and the nature of the marketplace trades (e.g., the time needed
to dispose of the security, the method of soliciting offers and
the mechanics of the transfer).
Futures Contracts and Options on Futures Contracts. The
successful use of such instruments draws upon the Adviser's
special skills and experience with respect to such instruments
and usually depends on the Adviser's ability to forecast interest
rate and currency exchange rate movements correctly. Should
interest or exchange rates move in an unexpected manner, the
Portfolio may not achieve the anticipated benefits of futures
contracts or options on futures contracts or may realize losses
and thus will be in a worse position than if such strategies had
not been used. In addition, the correlation between movements in
the price of futures contracts or options on futures and
movements in the price of the securities and currencies hedged or
used for cover will not be perfect and could produce
unanticipated losses.
The Trustees have adopted the requirement that futures
contracts and options on futures contracts only be used as a
hedge and not for speculation. In addition to this requirement,
the Trustees have also adopted two percentage restrictions on the
use of futures contracts. The first restriction is that the
Portfolio will not enter into any futures contracts or options on
futures contracts if immediately thereafter the amount of margin
deposits on all the futures contracts of the Portfolio and
premiums paid on options on futures contracts would exceed 5% of
the market value of the total assets of the Portfolio. The second
restriction is that the aggregate market value of the outstanding
futures contracts purchased by the Portfolio not exceed 50% of
the market value of the total assets of the Portfolio. Neither of
these restrictions will be changed by the Trustees without
considering the policies and concerns of the various applicable
federal and state regulatory agencies.
For additional information on the use, risks and costs
of futures contracts and options on futures contracts, see
Appendix C.
7
<PAGE>
Options on Foreign Currencies. For additional information on the
use, risks and costs of options on foreign currencies, see
Appendix C.
Forward Foreign Currency Exchange Contracts. The Portfolio may
purchase or sell forward foreign currency exchange contracts.
While these contracts are not presently regulated by the
Commodity Futures Trading Commission ("CFTC"), the CFTC may in
the future assert authority to regulate forward contracts. In
such event the Portfolio's ability to utilize forward contracts
in the manner set forth in the Prospectus may be restricted.
Forward contracts will reduce the potential gain from a positive
change in the relationship between the U.S. Dollar and foreign
currencies. Unanticipated changes in currency prices may result
in poorer overall performance for the Portfolio than if it had
not entered into such contracts. The use of foreign currency
forward contracts will not eliminate fluctuations in the
underlying U.S. Dollar equivalent value of the prices of or rates
of return on the Portfolio's foreign currency-denominated
portfolio securities and the use of such techniques will subject
the Portfolio to certain risks.
The matching of the increase in value of a forward
contract and the decline in the U.S Dollar equivalent value of
the foreign currency-denominated asset that is the subject of the
hedge generally will not be precise. In addition, the Portfolio
may not always be able to enter into foreign currency forward
contracts at attractive prices and this will limit the
Portfolio's ability to use such contracts to hedge or cross-hedge
its assets. Also, with regard to the Portfolio's use of
cross-hedges, there can be no assurance that historical
correlations between the movement of certain foreign currencies
relative to the U.S. Dollar will continue. Thus, at any time poor
correlation may exist between movements in the exchange rates of
the foreign currencies underlying the Portfolio's cross-hedges
and the movements in the exchange rates of the foreign currencies
in which the Portfolio's assets that are the subject of such
cross-hedges are denominated.
Repurchase Agreements. The Portfolio may enter into "repurchase
agreements" pertaining to U.S. Government Securities with member
banks of the Federal Reserve System as "primary dealers" (as
designated by the Federal Reserve Bank of New York) in such
securities. 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 market rate which is effective for the
period of time the buyer's money is invested in the security and
which is not related to the coupon rate on the purchased
security. The Portfolio requires continual maintenance of
8
<PAGE>
collateral held by the Portfolio's custodian in an amount equal
to, or in excess of, the market value of the securities which are
the subject of the agreement. In the event that a vendor
defaulted on its repurchase obligation, the Portfolio might
suffer a loss to the extent that the proceeds from the sale of
the collateral were less than the repurchase price. If the vendor
became bankrupt, the Portfolio might be delayed in selling the
collateral.
Investment Restrictions of the Short-Term Global Income Portfolio
The following restrictions, which supplement those set
forth in the Prospectus, may not be changed as to the Short-Term
Global Income Portfolio without the approval of a majority of the
outstanding voting securities of that Portfolio, which means the
vote of (i) 67% or more of the shares of that Portfolio
represented at a meeting at which more than 50% of the
outstanding shares of that Portfolio are represented, or (ii)
more than 50% of the outstanding shares of that Portfolio,
whichever is less. Whenever any investment restriction 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.
The Portfolio may not:
1. Make loans except through (i) the purchase of debt
obligations in accordance with its investment objectives
and policies; (ii) the lending of portfolio securities;
or (iii) the use of repurchase agreements;
2. Participate on a joint or joint and several basis in
any securities trading account;
3. Invest in companies for the purpose of exercising
control;
4. Make short sales of securities or maintain a short
position, unless at all times when a short position is
open it owns an equal amount of such securities or
securities convertible into or exchangeable for, without
payment of any further consideration, securities of the
same issue as, and equal in amount to, the securities
sold short ("short sales against the box"), and unless
not more than 10% of the Portfolio's net assets (taken
at market value) is held as collateral for such sales at
9
<PAGE>
any one time (it is the Portfolio's present intention to
make such sales only for the purpose of deferring
realization of gain or loss for Federal income tax
purposes);
5. Purchase a security if, as a result (unless the
security is acquired pursuant to a plan of
reorganization or an offer of exchange), the Portfolio
would own any securities of an open-end investment
company or more than 3% of the total outstanding voting
stock of any closed-end investment company or more than
5% of the value of the Portfolio's total assets would be
invested in securities of any one or more closed-end
investment companies;
6. (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 (except currencies,
futures contracts on currencies and related options,
forward contracts or contracts for the future
acquisition or delivery of fixed-income securities and
related options, futures contracts and options on
futures contracts and other similar contracts); (iii)
invest in interests in oil, gas, or other mineral
exploration or development programs; (iv) purchase
securities on margin, except for such short-term credits
as may be necessary for the clearance of transactions;
and (v) act as an underwriter of securities, except that
the Portfolio may acquire restricted securities under
circumstances in which, if such securities were sold,
the Portfolio might be deemed to be an underwriter for
purposes of the Securities Act; or
7. Pledge, hypothecate, mortgage or otherwise encumber
its assets, except to secure permitted borrowings.
MANAGEMENT OF THE FUND
Adviser
Alliance Capital Management L.P., a New York Stock
Exchange listed company with principal offices at 1345 Avenue of
the Americas, New York, New York 10105, has been retained under
an investment advisory contract (the "Investment Advisory
Contract") to provide investment advice and, in general, to
10
<PAGE>
conduct the management and investment program of the Fund under
the supervision and control of the Fund's Trustees.
The Adviser is a leading international investment
manager supervising client accounts with assets as of
September 30, 1995 of more than $140 billion (of which more than
$47 billion represented the assets of investment companies). The
Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies,
foundations and endowment funds and included, as of September 30,
1995, 29 of the FORTUNE 100 Companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,350
employees who operated out of domestic offices and the overseas
offices of subsidiaries in Bombay, Istanbul, London, Sydney,
Tokyo, Toronto, Bahrain, Luxembourg and Singapore. The 51
registered investment companies comprising 107 separate
investment portfolios managed by the Adviser currently have more
than two million shareholders.
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"), a holding company
controlled by AXA, a French insurance holding company. As of
June 30, 1995, ACMC, Inc. and Equitable Capital Management
Corporation ("ECMC"), each a wholly-owned direct or indirect
subsidiary of Equitable, together with Equitable, owned in the
aggregate approximately 59% of the issued and outstanding units
representing assignments of beneficial ownership of limited
partnership interests in the Adviser ("Units"). As of June 30,
1995, approximately 33% and 8% of the Units were owned by the
public and employees of the Adviser and its subsidiaries,
respectively, including employees of the Adviser who serve as
Trustees of the Fund.
AXA owns approximately 60% of the outstanding voting
shares of common stock of ECI. AXA is the holding company for an
international group of insurance and related financial services
companies. AXA's insurance operations are comprised of
activities in life insurance, property and casualty insurance and
reinsurance. The insurance operations are diverse geographically
with activities in France, the United States, the United Kingdom,
Canada and other countries, principally in Europe. AXA is also
engaged in asset management, investment banking and brokerage,
*For purposes of this Statement of Additional Information, ACMC
refers to Alliance Capital Management Corporation, the sole
general partner of the Adviser, and to the predecessor general
partner of the Adviser of the same name.
11
<PAGE>
real estate and other financial services activities in the United
States and Europe. Based on information provided by AXA, as of
January 1, 1995, 42.3% of the issued shares (representing 54.7%
of the voting power) of AXA were owned by Midi Participations, a
French corporation that is a holding company. The voting shares
of Midi Participations are in turn owned 60% by Finaxa, a French
corporation that is a holding company, and 40% by subsidiaries of
Assicurazioni Generali S.p.A., an Italian corporation
("Generali") (one of which, Belgica Insurance Holding S.A., a
Belgian corporation, owned 34.1%). As of January 1, 1995, 62.1%
of the issued shares (representing 75.7% of the voting power) of
Finaxa were owned by five French mutual insurance companies (the
"Mutuelles AXA") (one of which, AXA Assurances I.A.R.D. Mutuelle,
owned 31.8% of the issued shares) (representing 39.0% of the
voting power), and 26.5% of the issued shares (representing 16.6%
of the voting power) of Finaxa were owned by Banque Paribas, a
French bank ("Paribas"). Including the shares owned by Midi
Participations, as of January 1, 1995, the Mutuelles AXA directly
or indirectly owned 51.3% of the issued shares (representing
65.8% of the voting power) of AXA. In addition, certain
subsidiaries of AXA own 0.4% of the shares of AXA which are not
entitled to be voted. Acting as a group, the Mutuelles AXA
control AXA, Midi Participations and Finaxa.
For the services rendered by the Adviser under the
Advisory Agreement, the Fund pays as follows: (i) for the Growth
Portfolio, quarterly on the first business day of July, October,
January and April in each year of .1875 of 1% (approximately .75
of 1% on an annualized basis) of the Portfolio's net assets; (ii)
for the Short-Term Global Income Portfolio, at an annual rate of
.45 of 1% of the average daily value of the Portfolio's net
assets. For the fiscal years ended September 30, 1993, 1994 and
1995, respectively, the Adviser received from the Growth
Portfolio, which was then the Fund's only operating Portfolio,
advisory fees of $1,014,249, $901,222 and $833,866 respectively.
The Advisory Agreement became effective on July 22,
1992. The Advisory Agreement continues in effect for successive
twelve month periods computed from each October 1 with respect to
each Portfolio provided that such continuance is specifically
approved at least annually by the Trustees or by a majority vote
of the holders of the outstanding voting securities of such
Portfolio, and, in either case, by a majority of the Trustees who
are not parties to the Agreement or interested persons. Most
recently, the continuance of the Advisory Agreement until
September 30, 1996 was approved by a vote cast in person of the
Trustees, including a majority of the Trustees who are not
parties to the Advisory Agreement or interested persons, at a
meeting called for that purpose and held on July 21, 1995. The
Agreement may be terminated with respect to any Portfolio at any
time, without the payment of any penalty, by vote of a majority
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<PAGE>
of the outstanding voting securities of such Portfolio, or by a
vote of a majority of the Trustees on sixty days' written notice
to the Adviser, or by the Adviser with respect to any Portfolio
on sixty days' written notice to the Fund. 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.
The Adviser pays from its own funds all advertising and
promotional expenses except that the Fund pays for printing of
prospectuses and other reports to existing shareholders and all
expenses and fees related to proxy solicitation and registrations
and filings with the Securities and Exchange Commission and with
state regulatory authorities. The Fund pays all other expenses
incurred in its organization and operation, as described in the
Prospectus. As to the obtaining of services other than those
specifically provided to the Fund by the Adviser, the Fund may
employ its own personnel. For such services, it also may utilize
personnel employed by the Adviser or its affiliates and, in such
event, the services will be provided to the Fund at cost and the
payments therefor must be specifically approved by the Fund's
Trustees.
The Advisory Agreement provides that the Adviser will
reimburse each Portfolio for its net expenses (exclusive of
interest, taxes, brokerage, distribution services fees and
extraordinary expenses, to the extent permitted by applicable
state securities laws and regulations) which in any year exceed
the limits prescribed by any state in which the Portfolio's
shares are qualified for sale. The Fund may not qualify its
shares for sale in every state. The Fund believes that presently
the most restrictive expense ratio limitation imposed by any
state is 2.5% of the first $30 million of average net assets, 2%
of the next $70 million and 1.5% of average net assets in excess
of $100 million. To determine whether payment is due a
Portfolio, the expenses of the Portfolio are annualized on a
monthly basis. Payment of the advisory fee will be reduced or
postponed, if necessary with any adjustments made after the end
of the year.
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 the particular security by its other 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. It is the policy
of the Adviser to allocate advisory recommendations and the
13
<PAGE>
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 the same security on a given day from the same
broker-dealer, such transactions may be averaged as to price.
Transfer Agency Agreement
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of the Fund, plus reimbursement for out-of-pocket
expenses. For the fiscal year ended September 30, 1995, the Fund
paid Alliance Fund Services, Inc. $18,016 for transfer agency
services.
Trustees and Officers
The Trustees and officers of the Fund, their ages and
their principal occupations during the past five years are set
forth below. Each such Trustee and officer is also a trustee,
director or officer of other registered investment companies
sponsored by the Adviser. Unless otherwise specified, the address
of each of the following persons is 1345 Avenue of the Americas,
New York, New York 10105.
Trustees
JOHN D. CARIFA,**
50, - Chairman of the Trustees, is the President and Chief
Operating Officer and a Director of ACMC, with which he has been
associated since prior to 1991.
RUTH BLOCK, 65, - was formerly Executive Vice President
and Chief Insurance Officer of Equitable. She is a Director of
Ecolab Incorporated (specialty chemicals) and Amoco Corporation
(oil and gas). Her address is Box 4653, Stamford, Connecticut,
06903.
DAVID H. DIEVLER, 66, was formerly a Senior Vice
President of ACMC, with which he was associated since prior to
1991 through 1994. He is currently an independent consultant.
His address is P.O. Box 167, Spring Lake, New Jersey, 07762.
JOHN H. DOBKIN, 53, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1991. From
1987 to 1992, he was a Director of ACMC. His address is 105 West
55th Street, New York, New York 10019.
**An "interested person" of the Fund as defined in the investment
Company Act of 1940.
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<PAGE>
WILLIAM H. FOULK, JR., 63, is an investment Advisor and
Independent Consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, since
prior to 1991. His address is 2 Hekma Road, Greenwich,
Connecticut 06831.
DR. JAMES M. HESTER, 71, is President of the Harry Frank
Guggenheim Foundation and a Director of Union Carbide
Corporation, with which he has been associated since prior to
1991. He was formerly President of New York University, the New
York Botanical Garden and Rector of the United Nations
University. His address is 45 East 89th Street, New York, New
York 10128.
CLIFFORD L. MICHEL, 56, is a partner in the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1991. He is Chief Executive Officer of Wenonah
Development Company (investments) and Director of Placer Dome,
Inc., and Faber-Castell Corporation (writing products). His
address is 80 Pine Street, New York, New York 10005.
DONALD J. ROBINSON, 61, was formerly a partner at
Orrick, Herrington & Sutcliffe and is currently of counsel to
that firm. His address is 599 Lexington Avenue, 26th Floor, New
York, New York 10022.
Officers
JOHN D. CARIFA, Chairman, see Biography above.
ALDEN M. STEWART, President, 49, has been an Executive
Vice President of ACMC since July 1993. Prior thereto he was
associated with ECMC.
THOMAS J. BARDONG, Vice President, 50, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1991.
RANDALL E. HAASE, Vice President, 31, has been a Vice
President of ACMC since July, 1993. Prior thereto he was
associated with ECMC.
TIMOTHY D. RICE, Vice President, 28, is a Vice President
of ACMC with which he has been associated since prior to 1991.
PATRICIA J. YOUNG, Vice President, 40, is a Senior Vice
President of ACMC, with which she has been associated since March
1992. Previously, she was a Managing Director and Portfolio
Manager for Hyperion Capital since March 1991. Prior thereto,
she was a Managing Director with Fischer, Francis, Trees & Watts
since prior to 1991.
15
<PAGE>
PAUL A. ULLMAN, Vice President, 37, is a Vice President
of ACMC, with which he has been associated since March 1992.
Previously, he was a Director and Portfolio Manager at Hyperion
Capital since prior to 1991.
EDMUND P. BERGAN, JR., Secretary, 45, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD") with which he has been associated since prior to
1991.
DOMENICK PUGLIESE, Assistant Secretary, 34, is a Vice
President and Associate General Counsel of AFD, with which he has
been associated since May 1995. Previously, he was Vice
President and Counsel of Concord Holding Corporation since 1994,
Vice President and Associate General Counsel of Prudential
Securities since 1991 and an associate with Battle Fowler since
prior to 1991.
MARK D. GERSTEN, Treasurer and Chief Financial Officer,
44, is a Senior Vice President of Alliance Fund Services, Inc.
("AFS"), with which he has been associated since prior to 1991.
PATRICK J. FARRELL, Controller, 35, is a Vice President
of AFS, with which he has been associated since prior to 1991.
The aggregate compensation paid by the Fund to each of
the Trustees during its fiscal year ended September 30, 1995, the
aggregate compensation paid to each of the Trustees during
calendar year 1995 by all of the funds to which the Adviser
provides investment advisory services (collectively, the
"Alliance Fund Complex") and the total number of registered
investment companies in the Alliance Fund Complex with respect to
which each of the Trustees 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 Trustees is a director or trustee of one
or more other registered investment companies in the Alliance
Fund Complex.
16
<PAGE>
<TABLE>
Total Total Number of Funds in
Compensation the Alliance Fund Complex,
Aggregate From the Alliance Including the Fund, as to
Name of Director Compensation Fund Complex, which the Director is
of the Fund from the Fund Including the Fund a Trustee or Director
<S> <C> <C> <C>
John D. Carifa $-0- $-0- 50
Ruth Block $5,000 $159,000 37
David H. Dievler $5,000 $179,200 43
John H. Dobkin $5,000 $117,200 30
William H. Foulk, Jr. $5,000 $143,500 30
Dr. James M. Hester $5,000 $156,000 38
Clifford L. Michel $5,000 $131,500 37
Donald J. Robinson $-0- $24,000 9
As of January 12, 1996, the Trustees and officers of the
Fund as a group owned less than 1% of the shares of the Fund.
17
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
General
Shares of the Fund are offered at net asset value,
without any sales or other charge, on a continuous basis directly
by the Fund and Alliance Fund Distributors, Inc., the Fund's
Distributor, acting as agent for the Fund. The minimum for
initial investments in a Portfolio is $5,000,000, except that
investment management clients of the Adviser or its affiliates
may invest in any amount. There is no minimum for subsequent
investments.
Shares of the Portfolio may be purchased only by
institutional investors, which for this purpose are persons other
than (i) individuals, sole proprietors or professional
corporations or (ii) individual retirement plans of the types
commonly referred to as Keogh or H.R. 10 plans.
The net asset value per share of shares of each
Portfolio is computed in accordance with the Fund's Agreement and
Declaration of Trust and By-Laws, at the next close of regular
trading on the New York Stock Exchange (the "Exchange")
(currently 4:00 p.m. New York time) following receipt of a
purchase or redemption for shares of that Portfolio, on each Fund
business day on which such an order is received and trading in
the types of securities in which such Portfolio invests might
materially affect the value of its shares. A Fund business day is
any weekday exclusive of national holidays on which the Exchange
is closed and Good Friday. Net asset value per share of each
Portfolio is calculated by adding the market value of all
securities held in such Portfolio and other assets, subtracting
such Portfolio's liabilities incurred or accrued, and dividing by
the number of shares of that Portfolio outstanding.
The subscriber should use the subscription application
found in the back of the Prospectus for its initial investment
and enclose with the subscription application a check in the
amount of its subscription. Shareholders wishing to purchase
additional shares of the Fund should send a check payable to the
Fund directly at the address listed on the cover of the
Prospectus or this Statement of Additional Information.
Orders for shares of a Portfolio received by the Fund or
by Alliance Fund Distributors, Inc. prior to the close of
business of the Exchange on each day the Exchange is open for
trading are priced at the net asset value of shares of that
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<PAGE>
Portfolio computed as of the close of regular trading on the
Exchange on that day. If orders are received after the close of
regular trading on the Exchange or on a day on which it is not
open for trading, such orders are priced as of the close of
regular trading on the Exchange on the next succeeding date on
which the Exchange is open for trading. The Fund reserves the
right to reject any subscription in its sole discretion or to
suspend the sale of its shares to the public in response to
market conditions or for other reasons.
Full and fractional shares are credited to a
subscriber's account in the amount of his subscription. As a
convenience to the subscriber, and to avoid unnecessary expense
to the Fund, certificates representing shares of each of the
Portfolios are not issued except upon written request of the
shareholder or his authorized selected dealer or selected agent.
This facilitates later redemption and relieves the shareholder of
the responsibility for and inconvenience of lost or stolen
certificates. No share certificates are issued for fractional
shares, although such shares remain in the shareholder's account
on the books of the Fund.
Redemption
Subject only to the limitations described below, the
Fund's Agreement and Declaration of Trust requires that the Fund
redeem the shares of each Portfolio 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.
To redeem shares of the Fund for which no share
certificates have been issued, the registered owner or owners
should forward a letter to the Fund containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an institution that is an "eligible guarantor" as
defined in Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended.
To redeem shares represented by share certificates, the
investor should forward the appropriate share certificate or
certificates, endorsed in blank or with blank stock powers
attached, to the Fund 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 share
certificate surrendered to the Fund 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
19
<PAGE>
certificate or certificates or, where tender is made by mail,
separately mailed to the Fund. The signature or signatures on the
assignment form must be guaranteed in the manner described above.
The right of redemption shall be exercisable by a tender
made by surrendering the appropriate share certificate or
certificates, endorsed in blank or with blank stock powers
attached, to the Fund with the request that the shares be
represented thereby or a specified portion thereof be redeemed.
The stock assignment form on the reverse side of each share
certificate surrendered to the Fund 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 each share
certificate or where tender is made by mail, separately mailed to
the Fund. All signatures must be guaranteed in the manner
described above.
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 Securities and Exchange
Commission determines that trading thereon is restricted, or for
any period during which an emergency (as determined by the
Securities and Exchange 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
practical for the Fund fairly to determine the value of its net
assets, or for such other periods as the Securities and Exchange
Commission may by order permit for the protection of security
holders of the Fund. Payment of the redemption price will be made
in cash.
General
The Fund reserves the right to close out an account in a
Portfolio that through redemption has dropped below $1,000,000
after at least 60 days' written notice to the shareholder unless
the balance in such account is increased to at least that amount
during such period. 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 Fund is reasonably
assured that the check has cleared, normally up to 15 calendar
days following the purchase date.
20
<PAGE>
NET ASSET VALUE
The net asset value of each share of beneficial interest
of each Portfolio on which the subscription and redemption prices
are based is determined by the market value of the securities and
other assets owned by that Portfolio less its liabilities. The
net asset value of each share of each Portfolio is computed in
accordance with the Agreement and Declaration of Trust and
By-Laws of the Fund as of the next close of regular trading on
the Exchange following receipt of a purchase or redemption order
(and on such other days as the Trustees of the Fund deems
necessary in order to comply with Rule 22c-1 under the Investment
Company Act of 1940) by dividing the value, as of such closing,
of the net assets of the Portfolio (i.e., the value of the assets
of the Portfolio less its liabilities, including expenses payable
or accrued but excluding capital stock and surplus) by the total
number of shares of beneficial interest of such Portfolio then
outstanding at such closing. For purposes of this computation,
readily marketable portfolio securities listed on the Exchange
are valued at the last sale price reflected on the consolidated
tape at the close of regular trading on the Exchange on the
business day as of which such value is being determined. If there
has been no sale on such day, the securities are valued at the
mean of the closing bid and asked prices on such day. If no bid
and asked prices are quoted on such day, then the security is
valued by such method as the Trustees of the Fund shall determine
in good faith to reflect its fair market value. Readily
marketable securities not listed on the Exchange but listed on
other national securities exchanges or admitted to trading on the
National Association of Securities Dealers Automated Quotations,
Inc. ("NASDAQ") National List ("List") are valued in like manner.
Portfolio securities traded on more than one national securities
exchange are valued at the last sale price on the business day as
of which such value is being determined as reflected on the tape
at the close of the exchange representing the principal market
for such securities.
Portfolio securities that are actively traded in the
over-the-counter market, including listed securities for which
the primary market is believed to be over-the-counter, are valued
at the mean between the most recently quoted bid and asked prices
provided by the principal market makers. Any security for which
the primary market is on an exchange is valued at the last sale
price on such exchange on the day of valuation or, if there was
no sale on such day, the last bid price quoted on such day.
Options will be valued at market value or fair value if no market
exists. Futures contracts will be valued in a like manner, except
21
<PAGE>
that open futures contracts sales will be valued using the
closing settlement price or, in the absence of such a price, the
most recently quoted asked price. Securities and assets for which
market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of
the Trustees of the Fund. However, readily marketable
fixed-income securities may be valued on the basis of prices
provided by a pricing service when such prices are believed by
the Adviser to reflect the fair market value of such securities.
The prices provided by a pricing service take into account
institutional size trading in similar groups of securities and
any developments related to specific securities. U.S. Government
Securities and other debt instruments having 60 days or less
remaining until maturity are stated 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 Trustees determine that this method does not represent
fair value).
All other assets of the Fund, including restricted and
not readily marketable securities, are valued in such manner as
the Trustees of the Fund in good faith deem appropriate to
reflect their fair market value.
For purposes of determining a Portfolio's net asset
value per share, all assets and liabilities initially expressed
in foreign currencies will be converted into U.S. Dollars at the
mean of the bid and asked prices of such currencies against the
U.S. Dollar last quoted by a major bank which is a regular
participant in the institutional foreign exchange markets or on
the basis of a pricing service which takes into account the
quotes provided by a number of such major banks.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Growth Portfolio qualified for the fiscal year ended
September 30, 1995 and intends to qualify in the future for tax
treatment as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). Qualification
relieves each Portfolio of Federal income tax liability on that
part of its net ordinary income and net realized 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 a
Portfolio must meet to qualify for such treatment. The
22
<PAGE>
information set forth in the Prospectus and the following
discussion relate solely to the U.S. Federal income taxes on
dividends and distributions by a Portfolio and assumes that each
Portfolio qualifies as a regulated investment company. Investors
should consult their own counsel for further details, including
their possible entitlement to foreign tax credits that might be
"passed through" to them under the rules described below, and the
application of state and local tax laws to his or her particular
situation.
Each Portfolio 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. A
Portfolio will be required to pay the 4% excise tax to the extent
it does not distribute to its shareholders during any calendar
year at least 98% of its ordinary income for the calendar year
plus 98% of its capital gain net income for the twelve months
ended October 31 of such year, and 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 a Portfolio that is subject to corporate income tax
will be considered to have been distributed by the Portfolio by
year-end. Certain distributions of the Portfolio which are paid
in January of a given year but are declared in the prior October,
November or December to shareholders of record as of a specified
date during such a month may be treated as having been
distributed in December and will be taxable to shareholders as if
received in December.
Dividends of net ordinary income and distributions of
any net realized short-term capital gain are taxable to
shareholders as ordinary income. The amount of dividends and
distributions paid by a Portfolio that is eligible for the
dividends-received deduction for corporations is limited to the
amount of qualifying dividends actually received by the
Portfolio. A corporation's dividends-received deduction will be
disallowed unless the corporation holds shares in the Fund at
least 46 days. 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.
In view of the Growth Portfolio's investment policies, it is
expected that dividends from domestic corporations will be a
significant part of the investment income of the Portfolio and,
accordingly, that a significant part of the dividends and
distributions by that Portfolio will be eligible for the
dividends-received deduction; however, this is largely dependent
on the Portfolio's investment activities, and accordingly cannot
be predicted with certainty. Since the Short-Term Global Income
Portfolio expects to derive substantially all of its gross income
(exclusive of capital gains) from sources other than dividends,
23
<PAGE>
it is expected that none of such Portfolio's dividends or
distributions will qualify for the dividends-received deduction
for corporations.
The excess of net long-term capital gains over the net
short-term capital losses realized and distributed by a Portfolio
to its shareholders will be taxable to the shareholders as
long-term capital gains, irrespective of the length of time a
shareholder may have held his Portfolio shares.Any dividend or
distribution received by a shareholder on shares of a portfolio
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 the shareholder as described above. If a shareholder
has held shares in the Portfolio for six months or less and
during that period has received a distribution taxable to the
shareholder as a long-term 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.
Dividends and distributions are taxable in the manner
discussed regardless of whether they are paid to the shareholder
in cash or are reinvested in additional shares of a Portfolio.
A Portfolio generally will be required to withhold tax
at the rate of 31% with respect to distributions of net ordinary
income and net realized capital gains payable to a noncorporate
shareholder unless the shareholder certifies on his subscription
application that the social security or taxpayer identification
number provided is correct and that the shareholder has not been
notified by the Internal Revenue Service that he is subject to
backup withholding.
Currency Fluctuations - "Section 988" Gains or Losses.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues
interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities
are treated as ordinary income or ordinary loss. Similarly,
gains or losses from the disposition of foreign currencies, from
the disposition of debt securities denominated in a foreign
currency, or from the disposition of a forward contract
denominated in a foreign currency which are attributable to
fluctuations in the value of the foreign currency between the
date of acquisition of the asset and the date of disposition also
are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses,
24
<PAGE>
increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to its shareholders as
ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Because section 988 losses
reduce the amount of ordinary dividends the Fund will be allowed
to distribute for a taxable year, such section 988 losses may
result in all or a portion of prior dividend distributions for
such year being recharacterized as a non-taxable return of
capital to shareholders, rather than as an ordinary dividend,
reducing each shareholder's basis in his Fund shares. To the
extent that such distributions exceed such shareholder's basis,
each distribution will be treated as a gain from the sale of
shares.
Options, Futures and Forward Contracts. Certain listed
options, regulated futures contracts, and forward foreign
currency contracts are considered "section 1256 contracts" for
federal income tax purposes. Section 1256 contracts held by the
Fund at the end of each 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 such taxable year.
Gain or loss realized by the Fund on section 1256 contracts other
than forward foreign currency contracts will be considered 60%
long-term and 40% short-term capital gain or loss. Gain or loss
realized by the Fund on forward foreign currency contracts will
be treated as section 988 gain or loss and will therefore be
characterized as ordinary income or loss and will increase or
decrease the amount of the Fund's net investment income available
to be distributed to shareholders as ordinary income, as
described above. 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.
The Treasury Department has the authority to issue
regulations that would permit or require the Fund either to
integrate a foreign currency hedging transaction with the
investment that is hedged and treat the two as a single
transaction, or otherwise to treat the hedging transaction in a
manner that is consistent with the hedged investment. The
regulations issued under this authority generally should not
apply to the type of hedging transactions in which the Fund
intends to engage.
With respect to equity options or options traded
over-the-counter or on certain foreign exchanges, 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
25
<PAGE>
Fund exercises an option, or 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.
Gain or loss realized by the Fund on the lapse or sale
of put and call options on foreign currencies which are traded
over- the-counter or on certain foreign exchanges will be treated
as section 988 gain or loss and will therefore be characterized
as ordinary income or loss and will increase or decrease the
amount of the Fund's net investment income available to be
distributed to shareholders as ordinary income, as described
above. The amount of such gain or loss shall be determined by
subtracting the amount paid, if any, for or with respect to the
option (including any amount paid by the Fund upon termination of
an option written by the Fund) from the amount received, if any,
for or with respect to the option (including any amount received
by the Fund upon termination of an option held by the Fund). In
general, if the Fund exercises such an option on a foreign
currency, or such an option that the Fund has written is
exercised, gain or loss on the option will be recognized in the
same manner as if the Fund had sold the option (or paid another
person to assume the Fund's obligation to make delivery under the
option) on the date on which the option is exercised, for the
fair market value of the option. The foregoing rules will also
apply to other put and call options which have as their
underlying property foreign currency and which are traded over-
the-counter or on certain foreign exchanges to the extent gain or
loss with respect to such options is attributable to fluctuations
in foreign currency exchange rates.
Tax Straddles. Any option, futures contract, currency
swap, forward foreign currency 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, the positions are section 1256 contracts may constitute a
"mixed straddle". In general, straddles are subject to certain
rules that may affect the character and timing of the Fund's
gains and losses with respect to straddle positions by requiring,
among other things, that (i)loss realized on disposition of one
position of a straddle not be recognized to the extent that the
Fund has unrealized gains with respect to the other position in
such 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
26
<PAGE>
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. The Treasury Department is authorized to issue
regulations providing for the proper treatment of a mixed
straddle where at least one position is ordinary and at least one
position is capital. No such regulations have yet been issued.
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.
Foreign Income Taxes. Investment income received by a Portfolio
from sources within foreign countries may be subject to foreign
income taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries which
entitle a Portfolio to a reduced rate of such taxes or exemption
from taxes on such income. It is impossible to determine the
effective rate of foreign tax in advance since the amount of a
Portfolio's assets to be invested within various countries is not
known.
If more than 50% of the value of a Portfolio's total
assets at the close of its taxable year consists of the stock or
securities of foreign corporations, the Portfolio may elect to
"pass through" to the Portfolio's shareholders the amount of
foreign income taxes paid by the Portfolio. Pursuant to such
election, shareholders would be required to: (i) include in gross
income, even though not actually received, their respective
pro-rata shares of foreign taxes paid by a Portfolio; (ii) treat
their pro rata share of such foreign taxes as having been paid by
them; and (iii) either deduct their pro-rata share of such
foreign taxes in computing their taxable income, or use it as a
foreign tax credit against United States federal income taxes
(but not both). No deduction for foreign taxes could be claimed
by a shareholder who does not itemize deductions. In addition,
certain individual shareholders may be subject to rules which
limit or reduce their ability to fully deduct their pro rata
share of the foreign taxes paid by the Portfolio.
Taxation of Foreign Shareholders. 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 Portfolio.
27
<PAGE>
PORTFOLIO TRANSACTIONS
Neither the Fund nor the Adviser has entered into
agreements or understandings with any brokers or dealers
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 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 utilized by the Adviser in connection with the Fund.
The Fund will deal in some instances in equity
securities which are not listed on a national stock exchange but
are traded in the over-the-counter market. In addition, most
transactions for the Short-Term Global Income Portfolio are
executed in the over-the-counter market. Where transactions are
executed in the over-the-counter 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 Fund may from time to time place orders for the
purchase or sale of securities 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. 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 Investment Company Act of 1940 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
28
<PAGE>
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 years ended September 30, 1993, 1994
and 1995, the Growth Portfolio (which was then the Fund's only
Portfolio with assets to invest) incurred brokerage commissions
amounting in the aggregate to $318,525, $410,203, and $470,250.
During the fiscal years ended September 30, 1993, 1994 and 1995,
brokerage commissions amounting in the aggregate to $2,965,
$5,625 and $6,616, respectively, were paid to DLJ and brokerage
commissions amounting in the aggregate to $5,302, $-0- and $-0-,
respectively, were paid to brokers utilizing the Pershing
Division of DLJ. During the fiscal year ended September 30,
1995, the brokerage commissions paid to DLJ constituted 1.41% of
the Growth Portfolio's aggregate brokerage commissions and the
brokerage commissions paid to brokers utilizing the Pershing
Division of DLJ constituted -0-% of the Growth Portfolio's
aggregate brokerage commissions. During the fiscal year ended
September 30, 1995, of the Growth Portfolio's aggregate dollar
amount of brokerage transactions involving the payment of
commissions, .46% were effected through DLJ and -0-% were
effected through brokers utilizing the Pershing Division of DLJ.
During the fiscal year ended September 30, 1995,
transactions in portfolio securities of the Growth Portfolio
aggregating $338,047,611 with associated brokerage commissions of
approximately $470,250 were allocated to persons or firms
supplying research services to the Growth Portfolio or the
Adviser.
For the fiscal years ended September 30, 1994 and 1995,
the annual portfolio turnover rates of securities of the Growth
Portfolio, which was then the Fund's only Portfolio in operation,
were 116% and 159%, respectively.
GENERAL INFORMATION
Capitalization
All shares of the Fund when duly issued will be fully
paid and non-assessable. The Trustees are authorized to
reclassify and issue any unissued shares to any number of
additional series without shareholder approval. Accordingly, the
Trustees in the future, for reasons such as the desire to
29
<PAGE>
establish one or more additional Portfolios with different
investment objectives, policies or restrictions, may create
additional series of shares. Any issuance of shares of such
additional series would be governed by the Investment Company Act
of 1940, as amended, and the laws of the Commonwealth of
Massachusetts.
Certain procedures for the removal by shareholders of
the Trustees of the Fund, similar to those set forth in Section
l6(c) of the Investment Company Act of l940, are available to
shareholders of the Fund.
At January 12, 1996 there were 4,636,675 shares of the
Growth Portfolio outstanding. Set forth below is certain
information as to all persons who owned of record or beneficially
5% or more of the Growth Portfolio's outstanding shares at
January 12, 1996.
No. of % of
Name and Address Shares Class
Kane & Co. 237,245 5
A/C Hoffman-La Roche P93176
Chase Manhattan Bank NA
ATTN: Kathleen O'Conner
Chase Manhatten Metrotech
Mew York, NY 11245
Ortho & Company Trust Dept 2,982,628 64
Ford General Retirement Plan
C/O Comercia Bank
Mutual Funds Unit/MC 3446
P.O. Box 75000
Detroit, MI 48275-3446
General Mills A/C# TKO2 289,063 6
State Street Bank & Trust
ATTN: Philip Daukas
Master Trust Division W6C
P.O. Box 1992
Boston, Mass. 02105-1992
3M Co. 643,552 13
c/o Boston Safe Deposit & Trust
Attn: Hannah Buxbaum, Admin
ITD Division 5th Floor
31 St. James Avenue
Park Square Building
Boston, MA 02116
30
<PAGE>
Each of the foregoing shareholders, as well as certain
additional shareholders of the Fund, are discretionary managed
accounts of the Fund's Adviser, which thereby exercised
investment discretion at January 12, 1996 with respect to an
aggregate of 4,306,109 shares, representing approximately 93% of
all outstanding shares as of that date.
Counsel and Independent Auditors
Legal matters in connection with the issuance of the
shares of beneficial interest offered hereby are passed upon by
Seward & Kissel, One Battery Park Plaza, New York, New York
l0004.
Ernst & Young LLP, 787 Seventh Avenue, New York, New
York l0019, has been appointed as independent auditors for the
Fund.
Performance Information
From time to time, the Fund advertises the "yield" of
the Short-Term Global Income Portfolio and the "total return" of
each Portfolio. The Short-Term Global Income Portfolio's yield
for any 30-day (or one-month) period is computed by dividing the
net investment income per share earned during such period by the
net asset value per share on the last day of the period, and then
annualizing such 30-day (or one-month) yield in accordance with a
formula prescribed by the Securities and Exchange Commission
which provides for compounding on a semi-annual basis. Such
Portfolio may also advertise in items of sales literature an
"actual distribution rate" which is computed in the same manner
as yield except that actual income dividends declared per share
during the period in question are substituted for net investment
income per share.
Advertisements of each Portfolio's average annual
compounded total return for recent one, five and ten year
periods, in the case of the Growth Portfolio, and in the case of
the Short-Term Global Income Portfolio, the period since
inception. A Portfolio's total return for each such period is
computed, through the use of a formula prescribed by the
Securities and Exchange Commission, by finding 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 a Portfolio are assumed to have been reinvested when paid.
The Growth Portfolio's average annual compounded total
return for the year ended September 30, 1995 was 30.90%, for the
31
<PAGE>
five years ended September 30, 1995 was 15.40% and for the ten
years ended September 30, 1995 was 12.60%.
A Portfolio'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 held by a
Portfolio and the Portfolio's expenses. An investor's principal
invested in a Portfolio is not fixed and will fluctuate in
response to prevailing market conditions.
Advertisements quoting performance rankings of a
Portfolio as measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc., and
advertisements presenting the historical record of payments of
income dividends by a Portfolio may also from time to time be
sent to investors or placed in newspapers, magazines or other
media on behalf of the Fund.
Additional Information
This Statement of Additional Information does not
contain all the information set forth in the Registration
Statement filed by the Fund with the Securities and Exchange
Commission under the Securities Act of l933. 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.
32
<PAGE>
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995 FIDUCIARY MANAGEMENT ASSOCIATES - GROWTH PORTFOLIO
_______________________________________________________________________________
COMPANY SHARES VALUE
- ----------------------------------------------------------------------
COMMON STOCKS & OTHER INVESTMENTS-90.1%
CONSUMER PRODUCTS & SERVICES-26.4%
AIRLINES-4.5%
Alaska Air Group, Inc.* 135,400 $ 2,115,625
America West Airlines, Inc.* 76,000 1,178,000
Mesa Airlines, Inc.* 106,900 1,089,044
USAir Group, Inc.* 116,400 1,338,600
5,721,269
APPAREL-2.3%
Jones Apparel Group, Inc.* 29,000 1,033,125
Nautica Enterprises, Inc.* 57,625 1,973,656
3,006,781
BROADCASTING & CABLE-2.8%
Cablevision Systems Corp. Cl.A* 17,500 1,043,437
CD Radio, Inc.* 87,900 357,094
Infinity Broadcasting Corp. Cl.A* 57,500 1,883,125
Valuevision International, Inc.* 58,900 346,038
3,629,694
COSMETICS-1.0%
Jean Phillippe Fragrances, Inc.* 124,000 1,302,000
ENTERTAINMENT & LEISURE-1.0%
Heritage Media Corp.* 40,500 1,220,063
REAL ESTATE-0.5%
Summit Properties, Inc. 35,200 664,400
RESTAURANTS & LODGING-4.3%
HFS, Inc.* 34,000 1,780,750
Host Marriott Corp.* 150,400 1,861,200
La Quinta Inns, Inc. 42,300 1,184,400
Red Lion Hotels, Inc.* 33,700 707,700
5,534,050
RETAILING-9.2%
Bed Bath & Beyond, Inc.* 56,000 1,708,000
Corporate Express, Inc.* 51,800 1,262,625
Industrie Natuzzi S.p.A. (ADR)(a) 57,900 2,062,687
Musicland Stores, Inc.* 85,500 726,750
Nine West Group, Inc.* 109,200 4,968,600
Staples, Inc.* 36,600 1,033,950
11,762,612
OTHER-0.8%
Robert Mondavi Corp. Cl.A* 38,000 969,000
33,809,869
TECHNOLOGY-25.1%
COMMUNICATIONS EQUIPMENT-4.1%
Ascend Communications, Inc* 8,000 640,000
Dionex Corp.* 24,900 1,301,025
Orion Network Systems, Inc.* 166,667 2,000,004
Scientific-Atlanta, Inc. 39,000 658,125
Stratacom, Inc.* 11,000 607,750
5,206,904
COMPUTER PERIPHERALS-2.7%
Komag, Inc.* 23,500 1,536,312
Lam Research Corp.* 10,500 627,375
Quantum Corp.* 32,700 715,313
Read-Rite Corp.* 15,500 565,750
3,444,750
COMPUTER SOFTWARE & SERVICES-6.4%
Cadence Design Systems, Inc.* 22,000 863,500
Checkfree Corp.* 10,100 202,000
Computer Management Sciences, Inc.* 2,600 44,200
Hummingbird Communications, Ltd.* 27,900 1,039,275
Informix Corp.* 92,600 3,009,500
Intersolv, Inc.* 44,200 889,525
4
FIDUCIARY MANAGEMENT ASSOCIATES - GROWTH PORTFOLIO
_______________________________________________________________________________
COMPANY SHARES VALUE
- ----------------------------------------------------------------------
Mentor Graphics Corp.* 38,600 $ 805,775
Symantec Corp.* 33,700 1,011,000
Wang Labs, Inc.* 23,700 376,238
8,241,013
ELECTRONICS-0.7%
Kemet Corp.* 27,600 945,300
TELECOMMUNICATIONS-11.2%
Adtran, Inc.* 16,400 569,900
Glenayre Technologies, Inc.* 9,450 680,400
Millicom International Cellular, S.A.* 87,900 2,823,788
Ortel Corp.* 58,200 814,800
Telephone and Data Systems, Inc. 102,100 4,288,200
Tellabs, Inc.* 14,900 627,662
United States Cellular Corp.* 81,600 2,978,400
Vanguard Cellular Systems, Inc.* 59,800 1,532,375
14,315,525
32,153,492
HEALTH CARE-14.3%
BIOTECHNOLOGY-1.3%
Centocor, Inc.* 44,900 488,288
Cephalon, Inc.* 26,950 741,125
MedImmune, Inc.* 42,600 473,925
1,703,338
DRUGS, HOSPITAL SUPPLIES & MEDICAL SERVICES-13.0%
Apria Healthcare Group, Inc.* 59,060 1,461,735
Community Health Systems, Inc.* 68,100 2,749,537
Healthwise of America, Inc.* 109,800 3,074,400
Manor Care, Inc. 25,600 870,400
Medcath, Inc.* 79,200 1,465,200
Physician Reliance Network, Inc.* 67,300 2,490,100
Sun Healthcare Group, Inc.* 166,000 $2,137,250
Surgical Care Affiliates, Inc. 66,500 1,546,125
Ventritex, Inc.* 40,200 864,300
16,659,047
18,362,385
ENERGY-11.3%
OIL & GAS SERVICES-9.7%
Arethusa, Ltd. 83,400 1,720,125
BJ Services Co.* 37,500 946,875
Global Marine, Inc.* 370,900 2,642,662
Noble Drilling Corp.* 197,400 1,529,850
Reading & Bates Corp.* 317,100 3,805,200
Rowan Cos., Inc.* 235,700 1,767,750
12,412,462
OTHER-1.6%
Diamond Shamrock, Inc. 81,100 1,997,088
14,409,550
BASIC INDUSTRIES-6.3%
AIR FREIGHT-1.0%
Pittston Services Group 47,900 1,299,288
ELECTRONICS-1.4%
AVX Corp. 49,000 1,641,500
Zycon Corp.* 15,400 188,650
1,830,150
ENVIRONMENTAL CONTROL-1.3%
USA Waste Services, Inc.* 83,400 1,626,300
MACHINERY-0.8%
JLG Industries, Inc. 21,700 976,500
SURFACE TRANSPORTATION & SHIPPING-1.8%
Xtra Corp. 52,500 2,329,687
8,061,925
FINANCIAL SERVICES-6.0%
BANKING-1.0%
First USA, Inc. 24,000 1,302,000
INSURANCE-4.4%
National Re Corp. 44,700 1,581,262
PXRE Corp. 22,200 604,950
5
PORTFOLIO OF INVESTMENTS
(CONTINUED) FIDUCIARY MANAGEMENT ASSOCIATES - GROWTH PORTFOLIO
_______________________________________________________________________________
COMPANY SHARES VALUE
- ----------------------------------------------------------------------
Roosevelt Financial Group, Inc. 48,300 $ 851,288
Twentieth Century Industries, Inc.* 171,500 2,636,812
5,674,312
OTHER-0.6%
Union Acceptance Corp.* 39,200 735,000
7,711,312
RESTRICTED SECURITIES & PRIVATE PLACEMENTS-0.7%
Menlo Ventures III, A Limited
Partnership*(b) 1,000,000 285,000
Oak Investment Partners III*(b) 2,000,000 420,000
Oscco II, A Limited Partnership*(b) 750,000 75,750
RCS II, A Limited Partnership*(b) 1,000,000 73,200
853,950
PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- ----------------------------------------------------------------------
Total Common Stocks & Other Investments
(cost $97,174,247) $115,362,483
CORPORATE BONDS-0.6%
COMMUNICATION & EQUIPMENT-0.6%
Intelcom Group, Inc. 8.00%,9/17/98(b)(c)
(cost $908,620) $ 922 790,326
SHORT-TERM DEBT SECURITIES-10.2%
Federal Home Loan Mortgage Corp.
6.30%, 10/02/95
(amortized cost $13,097,707) 13,100 13,097,707
TOTAL INVESTMENTS-100.9%
(cost $111,180,574) 129,250,516
Other assets less liabilities-(0.9%) (1,115,598)
NET ASSETS-100% $128,134,918
* Non-income producing security.
(a) Country of origin-Italy.
(b) Illiquid security, valued at fair value (see Notes A & D).
(c) Interest on this bond is paid-in-kind.
Glossary:
ADR - American Depository Receipt.
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995 FIDUCIARY MANAGEMENT ASSOCIATES - GROWTH PORTFOLIO
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $111,180,574) $129,250,516
Cash 60,498
Receivable for investment securities sold 323,250
Receivable for shares of beneficial interest sold 153,387
Dividends and interest receivable 20,917
Total assets 129,808,568
LIABILITIES
Payable for investment securities purchased 1,334,941
Advisory fee payable 240,253
Accrued expenses 98,456
Total liabilities 1,673,650
NET ASSETS (equivalent to $32.90 per share, based on 3,
895,232 shares of beneficial interest outstanding) $128,134,918
COMPOSITION OF NET ASSETS
Shares of beneficial interest, at par $38,952
Additional paid-in capital 89,230,462
Accumulated undistributed net realized gain 20,795,562
Net unrealized appreciation of investments 18,069,942
$128,134,918
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $32.90
See notes to financial statements.
7
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1995
FIDUCIARY MANAGEMENT ASSOCIATES - GROWTH PORTFOLIO
_______________________________________________________________________________
INVESTMENT INCOME
Interest $464,409
Dividends (net of foreign taxes withheld of $1,106) 452,155 $916,564
EXPENSES
Advisory fee 833,866
Administrative 117,759
Custodian 77,339
Audit and legal 74,803
Trustees' fees 33,500
Transfer agency 22,086
Printing 11,846
Registration 6,830
Miscellaneous 19,627
Total expenses 1,197,656
Net investment loss (281,092)
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 20,853,916
Net change in unrealized appreciation of investments 9,662,236
Net gain on investments 30,516,152
NET INCREASE IN NET ASSETS FROM OPERATIONS $30,235,060
STATEMENTS OF CHANGES IN NET ASSETS
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
SEP. 30, SEP. 30,
1995 1994
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment loss $ (281,092) $ (534,084)
Net realized gain on investments 20,853,916 15,291,318
Net change in unrealized appreciation of
investments 9,662,236 (20,782,350)
Net increase (decrease) in net assets
from operations 30,235,060 (6,025,116)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments (15,581,382) (971,941)
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Net increase (decrease) 7,046,188 (25,499,920)
Total increase (decrease) 21,699,866 (32,496,977)
NET ASSETS
Beginning of year 106,435,052 138,932,029
End of year $128,134,918 $106,435,052
See notes to financial statements.
8
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 FIDUCIARY MANAGEMENT ASSOCIATES - GROWTH PORTFOLIO
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Fiduciary Management Associates - Growth Portfolio (the 'Fund') is registered
under the Investment Company Act of 1940, as a diversified, open-end investment
company. The Fund was organized as a Massachusetts business trust on March 12,
1986. The following is a summary of significant accounting policies followed by
the Fund.
1. SECURITY VALUATION
Portfolio securities traded on national securities exchanges are valued at the
last reported sales price, or, if no sale occurred, at the mean of the bid and
ask price at the regular close of the New York Stock Exchange. Over-the-counter
securities not traded on national securities exchanges are valued at the mean
of the closing bid and asked price. Securities which mature in 60 days or less
are valued at amortized cost which approximates market value. Securities for
which current market quotations are not readily available (including
investments which are subject to limitations as to their sale) are valued at
their fair value as determined in good faith by the Board of Trustees. In
determining fair value, consideration is given to cost, operating, and other
financial data.
2. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
3. INVESTMENT INCOME AND SECURITY TRANSACTIONS
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Security transactions are accounted for on the date securities are
purchased or sold. Security gains and losses are determined on the identified
cost basis.
4. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date and are determined in accordance with income tax regulations.
5. RECLASSIFICATION OF NET ASSETS
As the Fund may not utilize net investment losses in future periods for tax
purposes, the Fund reclassified net investment losses of $281,092 to additional
paid-in capital at September 30, 1995. This reclassification had no effect on
net assets.
NOTE B: ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Fund pays Alliance
Capital Management L.P. (the 'Adviser'), an advisory fee at a quarterly rate
equal to .1875 of 1% (approximately .75 of 1% on an annual basis) of the net
assets of the Fund valued on the last business day of the previous quarter. The
Adviser has agreed, under the terms of the Investment Advisory Agreement, to
reimburse the Fund to the extent that its aggregate expenses (excluding
interest, taxes, brokerage and extraordinary expenses) exceed the limits
prescribed by any state in which the Fund's shares are qualified for sale. The
Fund believes that the most restrictive expense limitation imposed by any state
is 2.5% of the first $30 million of its average daily net assets, 2% of the
next $70 million of its average daily net assets and 1.5% of its average daily
net assets in excess of $100 million. No reimbursement was required for the
year ended September 30, 1995. Pursuant to the advisory agreement, the Fund
paid $117,759 to the Adviser representing the cost of certain legal and
accounting services provided to the Fund by the Adviser for the year ended
September 30, 1995.
The Fund compensates Alliance Fund Services, Inc. (a wholly-owned subsidiary of
the Adviser) for providing personnel and facilities to perform transfer agency
services for the Fund. Such compensation amounted to $18,016 for the year ended
September 30, 1995.
Brokerage commissions paid on securities transactions for the year ended
September 30, 1995 amounted to $470,250, of which $6,616 was paid to affiliated
brokers.
9
NOTES TO FINANCIAL STATEMENTS
(CONTINUED) FIDUCIARY MANAGEMENT ASSOCIATES - GROWTH PORTFOLIO
_______________________________________________________________________________
NOTE C: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
aggregated $162,364,199 and $175,683,412, respectively, for the year ended
September 30, 1995. At September 30, 1995, the cost of securities for federal
income tax purposes was $111,461,239. Accordingly, gross unrealized
appreciation of investments was $23,396,722 and gross unrealized depreciation
of investments was $5,607,445 resulting in net unrealized appreciation of
$17,789,277.
NOTE D: ILLIQUID SECURITIES
DATE
ACQUIRED COST VALUE
-------- ---------- ----------
Intelcom Group, Inc., 8%, 9/17/98 9/16/93 $ 908,620 $ 790,326
Menlo Ventures III, A Limited Partnership 7/28/83 482,157 285,000
Oak Investment Partners III 9/28/83 1,510,517 420,000
Oscco II, A Limited Partnership 2/16/84 663,779 75,750
RCS II, A Limited Partnership 12/29/82 147,462 73,200
---------- ----------
$3,712,535 $1,644,276
The securities shown above are restricted as to sale and have been valued at
fair value in accordance with procedures described in Note A.
The value of these securities at September 30, 1995 represents 1.28% of net
assets.
NOTE E: SHARES OF BENEFICIAL INTEREST
There is an unlimited number of $0.01 par value shares of beneficial interest
authorized. Transactions in shares were as follows:
SHARES AMOUNT
------------------------ ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEP. 30, SEP. 30, SEP. 30, SEP. 30,
1995 1994 1995 1994
---------- ------------ ------------ -------------
Shares sold 673,646 2,099 $15,835,914 $ 60,000
Shares issued in
reinvestment of
distributions -0- 30,620 -0- 947,370
Shares redeemed (332,821) (918,537) (8,789,726) (26,507,290)
Net increase (decrease) 340,825 (885,818) $ 7,046,188 $(25,499,920)
10
FINANCIAL HIGHLIGHTS FIDUCIARY MANAGEMENT ASSOCIATES - GROWTH PORTFOLIO
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $29.94 $31.29 $27.41 $30.93 $23.09
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.07) (.20) (.10) (.07) .07
Net realized and unrealized gain (loss) on investments 7.51 (.93) 7.29 (2.24) 8.28
Net increase (decrease) in net asset value from operations 7.44 (1.13) 7.19 (2.31) 8.35
LESS: DISTRIBUTIONS
Dividends from net investment income -0- -0- -0- (.07) (.10)
Distributions from net realized gains (4.48) (.22) (3.31) (1.14) (.41)
Total dividends and distributions (4.48) (.22) (3.31) (1.21) (.51)
Net asset value, end of year $32.90 $29.94 $31.29 $27.41 $30.93
TOTAL RETURN
Total investment return based on net asset value (a) 30.94% (3.63)% 27.79% (7.52)% 37.03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $128,135 $106,435 $138,932 $129,188 $182,538
Ratio of expenses to average net assets 1.11% .98% .97% .92% .96%
Ratio of net investment income (loss) to average net assets (.26)% (.42)% (.31)% (.19)%. 25%
Portfolio turnover rate 159% 116% 100% 122% 102%
</TABLE>
(a) 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.
11
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS FIDUCIARY MANAGEMENT ASSOCIATES - GROWTH PORTFOLIO
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES FIDUCIARY MANAGEMENT
ASSOCIATES-GROWTH PORTFOLIO
We have audited the accompanying statement of assets and liabilities of
Fiduciary Management Associates-Growth Portfolio (the sole portfolio of
Fiduciary Management Associates), including the portfolio of investments, as of
September 30 1995, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the years indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's 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. Our procedures included confirmation of securities owned as of
September 30, 1995, 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
Fiduciary Management Associates-Growth Portfolio at September 30, 1995, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the indicated years, in conformity with generally
accepted accounting principles.
New York, New York
November 3, 1995
33
<PAGE>
APPENDIX A
DESCRIPTION OF OBLIGATIONS
ISSUED OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES OR INSTRUMENTALITIES
Federal Farm Credit System Notes and Bonds--are bonds
issued by a cooperatively owned nationwide system of banks and
associations supervised by the Farm Credit Administration, an
independent agency of the U.S. Government. These bonds are not
guaranteed by the U.S. Government.
Maritime Administration Bonds--are bonds issued and
provided by the Department of Transportation of the U.S.
Government and are guaranteed by the U.S. Government.
FHA Debentures--are debentures issued by the
Federal Housing Administration of the U.S. Government and
are guaranteed by the U.S. Government.
GNMA Certificates--are mortgage-backed securities which
represent a partial ownership interest in a pool of mortgage
loans issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations. Each mortgage loan
included in the pool is either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration.
FHLMC Bonds--are bonds issued and guaranteed by the
Federal Home Loan Mortgage Corporation.
FNMA Bonds--are bonds issued and guaranteed by the
Federal National Mortgage Association.
Federal Home Loan Bank Notes and Bonds--are notes and
bonds issued by the Federal Home Loan Bank System and are not
guaranteed by the U.S. Government.
Student Loan Marketing Association ("Sallie Mae") Notes
and Bonds--are notes and bonds issued by the Student Loan
Marketing Association.
Although this list includes a description of the primary
types of U.S. Government agency or instrumentality obligations in
which the Fund intends to invest, the Fund may invest in
obligations of U.S. Government agencies or instrumentalities
other than those listed above.
A-1
<PAGE>
APPENDIX B
BOND AND COMMERCIAL PAPER RATINGS
Standard & Poor's Bond Ratings
A Standard & Poor's corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to
a specific obligation. Debt rated "AAA" has the highest rating
assigned by Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong. Debt rated "AA" has a very strong
capacity to pay interest and to repay principal and differs from
the highest rated issues only in small degree. Debt rated "A" has
a strong capacity to pay interest and repay principal although it
is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than a debt of a higher
rated category.
The ratings from "AA" and "A" may be modified by the
addition of a plus or minus sign to show relative standing within
the major rating categories.
Moody's Bond Ratings
Excerpts from Moody's description of its corporate bond
ratings: Aaa - judged to be the best quality, carry the smallest
degree of investment risk; Aa - judged to be of high quality by
all standards; A - possess many favorable investment attributes
and are to be considered as higher medium grade obligations; Baa
- - considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured.
Fitch Investors Service Bond Ratings
AAA. Securities of this rating are regarded as strictly
high-grade, broadly marketable, suitable for investment by
trustees and fiduciary institutions, and liable to but slight
market fluctuation other than through changes in the money rate.
The factor last named is of importance varying with the length of
maturity. Such securities are mainly senior issues of strong
companies, and are most numerous in the railway and public
utility fields, though some industrial obligations have this
rating. The prime feature of an AAA rating is showing of earnings
several times or many times interest requirements with such
stability of applicable earnings that safety is beyond reasonable
question whatever changes occur in conditions. Other features may
enter in, such as a wide margin of protection through collateral
security or direct lien on specific property as in the case of
high class equipment certificates or bonds that are first
mortgages on valuable real estate. Sinking funds or voluntary
B-1
<PAGE>
reduction of the debt by call or purchase are often factors,
while guarantee or assumption by parties other than the original
debtor may also influence the rating.
AA. Securities in this group are of safety virtually
beyond question, and as a class are readily salable while many
are highly active. Their merits are not greatly unlike those of
the AAA class, but a security so rated may be of junior though
strong lien--in many cases directly following an AAA security--or
the margin of safety is less strikingly broad. The issue may be
the obligation of a small company, strongly secured but
influenced as to ratings by the lesser financial power of the
enterprise and more local type of market.
A. A securities are strong investments and in many cases
of highly active market, but are not so heavily protected as the
two upper classes or possibly are of similar security but less
quickly salable. As a class they are more sensitive in standing
and market to material changes in current earnings of the
company. With favoring conditions such securities are likely to
work into a high rating, but in occasional instances changes
cause the rating to be lowered.
Standard & Poor's Commercial Paper Ratings
A is the highest commercial paper rating category
utilized by S&P, which uses the number 1+, l, 2 and 3 to denote
relative strength within its A classification. Commercial paper
issues rated A by S&P have the following characteristics:
Liquidity ratios are better than industry average. Long-term debt
rating is A or better. The issuer has access to at least two
additional channels of borrowing. Basic earnings and cash flow
are in an upward trend. Typically, the issuer is a strong company
in a well- established industry and has superior management.
Moody's Commercial Paper Ratings
Issuers rated Prime-1 (or related supporting
institutions) have a superior capacity for repayment of
short-term promissory obligations. Prime-1 repayment capacity
will normally be evidenced by the following characteristics:
Leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset
protection; broad margins in earnings coverage of fixed financial
charges and high internal cash generation; well established
access to a range of financial markets and assured sources of
alternate liquidity.
Issuers rated Prime-2 (or related supporting
institutions) have a strong capacity for repayment of short- term
B-2
<PAGE>
promissory obligations. This will normally be evidenced by many
of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting
institutions) have an acceptable capacity for repayment of
short-term promissory obligations. The effect of industry
characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes
in the level of debt protection measurements and the requirement
for relatively high financial leverage. Adequate alternate
liquidity is maintained.
Fitch-1, Fitch-2, Duff 1 and Duff 2 Commercial Paper Ratings
Commercial paper rated "Fitch-1" is considered to be the
highest grade paper and is regarded as having the strongest
degree of assurance for timely payment. "Fitch-2" is considered
very good grade paper and reflects an assurance of timely payment
only slightly less in degree than the strangest issue.
Commercial paper issues rated "Duff 1" by Duff & Phelps,
Inc. have the following characteristics: very high certainty of
timely payment, excellent liquidity factors supported by strong
fundamental protection factors, and risk factors which are very
small. Issues rated "Duff 2" have a good certainty of timely
payment, sound liquidity factors and company fundamentals, small
risk factors, and good access to capital markets.
B-3
<PAGE>
APPENDIX C
FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS AND FOREIGN CURRENCIES
Futures Contracts
The Portfolio may enter into contracts for the purchase
or sale for future delivery of fixed-income securities or foreign
currencies, or contracts based on financial indices including any
index of U.S. Government Securities, foreign government
securities or corporate debt securities. U.S. futures contracts
have been designed by exchanges which have been designated
"contracts markets" by the Commodity Futures Trading Commission
("CFTC"), and must be executed through a futures commission
merchant, or brokerage firm, which is a member of the relevant
contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing
members of the exchange. The Portfolio will enter into futures
contracts which are based on debt securities that are backed by
the full faith and credit of the U.S. Government, such as
long-term U.S. Treasury Bonds, Treasury Notes, Government
National Mortgage Association modified pass-through
mortgage-backed securities and three-month U.S. Treasury Bills.
The Portfolio may also enter into futures contracts which are
based on bonds issued by entities other than the U.S. government.
At the same time a futures contract is purchased or
sold, the Portfolio must allocate cash or securities as a deposit
payment ("initial deposit"). It is expected that the initial,
deposit would be approximately 1 1/2%-5% of a contract's face
value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the
Portfolio would provide or receive cash that reflects any decline
or increase in the contracts value.
At the time of delivery of securities pursuant to such a
contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest
rate from that specified in the contract. In some (but not many)
cases, securities called for by a futures contract may not have
been issued when the contract was written.
Although futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the
contractual obligation is fulfilled before the date of the
contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for
C-1
<PAGE>
delivery in the same month. Such a transaction, which is effected
through a member of an exchange, cancels the obligation to make
or take delivery of the securities. Since all transactions in the
futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts
are traded, the Portfolio will incur brokerage fees when it
purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures
contract, in the case of the portfolio, which holds or intends to
acquire fixed-income securities, is to attempt to protect the
Portfolio from fluctuations in interest or foreign exchange rates
without actually buying or selling fixed-income securities or
foreign currency. For example, if interest rates were expected to
increase, the Portfolio might enter into futures contracts for
the sale of debt securities. Such a sale would have much the same
effect as selling an equivalent value of the debt securities
owned by the Portfolio. If interest rates did increase, the value
of the debt securities in the portfolio would decline, but the
value of the futures contracts to the Portfolio would increase at
approximately the same rate, thereby keeping the net asset value
of the Portfolio from declining as much as it otherwise would
have. The Portfolio could accomplish similar results by selling
debt securities and investing in bonds with short maturities when
interest rates are expected to increase. However, since the
futures market is more liquid than the cash market, the use of
futures contracts as an investment technique allows the Portfolio
to maintain a defensive position without having to sell its
portfolio securities.
Similarly, when it is expected that interest rates may
decline, futures contracts may be purchased to attempt to hedge
against anticipated purchases of debt securities at higher
prices. Since the fluctuations in the value of futures contracts
should be similar to those of debt securities, the Portfolio
could take advantage of the anticipated rise in the value of debt
securities without actually buying them until the market had
stabilized. At that time, the futures contracts could be
liquidated and the Portfolio could then buy debt securities on
the cash market. To the extent the Portfolio enters into futures
contracts for this purpose, the assets in the segregated asset
account maintained to cover the Portfolio's obligations with
respect to such futures contracts will consist of cash, cash
equivalents or high quality liquid debt securities from its
portfolio in an amount equal to the difference between the
fluctuating market value of such futures contracts and the
aggregate value of the initial and variation margin payments made
by the Portfolio with respect to such futures contracts.
The ordinary spreads between prices in the cash and
futures markets, due to differences in the nature of those
C-2
<PAGE>
markets, are subject to distortions. First, all participants in
the futures market are subject to initial deposit and variation
margin requirements. Rather than meeting additional variation
margin requirements, investors may close futures contracts
through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of
speculators, the margin 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 cause temporary price
distortions. Due to the possibility of distortion, a correct
forecast of general interest rate trends by the Adviser may still
not result in a successful transaction.
In addition, futures contracts entail risks. Although
the Fund believes, that use of such contracts will benefit the
Portfolio, if the Adviser's investment judgment about the general
direction of interest rates is incorrect, the Portfolio's overall
performance would be poorer than if it had not entered into any
such contract. For example, if the Portfolio has hedged against
the possibility of an increase in interest rates which would
adversely affect the price of debt securities held in its
portfolio and interest rates decrease instead, the Portfolio will
lose part or all of the benefit of the increased value of its
debt securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have
to sell debt securities from its portfolio to meet daily
variation margin requirements. Such sales of bonds may be, but
will not necessarily be, at increased prices which reflect the
rising market. The Portfolio may have to sell securities at a
time when it may be disadvantageous to do so.
Options on Futures Contracts
The Portfolio intends to purchase and write options on
futures contracts for hedging purposes. The purchase of a call
option on a futures contract is similar in some respects to the
purchase of a call option on an individual security. Depending on
the pricing of the option compared to either the price of the
futures contract upon which it is based or the price of the
underlying debt securities, it may or may not be less risky than
ownership of the futures contract or underlying debt securities.
As with the purchase of futures contracts, when the Portfolio is
not fully invested it may purchase a call option on a futures
C-3
<PAGE>
contract to hedge against a market advance due to declining
interest rates.
The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of the
security or foreign currency which is deliverable upon exercise
of the futures contract. If the futures price at expiration of
the option is below the exercise price, the Portfolio will retain
the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in the portfolio
holdings. The writing of a put option on a futures contract
constitutes a partial hedge against increasing prices of the
security or foreign currency which is deliverable upon exercise
of the futures contract. If the futures price at expiration of
the option is higher than the exercise price, the Portfolio will
retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities
which the Portfolio intends to purchase. If a put or call option
the Portfolio has written is exercised, the Portfolio will incur
a loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between changes
in the value of its portfolio securities and changes in the value
of its futures positions, the Portfolio's losses from existing
options on futures may to some extent be reduced or increased by
changes in the value of portfolio securities.
The purchase of a put option on a futures contract is
similar in some respects to the purchase of protective put
options on portfolio securities. For example, the Portfolio may
purchase a put option on a futures contract to hedge its
portfolio against the risk of rising interest rates.
The amount of risk the Portfolio assumes when it
purchases an option on a futures contract is the premium paid for
the option plus related transaction costs. In addition to the
correlation risks discussed above, the purchase of an option also
entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the
option purchased.
Options on Foreign Currencies
The Portfolio may purchase and write options on foreign
currencies for hedging purposes in a manner similar to that in
which futures contracts on foreign currencies, or forward
contracts, will be utilized. For example, a decline in the dollar
value of a foreign currency in which portfolio securities are
denominated will reduce the dollar value of such securities, even
if their value in the foreign currency remains constant. In order
to protect against such diminutions in the value of portfolio
securities, the Portfolio may purchase put options on the foreign
C-4
<PAGE>
currency. If the value of the currency does decline, the
Portfolio will have the right to sell such currency for a fixed
amount in dollars and will thereby offset, in whole or in part,
the adverse effect on its portfolio which otherwise would have
resulted.
Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is
projected, thereby increasing the cost of such securities, the
Portfolio may purchase call options thereon. The purchase of such
options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Portfolio deriving
from purchases of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In addition,
where currency exchange rates do not move in the direction or to
the extent anticipated the Portfolio could sustain losses on
transactions in foreign currency options which would require it
to forego a portion or all of the benefits of advantageous
changes in such rates.
The Portfolio may write options on foreign currencies
for the same types of hedging purposes. For example, where the
Portfolio anticipates a decline in the dollar value of foreign
currency denominated securities due to adverse fluctuations in
exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected
decline occurs, the option will most likely not be exercised, and
the diminution in value of portfolio securities will be offset by
the amount of the premium received.
Similarly, instead of purchasing a call option to hedge
against an anticipated increase in the dollar cost of securities
to be acquired, the Portfolio could write a put option on the
relevant currency which, if rates move in the manner projected,
will expire unexercised and allow the Portfolio to hedge such
increased cost up to the amount of the premium. As in the case of
other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the
amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised
and the Portfolio would be required to purchase or sell the
underlying currency at a loss which may not be offset by the
amount of the premium. Through the writing of options on foreign
currencies, the Portfolio also may be required to forego all or a
portion of the benefits which might otherwise have been obtained
from favorable movements in exchange rates.
The Portfolio intends to write covered call options on
foreign currencies. A call option written on a foreign currency
by the Portfolio is "covered" if the Portfolio owns the
C-5
<PAGE>
underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency
without additional cash consideration (or for additional cash
consideration held in a segregated account by its Custodian) upon
conversion or exchange of other foreign currency held in its
portfolio. A call option is also covered if the Portfolio has a
call on the same foreign currency and in the same principal
amount as the call written where the exercise price of the call
held (a) is equal to or less than the exercise price of the call
written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Portfolio in cash,
U.S. Government Securities and other high quality liquid debt
securities in a segregated account with its Custodian.
The Portfolio also intends to write call options on
foreign currencies that are not covered for cross-hedging
purposes. A call option on a foreign currency is for
cross-hedging purposes if it is not covered, but is designed to
provide a hedge against a decline in the U.S. dollar value of a
security which the Portfolio owns or has the right to acquire and
which is denominated in the currency underlying the option due to
an adverse change in the exchange rate. In such circumstances,
the Portfolio collateralizes the option by maintaining in a
segregated account with the Custodian, cash or U.S. government
securities or other high quality liquid debt securities in an
amount not less than the value of the underlying foreign currency
in U.S. dollars marked to market daily.
Additional Risks of Options on Futures Contracts, Forward
Contracts and Options on Foreign Currencies
Unlike transactions entered into by the Portfolio in
futures contracts, options on foreign currencies and forward
contracts are not traded on contract markets regulated by the
CFTC or (with the exception of certain foreign currency options)
by the SEC. To the contrary, such instruments are traded through
financial institutions acting as market- makers, although foreign
currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation.
Similarly, options on currencies may be traded over-the-counter.
In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be
available. For example, there are no daily price fluctuation
limits, and adverse market movements could therefore continue to
an unlimited extent over a period of time. Although the purchaser
of an option cannot lose more than the amount of the premium plus
related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts
could lose amounts substantially in excess of their initial
C-6
<PAGE>
investments, due to the margin and collateral requirements
associated with such positions.
Options on foreign currencies traded on national
securities exchanges are within the jurisdiction of the SEC, as
are other securities traded on such exchanges. As a result, many
of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on
a national securities exchange are cleared and guaranteed by the
Options Clearing Corporation ("OCC"), thereby reducing the risk
of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more
readily available than in the over-the-counter market,
potentially permitting the Portfolio to liquidate open positions
at a profit prior to exercise or expiration, or to limit losses
in the event of adverse market movements.
The purchase and sale of exchange-traded foreign
currency options, however, is subject to the risks of the
availability of a liquid secondary market described above, as
well as the risks regarding adverse market movements, margining
of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects
of other political and economic events. In addition,
exchange-traded options on foreign currencies involve certain
risks not presented by the over the-counter market. For example,
exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in
applicable foreign countries for this purpose. As a result, the
OCC may, if it determines that foreign governmental restrictions
or taxes would prevent the orderly settlement of foreign currency
option exercises, or would result in undue burdens on the OCC or
its clearing member, impose special procedures on exercise and
settlement, such as technical changes in the mechanics of
delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
In addition, futures contracts, options on futures
contracts, forward contracts and options on foreign currencies
may be traded on foreign exchanges. Such transactions are subject
to the risk of governmental actions affecting trading in or the
prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex
foreign political and economic factors, (ii) lesser availability
than in the United States of data, on which to make trading
decisions, (iii) delays in the Portfolio's ability to act upon
economic events occurring in foreign markets during nonbusiness
hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin
C-7
<PAGE>
requirements than in the United States, and (v) lesser trading
volume.
C-8
00250061.AD2
<PAGE>
(LOGO) ALLIANCE ARM FUND FOR FINANCIAL
INSTITUTIONS
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
February 1, 1996
_________________________________________________________________
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the current Prospectus for the
Alliance ARM Fund for Financial Institutions Portfolio of
Fiduciary Management Associates dated February 1, 1996. Copies
of such Prospectuses may be obtained by contacting Alliance Fund
Services, Inc. at the address or telephone number shown above.
TABLE OF CONTENTS
Page
Investment Objective, Policies and Restrictions
Management of the Fund
Purchase and Redemption of Shares
Net Asset Value
Dividends, Distributions and Taxes
General Information
Appendix A (Bond and Commercial Paper Ratings) A-1
Appendix B (Futures Contracts and Options on Futures
Contracts) B-1
________________________
R: This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
_________________________________________________________________
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
_________________________________________________________________
Alliance ARM Fund for Financial Institutions (the "ARM
Fund") seeks the highest level of current income, consistent with
low volatility of net asset value, that is available from a
portfolio of adjustable rate mortgage securities of the highest
quality. The ARM Fund's investment portfolio is structured to
achieve an effective duration of one year or less.
The ARM Fund invests primarily in "securities backed by
or representing an interest in mortgages on domestic residential
housing or manufactured housing" meeting the definition of such
assets for purposes of the qualified thrift lender ("QTL") test
under the current regulations of the Office of Thrift Supervision
of the Department of the Treasury ("OTS Regulations"). Pending
any revisions of the current OTS Regulations, the ARM Fund
expects that absent extraordinary market developments, at least
65% of its assets will qualify for QTL purposes for savings
associations, although actual percentages may be higher. In
addition, the ARM Fund will not purchase any securities having a
risk-based weighting in excess of 20% under the current risk-
based capital regulations established by the OTS. Furthermore,
the ARM Fund's risk-based weighting for banks, under current
Federal regulations of the appropriate regulatory agencies, will
not exceed 50%. In addition, the ARM Fund does not intend to
invest in securities defined as "high risk" under guidelines
issued by the Federal Financial Institutions Examination Council.
Alliance Capital Management L.P., the ARM Fund's
investment adviser, (the "Adviser") will monitor continuously the
ratings of securities held by the ARM Fund and the
creditworthiness of their issuers. For a description of the
ratings used by Standard & Poor's Ratings Services and Moody's
Investors Service, Inc., see Appendix A.
The following investment policies and restrictions of
the ARM Fund supplement, and should be read in conjunction with,
the information regarding the investment objective, policies and
restrictions set forth in its Prospectus. The following
investment policies and restrictions do not apply to the other
portfolios of Fiduciary Management Associates (the "Fund"), and
information regarding these portfolios is set forth in a separate
Prospectus and Statement of Additional Information. Except as
otherwise noted, the investment policies of the ARM Fund are not
designated "fundamental policies" within the meaning of the
Investment Company Act of 1940, as amended (the "1940 Act"), and
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may be changed by the Fund's Trustees without the approval of a
majority of the outstanding voting securities, as defined under
"Investment Restrictions", below. However, the ARM Fund will not
change its investment policies without contemporaneous written
notice to the shareholders.
Pass-Through Mortgage-Related Securities--General. Pass-through
mortgage-related securities ("pass-through securities") represent
an ownership interest in a pool of residential mortgage loans.
These securities are designed to provide monthly payments of
interest and principal to the investor. The cash flow from the
mortgages is "passed through" to the holders of the securities in
the form of periodic payments of interest, principal and
prepayments (net of a service fee). Prepayments occur when the
holder of an individual mortgage prepays the remaining principal
before the mortgage's scheduled maturity date. As a result of
the pass-through of prepayments of principal on the underlying
securities, pass-through securities are often subject to more
rapid prepayment of principal than their stated maturity would
indicate. Prepayment rates are important because of their effect
on the yield and price of the securities. Accelerated
prepayments adversely impact yields for pass-through securities
purchased at a premium (i.e., a price in excess of the principal
amount) and may involve additional risk of loss of principal
because the premium may not have been fully amortized at the time
the obligation is repaid. The opposite is true for pass-through
securities purchased at a discount. The ARM Fund may purchase
pass-through securities at a premium or at a discount.
Since the inception of the pass-through security in
1970, the market for these securities has expanded considerably.
The size of the primary issuance market and active participation
in the secondary market by securities dealers and many types of
investors makes government and government-related pass-through
pools highly liquid. Private conventional pools of mortgages
(pooled by commercial banks, savings and loans institutions and
others, with no relationship with government and government-
related entities) have also achieved broad market acceptance and
consequently an active secondary market has emerged. However,
the market for conventional pools is smaller and less liquid than
the market for the government and government-related mortgage
pools. The ARM Fund may purchase some pass-through securities
through private placement, in which case only a limited secondary
market exists, and the security may be considered illiquid and
therefore subject to the investment policy for illiquid
securities described below.
Government Agency Pass-Through Mortgage-Related Securities.
Mortgages backing the mortgage-related securities issued or
guaranteed by the United States Government that the ARM Fund may
invest in include, among others, conventional thirty-year fixed-
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rate mortgages, graduated payment mortgages, fifteen-year
mortgages and adjustable rate mortgages. All of these mortgages
can be used to create pass-through securities. Principal and
interest payments on the mortgage-related securities are
guaranteed by the United States Government to the extent
described below. Such guarantees do not extend to the value or
yield of the mortgage-related securities themselves or of the
shares of common stock of the ARM Fund.
The principal governmental (i.e., backed by the full
faith and credit of the United States Government) guarantor of
mortgage-related securities is the Government National Mortgage
Association ("GNMA"). Government-related (i.e., not backed by
the full faith and credit of the United States Government)
guarantors include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC").
GNMA Certificates. Certificates of GNMA ("GNMA Certificates")
are mortgage-related securities which evidence an undivided
interest in a pool or pools of mortgages. GNMA Certificates that
the ARM Fund may purchase are the "modified pass-through" type,
which entitle the holder to receive timely payment of all
interest and principal payments due on the mortgage pool, net of
fees paid to the "issuer" and GNMA, regardless of whether or not
the mortgagors actually makes mortgage payments when due.
The National Housing Act authorizes GNMA to guarantee
the timely payment of principal and interest on securities backed
by a pool of mortgages insured by the Federal Housing
Administration ("FHA") or guaranteed by the Veterans
Administration. The GNMA guarantee is backed by the full faith
and credit of the United States Government. GNMA is also
empowered to borrow without limitation from the U.S. Treasury if
necessary to make any payments required under its guarantee.
Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater
part of principal investment long before the maturity of the
mortgages in the pool. Foreclosures impose no risk to principal
investment because of the GNMA guarantee, except to the extent
that the ARM Fund has purchased the certificates above par in the
secondary market.
FNMA Certificates. FNMA was established in 1938 to create a
secondary market in mortgages insured by FHA. FNMA issues
guaranteed mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in
that each FNMA Certificate represents a pro rata share of all
interest and principal payments made and owed on the underlying
pool. FNMA guarantees timely payment of interest and principal
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<PAGE>
on FNMA Certificates. The FNMA guarantee is not backed by the
full faith and credit of the United States Government.
FHLMC Securities. FHLMC was created in 1970 through enactment of
Title III of the Emergency Home Finance Act of 1970. Its purpose
is to promote development of a nationwide secondary market in
conventional residential mortgages.
FHLMC issues two types of pass-through securities:
mortgage participation certificates ("PCs") and guaranteed
mortgage certificates ("GMCs"). PCs resemble GNMA Certificates
in that each PC represents a pro rata share of all interest and
principal payments made and owed on the underlying pool. FHLMC
guarantees timely monthly payment of interest on PCs and the
ultimate (or, in some cases, timely) payment of principal. GMCs
also represent a pro rata interest in a pool of mortgages.
However, these instruments pay interest semiannually and return
principal once a year in guaranteed minimum payments. The FHLMC
guarantee is not backed by the full faith and credit of the
United States Government.
Private Pass-Through Securities. The ARM Fund may invest in
private pass-through securities. Commercial banks, savings and
loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers also create pass-
through pools of conventional residential mortgage loans. Such
issuers may also be the originators of the underlying mortgage
loans as well as the guarantors of the mortgage-related
securities. Pools created by such non-governmental issuers
generally offer a higher rate of interest than government and
government-related pools because there are no direct or indirect
government guarantees of payments in the former pools. However,
timely payment of interest and principal is supported by various
forms of insurance or guarantees, including individual loan,
title, pool and hazard insurance. The insurance and guarantees
are issued by government entities, private insurers and the
mortgage poolers. Such insurance and guarantees and the
creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets the ARM
Fund's investment quality standards. There can be no assurance
that the private insurers can meet their obligations under the
policies. The ARM Fund may buy mortgage-related securities
without insurance or guarantees if through an examination of the
loan experience and practices of the poolers the Adviser
determines that the securities meet the ARM Fund's investment
quality standards. Although the market for such securities is
becoming increasingly liquid, securities issued by certain
private organizations may not be readily marketable. The ARM
Fund will not purchase mortgage-related securities or any other
assets which in the Adviser's opinion are illiquid if, as a
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result, more than 15% of the value of its net assets (taken at
market value) will be illiquid.
Direct Investment in Mortgages. The ARM Fund may invest up to
10% of the value of its total assets directly in mortgages
securing residential real estate (i.e., the ARM Fund becomes the
mortgagee). Such investments are not "mortgage-related
securities" as described above. They are normally available from
lending institutions which group together a number of mortgages
for resale (usually from 10 to 50 mortgages) and which act as
servicing agent for the purchaser with respect to, among other
things, the receipt of principal and interest payments. (Such
investments are also referred to as "whole loans.") The vendor
of such mortgages receives a fee from the ARM Fund for acting as
servicing agent. The vendor does not provide any insurance or
guarantees covering the repayment of principal or interest on the
mortgages. Unlike pass-through securities, whole loans
constitute direct investments in mortgages inasmuch as the ARM
Fund, rather than a financial intermediary, become the mortgagee
with respect to such loans purchased by the ARM Fund. At
present, such investments are considered to be illiquid by the
Adviser. The ARM Fund will invest in such mortgages only if the
Adviser has determined through an examination of the mortgage
loans and their originators (which may include an examination of
such factors as percentage of family income dedicated to loan
service and relationship between loan value and market value)
that the purchase of the mortgages should not present a
significant risk of loss to the ARM Fund. The ARM Fund has no
present intention of making any direct investments in mortgages.
"Zero Coupon" Treasury Securities. Each Portfolio may invest in
"zero coupon" Treasury securities issued by the United States
Government. Currently the only U.S. Treasury security issued
without coupons is the Treasury bill. Although the U.S. Treasury
does not itself issue Treasury notes and bonds without coupons,
under the U.S. Treasury STRIPS program interest and principal
payments on certain long-term Treasury securities may be
maintained separately in the Federal Reserve Book Entry System
and may be separately traded and owned.
In the last few years a number of banks and brokerage
firms have separated ("stripped") the principal portions
("corpus") from the coupon portions of the U.S. Treasury bonds
and notes and sold them separately in the form of receipts or
certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a
custodial or trust account). The ARM Fund may invest in these
receipts or certificates. The staff of the Securities and
Exchange Commission (the "Commission") has indicated that, in its
view, these receipts or certificates should be considered as
securities issued by the bank or brokerage firm.
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Zero coupon Treasury securities do not entitle the
holder to any periodic payments of interest prior to maturity.
Accordingly, such securities usually trade at a deep discount
from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest
rates than debt obligations of comparable maturities which make
current distributions of interest. Current federal tax law
requires that a holder (such as the ARM Fund) of a zero coupon
security accrue a portion of the discount at which the security
was purchased as income each year even though the ARM Fund
receives no interest payment in cash on the security during the
year. For a further discussion of the tax treatment of "zero
coupon" Treasury securities, see "Taxation--`Zero Coupon'
Treasury Securities," below.
Futures Contracts and Options on Futures Contracts. The ARM Fund
may enter into futures contracts and options on futures
contracts. The successful use of such instruments draws upon the
Adviser's special skills and experience with respect to such
instruments and usually depends on the Adviser's ability to
forecast interest rate movements correctly. Should interest
rates move in an unexpected manner, the ARM Fund may not achieve
the anticipated benefits of futures contracts or options on
futures contracts or may realize losses and thus will be in a
worse position than if such strategies had not been used. In
addition, the correlation between movements in the price of
futures contracts or options on futures contracts and movements
in the price of the securities hedged or used for cover will not
be perfect and could produce unanticipated losses.
The Trustees of the ARM Fund have adopted the
requirement that futures contracts and options on futures
contracts only be used by the ARM Fund as a hedge and not for
speculation. In addition to this requirement, the Trustees have
also adopted two percentage restrictions on the use of futures
contracts. The first restriction is that the ARM Fund will not
enter into any futures contracts or options on futures contracts
if immediately thereafter the amount of margin deposits on all
the futures contracts of the ARM Fund and premiums paid on
options on futures contracts would exceed 5% of the market value
of the total assets of the ARM Fund. The second restriction is
that the aggregate market value of the outstanding futures
contracts purchased by the ARM Fund not exceed 50% of the market
value of the total assets of the ARM Fund. Neither of these
restrictions will be changed by the ARM Fund's Trustees without
considering the policies and concerns of the various applicable
federal and state regulatory agencies.
For additional information on the use, risks and costs
of futures contracts and options on futures contracts, see
Appendix B.
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Repurchase Agreements. The ARM Fund may invest in repurchase
agreements pertaining to the types of securities in which it
invests. 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 market rate which is effective for the period of
time the buyer's money is invested in the security and which is
not related to the coupon rate on the purchased security. The
ARM Fund requires continual maintenance of collateral held by its
custodian in an amount equal to, or in excess of, the market
value of the securities which are the subject of the agreement.
In the event that a vendor defaulted on its repurchase
obligation, the ARM Fund might suffer a loss to the extent that
the proceeds from the sale of the collateral were less than the
repurchase price. If the vendor became bankrupt, the ARM Fund
might be delayed in, or prevented from, selling the collateral.
Repurchase agreements may be entered into with member banks of
the Federal Reserve System or "primary dealers" (as designated by
the Federal Reserve Bank of New York) in United States Government
securities.
Illiquid Securities. The ARM Fund has adopted the following
investment policy which may be changed by the vote of the
Trustees of the ARM Fund.
The ARM Fund will not maintain more than 15% of its net
assets (taken at net value) in illiquid securities. For
this purpose, illiquid securities include, among others,
(i) securities that are illiquid by virtue of the
absence of a readily available market or legal or
contractual restriction on resale, (ii) options
purchased by the ARM Fund over- the-counter and the
cover for options written by the ARM Fund over-the-
counter 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"), 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
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<PAGE>
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 ARM 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 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. The Adviser anticipates that the market
for certain restricted securities such as institutional
commercial paper will expand further as a result of this
regulation and the development of an automated system for the
trading, clearance and settlement of unregistered securities of
domestic and foreign issuers, such as the PORTAL System sponsored
by the National Association of Securities Dealers, Inc.
The Adviser, acting under the supervision of the
Trustees of the ARM Fund, will monitor the liquidity of
restricted securities in the ARM Fund's investment portfolio that
are eligible for resale pursuant to Rule 144A. In reaching
liquidity decisions, the Adviser will consider, inter alia, the
following factors: (i) the frequency of trades and quotes for the
security; (ii) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers;
(iii) dealer undertakings to make a market in the security; and
(iv) the nature of the security and the nature of the marketplace
9
<PAGE>
trades (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer).
The Government Portfolio has adopted an investment
policy, which may be changed by vote of the Trustees of the Fund,
that prohibits it from investing in illiquid securities.
Portfolio Turnover. Since the ARM Fund may engage in active
short-term trading, the rate of portfolio turnover of the ARM
Fund may be higher than that of many other investment companies.
Investment Restrictions
The following restrictions, which supplement those set
forth in the ARM Fund's Prospectus, may not be changed without a
vote of a majority of the outstanding voting securities of the
the ARM Fund, which means the affirmative vote of the holders of
(i) 67% or more of 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
greater. Whenever any investment restriction states a maximum
percentage of the ARM 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 ARM 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.
The ARM Fund (unless otherwise indicated) may not:
1. Make loans except through (i) the purchase of debt
obligations in accordance with its investment objective and
policies; (ii) the lending of portfolio securities; and
(iii) the use of repurchase agreements;
2. Participate on a joint or joint and several basis in any
securities trading account;
3. Invest in companies for the purpose of exercising
control;
4. Make short sales of securities or maintain a short
position, unless at all times when a short position is open
the ARM Fund owns an equal amount of such securities or
securities convertible into or exchangeable for, without
payment of any further consideration, securities of the same
issue as, and equal in amount to, the securities sold short
("short sales against the box"), and not more than 10% of
the ARM Fund's net assets (taken at market value) is held as
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collateral for such sales at any one time (it is the ARM
Fund's present intention to make such sales only for the
purpose of deferring realization of gain or loss for federal
income tax purposes);
5. Purchase a security if, as a result (unless the security
is acquired pursuant to a plan of reorganization or an offer
of exchange), the ARM Fund would own any securities of an
open-end investment company or more than 3% of the total
outstanding voting stock of any closed-end investment
company or more than 5% of the value of the ARM Fund's total
assets would be invested in securities of any one or more
closed-end investment companies; and
6. (i) Purchase or sell real estate (other than mortgage-
related securities), except that the ARM Fund may invest in
whole loans and purchase and sell securities of companies
which deal in real estate or interests therein;
(ii) purchase or sell commodities or commodities contracts,
futures contracts, options on futures contracts and interest
rate transactions; (iii) invest in interests in oil, gas or
other mineral exploration or development programs;
(iv) purchase securities on margin, except for such short-
term credits as may be necessary for the clearance of
transactions; and (v) act as an underwriter of securities,
except that the ARM Fund may acquire restricted securities
under circumstances in which, if such securities are sold,
the Arm Fund may be deemed to be an underwriter for purposes
of the Securities Act.
_________________________________________________________________
MANAGEMENT OF THE FUND
_________________________________________________________________
Adviser
Alliance Capital Management L.P., a New York Stock
Exchange listed company with principal offices at 1345 Avenue of
the Americas, New York, New York 10105, has been retained under
an investment advisory contract (the "Investment Advisory
Contract") to provide investment advice and, in general, to
conduct the management and investment program of the ARM Fund
under the supervision and control of the ARM Fund's Trustees.
The Adviser is a leading international investment
manager supervising client accounts with assets as of
September 30, 1995 of more than $140 billion (of which more than
$47 billion represented the assets of investment companies). The
Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies,
11
<PAGE>
foundations and endowment funds and included, as of September 30,
1995, 29 of the FORTUNE 100 Companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,350
employees who operated out of domestic offices and the overseas
offices of subsidiaries in Bombay, Istanbul, London, Sydney,
Tokyo, Toronto, Bahrain, Luxembourg and Singapore. The 51
registered investment companies comprising 107 separate
investment portfolios managed by the Adviser currently have more
than two million shareholders.
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
________________________
* For purposes of this Statement of Additional Information, ACMC
refers to Alliance Capital Management Corporation, the sole
general partner of the Adviser, and to the predecessor general
partner of the Adviser of the same name.
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Equitable Companies Incorporated ("ECI"), a holding company
controlled by AXA, a French insurance holding company. As of
June 30, 1995, ACMC, Inc. and Equitable Capital Management
Corporation ("ECMC"), each a wholly-owned direct or indirect
subsidiary of Equitable, together with Equitable, owned in the
aggregate approximately 59% of the issued and outstanding units
representing assignments of beneficial ownership of limited
partnership interests in the Adviser ("Units"). As of June 30,
1995, approximately 33% and 8% of the Units were owned by the
public and employees of the Adviser and its subsidiaries,
respectively, including employees of the Adviser who serve as
Trustees of the ARM Fund.
AXA owns approximately 60% of the outstanding voting
shares of common stock of ECI. AXA is the holding company for an
international group of insurance and related financial services
companies. AXA's insurance operations are comprised of
activities in life insurance, property and casualty insurance and
reinsurance. The insurance operations are diverse geographically
with activities in France, the United States, the United Kingdom,
Canada and other countries, principally in Europe. AXA is also
engaged in asset management, investment banking and brokerage,
real estate and other financial services activities in the United
States and Europe. Based on information provided by AXA, as of
January 1, 1995, 42.3% of the issued shares (representing 54.7%
of the voting power) of AXA were owned by Midi Participations, a
French corporation that is a holding company. The voting shares
of Midi Participations are in turn owned 60% by Finaxa, a French
corporation that is a holding company, and 40% by subsidiaries of
Assicurazioni Generali S.p.A., an Italian corporation
("Generali") (one of which, Belgica Insurance Holding S.A., a
Belgian corporation, owned 34.1%). As of January 1, 1995, 62.1%
of the issued shares (representing 75.7% of the voting power) of
Finaxa were owned by five French mutual insurance companies (the
"Mutuelles AXA") (one of which, AXA Assurances I.A.R.D. Mutuelle,
owned 31.8% of the issued shares) (representing 39.0% of the
voting power), and 26.5% of the issued shares (representing 16.6%
of the voting power) of Finaxa were owned by Banque Paribas, a
French bank ("Paribas"). Including the shares owned by Midi
Participations, as of January 1, 1995, the Mutuelles AXA directly
or indirectly owned 51.3% of the issued shares (representing
65.8% of the voting power) of AXA. In addition, certain
subsidiaries of AXA own 0.4% of the shares of AXA which are not
entitled to be voted. Acting as a group, the Mutuelles AXA
control AXA, Midi Participations and Finaxa.
Certain other clients of the Adviser may have investment
objectives and policies similar to those of the ARM Fund. The
Adviser may, from time to time, make recommendations which result
in the purchase or sale of a particular security by its other
clients simultaneously with the ARM Fund. If transactions on
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<PAGE>
behalf of more than one client during the same period increase
the demand for securities being sold, there may be an adverse
effect on price. 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 ARM Fund. When two or more of the
clients of the Adviser (including the ARM 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.
Under the Advisory Agreement, the Adviser provides
investment advisory services and order placement facilities for
each of the Fund's portfolios, including the ARM Fund, and pays
all compensation of Trustees and officers of the Fund who are
affiliated persons of the Adviser. The Adviser or its affiliates
also furnish each of the Fund's portfolios, without charge,
management supervision and assistance and office facilities and
provides persons satisfactory to the Fund's Trustees to serve as
the Fund's officers. For the services rendered by the Adviser
under the Advisory Agreement, the ARM Fund pays a fee payable to
the Adviser at an annual rate of .45 of 1% of the average daily
value of its net assets.
The Advisory Agreement will remain in effect for
successive twelve-month periods computed from each October 1 with
respect to each Portfolio provided that such continuance is
specifically approved at least annually by the Trustees or by a
majority vote of the holders of the outstanding voting securities
of the ARM Fund, and, in either case, by a majority of the
Trustees who are not parties to the Agreement or interested
persons of any such party as defined by the 1940 Act. The
Advisory Agreement may be terminated with respect to the ARM Fund
at any time, without the payment of any penalty, by vote of a
majority of the outstanding voting securities of the ARM Fund, or
by a vote of a majority of the Trustees on 60 days' written
notice to the Adviser, or by the Adviser with respect to the ARM
Fund on 60 days' written notice and will terminate automatically
upon 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.
The ARM Fund pays for printing of prospectuses and other
reports to existing shareholders and all expenses and fees
related to proxy solicitation and registrations and filings with
the Commission and with state regulatory authorities. The ARM
Fund pays all other expenses incurred in its organization and
operation, as described in its Prospectus. As to the obtaining
of services other than those specifically provided to the ARM
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<PAGE>
Fund by the Adviser, the ARM Fund may employ its own personnel.
For such services, it also may utilize personnel employed by the
Adviser or its affiliates and, in such event, the services will
be provided to the ARM Fund at cost and the payments therefor
must be specifically approved by the ARM Fund's Trustees.
The Advisory Agreement provides that the Adviser will
reimburse the ARM Fund for its net expenses (exclusive of
interest, taxes, brokerage, distribution services fees and
extraordinary expenses, to the extent permitted by applicable
state securities laws and regulations) which in any year exceed
the limits prescribed by any state in which the ARM Fund's shares
are qualified for sale. The ARM Fund may not qualify its shares
for sale in every state. The ARM Fund believes that presently
the most restrictive expense ratio limitation imposed by any
state is 2.5% of the first $30 million of average net assets, 2%
of the next $70 million and 1.5% of average net assets in excess
of $100 million.
Transfer Agency Agreement
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of the ARM Fund, plus reimbursement for out-of-
pocket expenses.
Trustees and Officers
The Trustees and officers of the ARM Fund, their ages
and their principal occupations during the past five years are
set forth below. Each such Trustee and officer is also a
trustee, director or officer of other registered investment
companies sponsored by the Adviser. Unless otherwise specified,
the address of each of the following persons is 1345 Avenue of
the Americas, New York, New York 10105.
Trustees
JOHN D. CARIFA**, 50, - Chairman of the Trustees, is the
President and Chief Operating Officer and a Director of ACMC,
with which he has been associated since prior to 1991.
_______________________________
** An "interested person" of the Fund as defined in the
investment Company Act of 1940.
15
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RUTH BLOCK, 65, - was formerly Executive Vice President
and Chief Insurance Officer of Equitable. She is a Director of
Ecolab Incorporated (specialty chemicals) and Amoco Corporation
(oil and gas). Her address is Box 4653, Stamford, Connecticut,
06903.
DAVID H. DIEVLER, 66, was formerly a Senior Vice
President of ACMC, with which he was associated since prior to
1991 through 1994. He is currently an independent consultant.
His address is P.O. Box 167, Spring Lake, New Jersey, 07762.
JOHN H. DOBKIN, 53, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1991. From
1987 to 1992, he was a Director of ACMC. His address is 105 West
55th Street, New York, New York 10019.
WILLIAM H. FOULK, JR., 63, is an investment Advisor and
Independent Consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, since
prior to 1991. His address is 2 Hekma Road, Greenwich,
Connecticut 06831.
DR. JAMES M. HESTER, 71, is President of the Harry
Frank Guggenheim Foundation and a Director of Union Carbide
Corporation, with which he has been associated since prior to
1991. He was formerly President of New York University, the New
York Botanical Garden and Rector of the United Nations
University. His address is 45 East 89th Street, New York, New
York 10128.
CLIFFORD L. MICHEL, 56, is a partner in the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1991. He is Chief Executive Officer of Wenonah
Development Company (investments) and Director of Placer Dome,
Inc., and Faber-Castell Corporation (writing products). His
address is 80 Pine Street, New York, New York 10005.
DONALD J. ROBINSON, 61, was formerly a partner at
Orrick, Herrington & Sutcliffe and is currently of counsel to
that firm. His address is 599 Lexington Avenue, 26th Floor, New
York, New York 10022.
Officers
JOHN D. CARIFA, Chairman, see Biography above.
ALDEN M. STEWART, President, 49, has been an Executive
Vice President of ACMC since July 1993. Prior thereto he was
associated with ECMC.
16
<PAGE>
THOMAS J. BARDONG, Vice President, 50, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1990.
RANDALL E. HAASE, Vice President, 31, has been a Vice
President of ACMC since July, 1993. Prior thereto he was
associated with ECMC.
TIMOTHY D. RICE, Vice President, 28, is a Vice
President of ACMC, with which he has been associated since prior
to 1991.
PATRICIA J. YOUNG, Vice President, 40, is a Senior Vice
President of ACMC, with which she has been associated since March
1992. Previously, she was a Managing Director and Portfolio
Manager for Hyperion Capital since March 1991. Prior thereto,
she was a Managing Director with Fischer, Francis, Trees & Watts
since prior to 1991.
PAUL A. ULLMAN, Vice President, 37, is a Vice President
of ACMC, with which he has been associated since March 1992.
Previously, he was a Director and Portfolio Manager at Hyperion
Capital since prior to 1991.
EDMUND P. BERGAN, JR., Secretary, 45, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD"), with which he has been associated since prior to
1991.
DOMENICK PUGLIESE, Assistant Secretary, 34, is a Vice
President and Associate General Counsel of AFD, with which he has
been associated since May 1995. Previously, he was Vice
President and Counsel of Concord Holding Corporation since 1994,
Vice President and Associate General Counsel of Prudential
Securities since 1991 and an associate with Battle Fowler since
prior to 1991.
MARK D. GERSTEN, Treasurer and Chief Financial Officer,
44, is a Senior Vice President of Alliance Fund Services, Inc.
("AFS"), with which he has been associated since prior to 1991.
PATRICK J. FARRELL, Controller, 35, is a Vice President
of AFS, with which he has been associated since prior to 1991.
The aggregate compensation paid by the Fund to each of
the Trustees during its fiscal year ended September 30, 1995, the
aggregate compensation paid to each of the Trustees during
calendar year 1995 by all of the funds to which the Adviser
provides investment advisory services (collectively, the
"Alliance Fund Complex") and the total number of registered
investment companies in the Alliance Fund Complex with respect to
17
<PAGE>
which each of the Trustees 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 Trustees is a director or trustee of one
or more other registered investment companies in the Alliance
Fund Complex.
Total Number
of Funds in
the Alliance
Total Fund Complex,
Compensation Including the
From the Fund, as to
Alliance Fund which the
Aggregate Complex, Director is a
Name of Director Compensation Including the Director or
of the Fund From the Fund Fund Trustee
John D. Carifa $-0- $-0- 50
Ruth Block $5,000 $159,000 37
David H. Dievler $5,000 $179,200 43
John H. Dobkin $5,000 $117,200 30
William H. Foulk, Jr. $5,000 $143,500 31
Dr. James M. Hester $5,000 $156,000 38
Clifford L. Michel $5,000 $131,500 37
Donald J. Robinson $-0- $24,000 9
As of January 12, 1996, the Trustees and officers of the
Fund as a group owned less than 1% of the shares of the ARM Fund.
Distribution Services Agreement
Rule 12b-1 adopted by the Securities and Exchange
Commission under the Act permits an investment company to
directly or indirectly pay expenses associated with the
distribution of its shares in accordance with a duly adopted and
approved plan. The ARM Fund has entered into a Distribution
Services Agreement (the "Agreement") which includes a plan
adopted pursuant to Rule 12b-1 (the "Plan"), with Alliance Fund
Distributors, Inc. (the "Principal Underwriter"). Pursuant to
the Plan, the ARM Fund makes distribution services fee payments
to the Principal Underwriter in an amount not to exceed an annual
rate of .15 and .10, respectively, of 1% of its aggregate average
daily net assets, to reimburse the Principal Underwriter for
certain expenses. The Agreement provides that the distribution
services fees in an amount not to exceed .25% (the Portfolios
currently pay less than .25%) of the aggregate average daily net
assets of the ARM Fund constitutes a service fee that the
18
<PAGE>
Principal Underwriter will use for personal service and/or the
maintenance of shareholder accounts.
Under the Agreement, the ARM Fund is not obligated to
pay any distribution expense in excess of such distribution
services fee, and any distribution expenses accrued by the
Principal Underwriter in one fiscal year of the ARM Fund may not
be paid from distribution services fees received from it in
subsequent fiscal years. Thus, if the Agreement were terminated,
no amounts (other than amounts accrued but not yet paid) would be
owed by the ARM Fund to the Principal Underwriter. Distribution
services fees are accrued daily and paid monthly, and are charged
as expenses of the ARM Fund as accrued. The Agreement provides
that the Adviser may use its own resources to finance the
distribution of shares of the ARM Fund.
The Agreement provides that the Principal Underwriter
will use the distribution services fee received from the ARM Fund
in its entirety for payments (i) to compensate broker-dealers or
other persons for providing distribution assistance, (ii) to
otherwise promote the sale of shares of the ARM Fund such as by
paying for the preparation, printing and distribution of
prospectuses for other than current shareholders and sales
literature or other promotional activities, and (iii) to
compensate broker-dealers, depository institutions and other
financial intermediaries for providing administrative, accounting
and other services with respect to the ARM Fund's shareholders.
Substantially all distribution services fees received from the
ARM Fund are paid to broker-dealers and other financial
intermediaries for their distribution assistance and to banks and
other depository institutions for administrative services
provided to the ARM Fund, with any remaining amounts being used
to partially defray other expenses incurred by the Principal
Underwriter in distributing ARM Fund shares. Distribution
services fees received from the ARM Fund may not be used to pay
any interest expense, carrying charges or other financing costs
or allocation of overhead of the Principal Underwriter. The
administrative and accounting services provided by banks and
other depository institutions may include, but are not limited
to, establishing and maintaining shareholder accounts, sub-
accounting, processing of purchase and redemption orders, sending
confirmations of transactions, forwarding financial reports and
other communications to shareholders and responding to
shareholder inquiries regarding the ARM Fund.
The Agreement is in compliance with rules of the
National Association of Securities Dealers, Inc. that became
effective July 7, 1993 and limit the annual asset-based sales
charges and service fees that a mutual fund may impose on a class
of shares to .75% and .25%, respectively, of average annual net
assets. The rules also limit the aggregate of all sales charges
19
<PAGE>
(front-end, deferred and asset-based) imposed by a mutual fund
that also charges a service fee to 6.25% of cumulative gross
sales of shares, plus interest at the prime rate plus 1% per
annum. As interpreted by courts and administrative agencies, the
Glass-Steagall Act and other applicable laws and regulations
limit the ability of a bank or other depository institution to
become an underwriter or distributor of securities. However, in
the opinion of the ARM Fund's management, based on the advice of
counsel, these laws and regulations do not prohibit such
depository institutions from providing other services for
investment companies such as the administrative and accounting
services described above. The State of Texas requires that
shares of the ARM Fund may be sold in that state only by dealers
or other financial institutions that are registered there as
broker-dealers.
PURCHASE AND REDEMPTION OF SHARES
The following information supplements that set forth in
the ARM Fund's Prospectus under the headings "Purchase of
Shares," "Redemption and Repurchase of Shares" and "Shareholder
Services."
Purchase of Shares
Shares of the ARM Fund are offered at net asset value,
without any sales or other charge, on a continuous basis directly
by the Fund and Alliance Fund Distributors, Inc., the Fund's
distributor (the "Distributor"), acting as agent for the ARM
Fund. Shares of the ARM Fund may be purchased only by investment
management clients of the Adviser or its affiliates and by
institutional and corporate investors. The minimum for initial
investments in the ARM Fund is $1,000,000, except that investment
management clients of the Adviser or its affiliates may invest in
any amount. The Fund may, in its discretion, waive the minimum
for initial investments. There is no minimum for subsequent
investments.
The net asset value per share of shares of the ARM Fund
is computed in accordance with the Fund's Agreement and
Declaration of Trust and By-Laws, at the next close of regular
trading on the New York Stock Exchange (the "Exchange")
(currently 4:00 p.m. New York time) following receipt of a
purchase or redemption for shares of the ARM Fund, on each Fund
business day on which such an order is received and trading in
the types of securities in which the ARM Fund invests might
materially affect the value of its shares. A Fund business day
is any weekday exclusive of national holidays on which the
20
<PAGE>
Exchange is closed and Good Friday. Net asset value per share of
the ARM Fund is calculated by adding the market value of all
securities held in its portfolio and other assets, subtracting
the Portfolio's liabilities incurred or accrued, and dividing by
the number of shares of the Portfolio that are outstanding.
The subscriber should use the subscription application
found in the back of the ARM Fund's Prospectus for its initial
investment. Purchases may be made by wiring Federal funds to the
ARM Fund or by sending with the subscription application to the
address listed on the cover of the ARM Fund's Prospectus or this
Statement of Additional Information a check payable to the ARM
Fund in the amount of the subscription.
Orders for shares of the ARM Fund received by the ARM
Fund or by the Distributor prior to the close of regular trading
on the Exchange on a Fund business day are priced at the net
asset value of shares of the ARM Fund computed as of the close of
regular trading on the Exchange on that day. If orders are
received after the close of regular trading on the Exchange on a
Fund business day, such orders are priced as of the close of
regular trading on the Exchange on the next succeeding Fund
business day. Requests for purchases by wire must be communicated
to the Distributor prior to 3:00 p.m. New York time on a Fund
business day for purchase orders to receive the applicable public
offering price determined as of the close of regular trading on
the Exchange on that day. The Fund reserves the right to reject
any subscription in its sole discretion or to suspend the sale of
its shares to the public in response to market conditions or for
other reasons.
Full and fractional shares are credited to a
subscriber's account in the amount of his or her subscription.
As a convenience to the subscriber, and to avoid unnecessary
expense to the ARM Fund, certificates representing shares of the
ARM Fund are not issued except upon written request of the
shareholder. This facilitates later redemption and relieves the
shareholder of the responsibility for and inconvenience of lost
or stolen certificates. No share certificates are issued for
fractional shares, although such shares remain in the
shareholder's account on the books of the ARM Fund.
Redemption
Subject only to the limitations described below, the
Fund's Agreement and Declaration of Trust requires that the Fund
redeem the shares of the ARM Fund 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
21
<PAGE>
within seven days after the Fund's receipt of such tender for
redemption.
To redeem shares of the ARM Fund for which no share
certificates have been issued, the registered owner or owners can
forward a letter to the ARM Fund containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an institution that is an "eligible guarantor" as
defined by Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended.
Requests for redemption of shares of the ARM Fund for
which no share certificates have been issued can also be made by
telephone by a shareholder who has completed the appropriate
portion of the subscription application. Requests for redemption
to be sent by wire via Federal funds to the shareholder's
designated bank account identified on the subscription
application must be received prior to 4:00 p.m. New York time on
a Fund business day. Redemption proceeds will normally be wired
on the next Fund business day but may be made within seven days
after receipt of a properly executed redemption request.
To redeem shares represented by share certificates, the
investor should forward the appropriate share certificate or
certificates, endorsed in blank or with blank stock powers
attached, to the ARM Fund 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 share
certificate surrendered to the ARM Fund 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 certificate or certificates or, where tender is
made by mail, separately mailed to the ARM Fund. The signature
or signatures on the assignment form must be guaranteed in the
manner described above.
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 ARM Fund of securities owned by
it is not reasonably practicable or as a result of which it is
not reasonably practical for the ARM Fund fairly to determine the
value of the net assets of the ARM Fund, or for such other
periods as the Commission may by order permit for the protection
of security holders of the ARM Fund.
22
<PAGE>
Payment of the redemption price may be made either in
cash or in portfolio securities (selected in the discretion of
the Trustees of the ARM Fund and taken at their value used in
determining the redemption price), or partly in cash and partly
in investment portfolio securities. However, payments will be
made wholly in cash unless the Trustees believe that economic
conditions exist which would make such a practice detrimental to
the best interests of the ARM Fund. If payment for shares
redeemed is made wholly or partly in investment portfolio
securities, brokerage costs may be incurred by the investor in
converting the securities to cash. The ARM Fund has filed a
formal election with the Commission pursuant to which the ARM
Fund will only effect a redemption in investment portfolio
securities where the particular shareholder of record is
redeeming more than $250,000 or 1% of the total net assets of the
ARM Fund, whichever is less, during any 90-day period. In the
opinion of the ARM Fund's management, however, the amount of a
redemption request would have to be significantly greater than
$250,000 or 1% of total net assets before a redemption wholly or
partly in investment portfolio securities was made. If payment
for shares redeemed is made wholly or partly in investment
portfolio securities, brokerage costs may be incurred by the
investor in converting the securities to cash.
General
The ARM Fund reserves the right to close out an account
in the ARM Fund that through redemption has dropped below
$1,000,000 after at least 60 days' written notice to the
shareholder unless the balance in such account is increased to at
least that amount during such period. In the case of a
redemption or repurchase of shares of the ARM Fund recently
purchased by check, redemption proceeds will not be made
available until the ARM Fund is reasonably assured that the check
has cleared, normally up to 15 calendar days following the
purchase date.
NET ASSET VALUE
Securities which are traded over-the-counter and on a
national securities exchange will be valued according to the
broadest and most representative market. However, fixed income
securities may be valued on the basis of prices provided by a
pricing service when such prices are believed by the Adviser to
reflect the fair market value of such securities. The prices
provided by a pricing service take into account institutional
size trading in similar groups of securities and any developments
related to specific securities. Securities not priced in this
23
<PAGE>
manner are valued at the most recent quoted bid price, or, when
stock exchange valuations are used, at the latest quoted sale
price on the day of valuation. If there is no such reported
sale, the latest quoted bid price will be used. Futures
contracts and options on futures contracts will be valued in a
like manner, except that open futures contracts sales will be
valued using the closing settlement price or, in the absence of
such a price, the most recent quoted asked price. Portfolio
instruments having less than 60 days remaining until maturity are
valued at amortized cost, unless the Trustees determine that such
cost does not represent fair value. Other assets and securities
for which no quotations are readily available will be valued in
good faith at fair value using methods determined by the
Trustees.
DIVIDENDS, DISTRIBUTIONS AND TAXES
United States Federal Income Taxation
of Dividends and Distributions
The ARM Fund intends for each taxable year to qualify to
be taxed as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves the ARM 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 ARM Fund must meet to
qualify to be taxed as a "regulated investment company."
The information set forth in the Prospectus and the
following discussion relates solely to the significant United
States federal income taxes on dividends and distributions by the
ARM Fund and assumes that it qualifies to be taxed as a regulated
investment company. Investors should consult their own tax
counsel with respect to the specific tax consequences of their
being shareholders of the ARM Fund, including the effect and
applicability of federal, state and local tax laws to their own
particular situation and the possible effects of changes therein.
The ARM 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 ARM
Fund will be required to pay the 4% excise tax to the extent it
does not distribute to its shareholders during any calendar year
24
<PAGE>
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 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 ARM Fund
that is subject to corporate income tax will be considered to
have been distributed by the ARM 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 ARM Fund's net ordinary income and
distributions of any net realized short-term capital gain are
taxable to shareholders as ordinary income. Since the ARM Fund
expects to derive substantially all of its gross income from
sources other than dividends, it is expected that none of its
dividends or distributions will qualify for the dividends-
received deduction for corporations.
The excess of net long-term capital gains over the net
short-term capital losses realized and distributed by the ARM
Fund to its shareholders will be taxable to the shareholders as
long- term capital gains, irrespective of the length of time a
shareholder may have held his or her shares. Any dividend or
distribution received by a shareholder on shares of the ARM Fund
will have the effect of reducing the net asset value of such
shares by the amount of such dividend or distribution.
Furthermore, a dividend or distribution made shortly after the
purchase of such shares by a shareholder, although in effect a
return of capital to that particular shareholder, would be
taxable to him or her as described above. If a shareholder has
held shares in the ARM Fund for six months or less and during
that period has received a distribution taxable to the
shareholder as a long-term 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 dividend.
Dividends and distributions 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 ARM Fund.
The ARM Fund generally will be required to withhold tax
at the rate of 31% with respect to distributions of net ordinary
income and net realized capital gains payable to a noncorporate
shareholder unless the shareholder certifies on his subscription
application that the social security or taxpayer identification
25
<PAGE>
number provided is correct and that the shareholder has not been
notified by the Internal Revenue Service that he is subject to
backup withholding.
United States Federal Income Taxation of the ARM Fund
The following discussion relates to certain significant
United States federal income tax consequences to the Portfolios
with respect to the determination of their "investment company
taxable income" each year. This discussion assumes that each
Portfolio will be taxed as a regulated investment company for
each of its taxable years.
Options, Futures and Forward Contracts. Certain listed
options, regulated futures contracts, and forward foreign
currency contracts are considered "section 1256 contracts" for
federal income tax purposes. Section 1256 contracts held by the
Fund at the end of each 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 such taxable year.
Gain or loss realized by the ARM Fund on section 1256 contracts
other than forward foreign currency contracts will be considered
60% long-term and 40% short-term capital gain or loss. Gain or
loss realized by the ARM Fund on forward foreign currency
contracts will be treated as section 988 gain or loss and will
therefore be characterized as ordinary income or loss and will
increase or decrease the amount of the ARM Fund's net investment
income available to be distributed to shareholders as ordinary
income, as described above. The ARM 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.
The Treasury Department has the authority to issue
regulations that would permit or require the ARM Fund either to
integrate a foreign currency hedging transaction with the
investment that is hedged and treat the two as a single
transaction, or otherwise to treat the hedging transaction in a
manner that is consistent with the hedged investment. The
regulations issued under this authority generally should not
apply to the type of hedging transactions in which the ARM Fund
intends to engage.
With respect to equity options or options traded
over-the-counter or on certain foreign exchanges, gain or loss
realized by the ARM Fund upon the lapse or sale of such options
held by the ARM Fund will be either long-term or short-term
capital gain or loss depending upon the ARM 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
ARM Fund will be treated as short-term capital gain or loss. In
26
<PAGE>
general, if the ARM Fund exercises an option, or an option that
the ARM 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.
Gain or loss realized by the ARM Fund on the lapse or
sale of put and call options on foreign currencies which are
traded over- the-counter or on certain foreign exchanges will be
treated as section 988 gain or loss and will therefore be
characterized as ordinary income or loss and will increase or
decrease the amount of the ARM Fund's net investment income
available to be distributed to shareholders as ordinary income,
as described above. The amount of such gain or loss shall be
determined by subtracting the amount paid, if any, for or with
respect to the option (including any amount paid by the ARM Fund
upon termination of an option written by the ARM Fund) from the
amount received, if any, for or with respect to the option
(including any amount received by the ARM Fund upon termination
of an option held by the ARM Fund). In general, if the ARM Fund
exercises such an option on a foreign currency, or such an option
that the ARM Fund has written is exercised, gain or loss on the
option will be recognized in the same manner as if the ARM Fund
had sold the option (or paid another person to assume the ARM
Fund's obligation to make delivery under the option) on the date
on which the option is exercised, for the fair market value of
the option. The foregoing rules will also apply to other put and
call options which have as their underlying property foreign
currency and which are traded over- the-counter or on certain
foreign exchanges to the extent gain or loss with respect to such
options is attributable to fluctuations in foreign currency
exchange rates.
Tax Straddles. Any option, futures contract, currency
swap, forward foreign currency contract, or other position
entered into or held by the ARM Fund in conjunction with any
other position held by the ARM Fund may constitute a "straddle"
for federal income tax purposes. A straddle of which at least
one, but not all, the positions are section 1256 contracts may
constitute a "mixed straddle". In general, straddles are subject
to certain rules that may affect the character and timing of the
ARM 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 ARM Fund has unrealized gains with respect to
the other position in such straddle; (ii) the ARM 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
27
<PAGE>
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. The Treasury Department is authorized
to issue regulations providing for the proper treatment of a
mixed straddle where at least one position is ordinary and at
least one position is capital. No such regulations have yet been
issued. Various elections are available to the ARM 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 ARM
Fund all of the offsetting positions of which consist of section
1256 contracts.
"Zero Coupon" Treasury Securities. The ARM Fund will
receive net investment income in the form of interest by virtue
of holding Treasury bills, notes and bonds, and will recognize
interest attributable to it under the original issue discount
rules of the Code from holding zero coupon Treasury securities.
Current federal tax law requires that a holder (such as the ARM
Fund) of a zero coupon security accrue a portion of the discount
at which the security was purchased as income each year even
though the ARM Fund receives no interest payment in cash on the
security during the year. Accordingly, the ARM Fund may be
required to pay out as an income distribution each year an amount
which is greater than the total amount of cash interest the ARM
Fund actually received. Such distributions will be made from the
cash assets of the ARM Fund or by liquidation of portfolio
securities, if necessary. If a distribution of cash necessitates
the liquidation of portfolio securities, the Adviser will select
which securities to sell. The ARM Fund may realize a gain or
loss from such sales. In the event the ARM Fund realizes net
capital gains from such transactions, its shareholders may
receive a larger capital gain distribution, if any, than they
would have in the absence of such transactions.
Pass-Through Securities. Pass-through securities such
as GNMA Certificates, FNMA Certificates, FHLMC Certificates, and
privately issued mortgage-related securities generally are
taxable as trusts for federal income tax purposes, with the
certificate holders treated as the owners of the trust involved.
As a result, payments of interest, principal and prepayments made
on the underlying mortgage pool are taxed directly to certificate
holders such as the ARM Fund. Payments of interest, principal
and prepayments made on the underlying mortgage pool will
therefore generally maintain their character when received by the
ARM Fund.
28
<PAGE>
Stripped Mortgage-Related Securities. Certain classes
of SMRS which are issued at a discount, the payments of which are
subject to acceleration by reason of prepayments of the
underlying asset pool (the "Mortgage Assets") securing such
classes, are subject to special rules for determining the portion
of the discount at which the class was issued which must be
accrued as income each year. Under Code section 1272(a)(6), a
principal-only class or a class which receives a portion of the
interest and a portion of the principal from the underlying
Mortgage Assets is subject to rules which require accrual of
interest to be calculated and included in the income of a holder
(such as the ARM Fund) based on the increase in the present value
of the payments remaining on the class, taking into account
payments includible in the class' stated redemption price at
maturity which are received during the accrual period. For this
purpose, the present value calculation is made at the beginning
of each accrual period (i) using the yield to maturity determined
for the class at the time of its issuance (determined on the
basis of compounding at the close of each accrual period and
properly adjusted for the length of the accrual period),
calculated on the assumption that certain prepayments will occur,
and (ii) taking into account any prepayments that have occurred
before the close of the accrual period. Since interest included
in the ARM Fund's income as a result of these rules will have
been accrued and not actually paid, the ARM Fund may be required
to pay out as an income distribution each year an amount which is
greater than the total amount of cash interest the ARM Fund
actually received, with possible results as described above.
Code section 1272(a)(6) does not apply to interest-only
SMRS. Under proposed regulations governing contingent payment
obligations such as interest-only classes, interest payments made
prior to maturity on such a class would be treated as payments of
interest to the extent that interest has been deemed to accrue on
the class' issue price, and then as payments of principal.
Interest payments made at maturity would be treated as payments
of principal to the extent of the "outstanding principal balance"
of the class, and then as payments of interest to the extent of
any excess.
Real Estate Mortgage Investment Conduits. 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, the rules of Code
section 1272(a)(6) as discussed above under "stripped
mortgage-related securities" apply for determining the portion of
the discount at which the interest was issued which must be
accrued as income each year. The application of these rules may
increase the amount of a the ARM Fund's net investment income
29
<PAGE>
available to be distributed to shareholders, potentially causing
the ARM Fund to pay out as an income distribution each year an
amount which is greater than the total amount of cash interest
the ARM Fund actually received, as discussed above.
Under the Code, special rules apply with respect to the
treatment of a portion of the the ARM 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 ARM 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, if a shareholder of the ARM Fund is a
tax-exempt entity not subject to the unrelated business income
tax and is allocated any amount of Excess Inclusion Income, the
ARM 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 ARM Fund as a result of this requirement may be
deducted by the ARM 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 ARM Fund will be invested in REMIC residual interests.
Accordingly, the amount of Excess Inclusion Income, if any,
received by the ARM 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 ARM
Fund.
Asset-Backed Securities. Asset-backed securities
generally are treated in the same manner for federal income tax
purposes as are mortgage-related securities. The particular
securitization structure used will therefore determine the
federal income tax treatment of any specific asset-backed
security invested in by the ARM Fund. Asset-backed pass-through
securities, for example, generally are taxable as trusts for
federal income tax purposes, with the results described under
Mortgage Pass-Through Securities above.
30
<PAGE>
GENERAL INFORMATION
Capitalization
All shares of the ARM Fund when duly issued will be
fully paid and nonassessable. The Trustees are authorized to
reclassify and issue any unissued shares to any number of
additional series without shareholder approval. Accordingly, the
Trustees 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 series of shares. Any issuance of shares of such
additional series would be governed by the 1940 Act and the laws
of the Commonwealth of Massachusetts.
Certain procedures for the removal by shareholders of
the Trustees of the Fund, similar to those set forth in
Section 16(c) of the 1940 Act, are available to shareholders of
the Fund.
Counsel and Independent Auditors
Legal matters in connection with the issuance of the
shares of beneficial interest offered hereby are passed upon by
Seward & Kissel, One Battery Park Plaza, New York, New York
10004.
Ernst & Young LLP, 787 Seventh Avenue, New York, New
York 10019, has been appointed as independent auditors for the
Fund.
Performance Information
From time to time, the Fund may advertise the "yield"
and the "total return" of the ARM Fund. The ARM Fund's yield for
any 30-day (or one-month) period is computed by dividing the net
investment income per share earned during such period by the net
asset value per share on the last day of the period, and then
annualizing such 30-day (or one-month) yield in accordance with a
formula prescribed by the Commission which provides for
compounding on a semi-annual basis. The ARM Fund may also
advertise in sales literature an "actual distribution rate" which
is computed in the same manner as yield except that actual income
dividends declared per share during the period in question are
substituted for net investment income per share.
Advertisements of the ARM Fund's total return disclose
the ARM Fund's average annual compounded total return for its
most recently completed one, five and ten-year periods (or the
31
<PAGE>
period since the ARM Fund's inception). The ARM Fund's total
return for each such period is computed by finding, through the
use of a formula prescribed by the Commission, the average annual
compounded rate of return over the period that would equate an
assumed initial amount invested in 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 ARM Fund are assumed to have been reinvested when
paid.
The ARM 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 held by the
ARM Fund and the ARM Fund's expenses. An investor's principal
invested in the ARM Fund is not fixed and will fluctuate in
response to prevailing market conditions.
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.
32
00250061.AD2
<PAGE>
APPENDIX A
BOND AND COMMERCIAL PAPER RATINGS
Standard & Poor's Bond Ratings
A Standard & Poor's Ratings Services ("S&P") corporate
debt rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. Debt rated "AAA"
has the highest rating assigned by S&P. Capacity to pay interest
and repay principal is extremely strong. Debt rated "AA" has a
very strong capacity to pay interest and to repay principal and
differs from the highest rated issues only in small degree. Debt
rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
a debt of a higher rated category.
The ratings of "AA" and "A" may be modified by the
addition of a plus or minus sign to show relative standing within
the major rating categories.
Moody's Bond Ratings
Excerpts from Moody's description of its corporate bond
ratings: Aaa - judged to be the best quality, carry the smallest
degree of investment risk; Aa - judged to be of high quality by
all standards; A - possess many favorable investment attributes
and are to be considered as higher medium grade obligations;
Baa - considered as medium grade obligations, i.e., they are
neither highly protected nor poorly secured.
Standard & Poor's Commercial Paper Ratings
A is the highest commercial paper rating category
utilized by S&P, which uses the numbers 1+, 1, 2 and 3 to denote
relative strength within its A classification. Commercial paper
issuers rated A by S&P have the following characteristics:
Liquidity ratios are better than industry average. Long-term
debt rating is A or better. The issuer has access to at least
two additional channels of borrowing. Basic earnings and
cashflow are in an upward trend. Typically, the issuer is a
strong company in a well-established industry and has superior
management.
A-1
<PAGE>
Moody's Commercial Paper Ratings
Issuers rated Prime-1 (or related supporting
institutions) have a superior capacity for repayment of short-
term promissory obligations. Prime-1 repayment capacity will
normally be evidenced by the following characteristics: Leading
market positions in well established industries; high rates of
return on funds employed; conservative capitalization structures
with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high
internal cash generation; well established access to a range of
financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting
institutions) have a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many
of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions.
Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting
institutions) have an acceptable capacity for repayment of short-
term promissory obligations. The effect of industry
characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes
in the level of debt protection measurements and the requirement
for relatively high financial leverage. Adequate alternate
liquidity is maintained.
A-2
00250061.AD2
<PAGE>
APPENDIX B
FUTURES CONTRACTS AND
OPTIONS ON FUTURES CONTRACTS
Futures Contracts
The ARM Fund may enter into contracts for the purchase
or sale for future delivery of fixed-income securities, or
contracts based on financial indices including any index of
securities issued or guaranteed by the United States Government,
its agencies or instrumentalities or corporate debt securities.
Futures contracts have been designed by exchanges which have been
designated "contracts markets" by the Commodity Futures Trading
Commission ("CFTC"), and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of
exchange markets, and, through their clearing corporations, the
exchanges guarantee performance of the contracts as between the
clearing members of the exchange. The ARM Fund will enter into
futures contracts which are based on debt securities that are
backed by the full faith and credit of the United States
Government, such as long-term U.S. Treasury bonds, Treasury
notes, Government National Mortgage Association modified pass-
through mortgage-related securities and three-month U.S. Treasury
bills.
At the same time a futures contract is purchased or
sold, the ARM Fund must allocate cash or securities as a deposit
payment ("initial deposit"). It is expected that the initial
deposit would be approximately 1 1/2% to 5% of a contract's face
value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the
ARM Fund would provide or receive cash that reflects any decline
or increase in the contract's value.
At the time of delivery of securities pursuant to such a
contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest
rate from that specified in the contract. In some (but not many)
cases, securities called for by a futures contract may not have
been issued when the contract was written.
Although futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the
contractual obligation is fulfilled before the date of the
contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a
B-1
<PAGE>
commodities exchange an identical futures contract calling for
delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation
to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled
through a clearinghouse associated with the exchange on which the
contracts are traded, the ARM Fund will incur brokerage fees when
it purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures
contract, which holds or intends to acquire fixed-income
securities, is to attempt to protect the ARM Fund from
fluctuations in interest rates without actually buying or selling
fixed-income securities. For example, if interest rates were
expected to increase, the ARM Fund might enter into futures
contracts for the sale of debt securities. Such a sale would
have much the same effect as selling an equivalent value of the
debt securities owned by the ARM Fund. If interest rates did
increase, the value of the debt securities in the portfolio would
decline, but the value of the futures contracts to the ARM Fund
would increase at approximately the same rate, thereby keeping
the net asset value of the ARM Fund from declining as much as it
otherwise would have. The ARM Fund could accomplish similar
results by selling debt securities and investing in bonds with
short maturities when interest rates are expected to increase.
However, since the futures market is more liquid than the cash
market, the use of futures contracts as an investment technique
allows the ARM Fund to maintain a defensive position without
having to sell its investment portfolio securities.
Similarly, when it is expected that interest rates may
decline, futures contracts may be purchased to attempt to hedge
against anticipated purchases of debt securities at higher
prices. Since the fluctuations in the value of futures contracts
should be similar to those of debt securities, the ARM Fund could
take advantage of the anticipated rise in the value of debt
securities without actually buying them until the market had
stabilized. At that time, the futures contracts could be
liquidated and the ARM Fund could then buy debt securities on the
cash market. To the extent the ARM Fund enters into futures
contracts for this purpose, the assets in the segregated asset
account maintained to cover the ARM Fund's obligations with
respect to such futures contracts will consist of cash, cash
equivalents or high-quality liquid debt securities from its
investment portfolio in an amount equal to the difference between
the fluctuating market value of such futures contracts and the
aggregate value of the initial and variation margin payments made
by the ARM Fund with respect to such futures contracts.
The ordinary spreads between prices in the cash and
futures markets, due to differences in the nature of those
B-2
<PAGE>
markets, are subject to distortions. First, all participants in
the futures market are subject to initial deposit and variation
margin requirements. Rather than meeting additional variation
margin requirements, investors may close futures contracts
through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of
speculators, the margin 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 cause temporary price
distortions. Due to the possibility of distortion, a correct
forecast of general interest rate trends by the Adviser may still
not result in a successful transaction.
In addition, futures contracts entail risks. Although
the Fund believes that use of such contracts will benefit the ARM
Fund, if the Adviser's investment judgment about the general
direction of interest rates is incorrect, the ARM Fund's overall
performance would be poorer than if it had not entered into any
such contract. For example, if the ARM Fund has hedged against
the possibility of an increase in interest rates which would
adversely affect the price of debt securities held in its
portfolio and interest rates decrease instead, the ARM Fund will
lose part or all of the benefit of the increased value of its
debt securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such
situations, if the ARM Fund has insufficient cash, it may have to
sell debt securities from its portfolio to meet daily variation
margin requirements. Such sales of bonds may be, but will not
necessarily be, at increased prices which reflect the rising
market. The ARM Fund may have to sell securities at a time when
it may be disadvantageous to do so.
Options on Futures Contracts
The ARM Fund intend to purchase and write options on
futures contracts for hedging purposes. The purchase of a call
option on a futures contract is similar in some respects to the
purchase of a call option on an individual security. Depending
on the pricing of the option compared to either the price of the
futures contract upon which it is based or the price of the
underlying debt securities, it may or may not be less risky than
ownership of the futures contract or underlying debt securities.
As with the purchase of futures contracts, when the ARM Fund is
not fully invested it may purchase a call option on a futures
B-3
<PAGE>
contract to hedge against a market advance due to declining
interest rates.
The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of the
security which is deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is
below the exercise price, the ARM Fund will retain the full
amount of the option premium which provides a partial hedge
against any decline that may have occurred in the ARM Fund's
investment portfolio holdings. The writing of a put option on a
futures contract constitutes a partial hedge against increasing
prices of the security which is deliverable upon exercise of the
futures contract. If the futures price at expiration of the
option is higher than the exercise price, the ARM Fund will
retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities
which the ARM Fund intends to purchase. If a put or call option
the ARM Fund has written is exercised, the ARM Fund will incur a
loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between changes
in the value of its portfolio securities and changes in the value
of its futures positions, the ARM Fund's losses from existing
options on futures may to some extent be reduced or increased by
changes in the value of portfolio securities.
The purchase of a put option on a futures contract is
similar in some respects to the purchase of protective put
options on portfolio securities. For example, the ARM Fund may
purchase a put option on a futures contract to hedge its
investment portfolio against the risk of rising interest rates.
The amount of risk the ARM Fund assumes when it
purchases an option on a futures contract is the premium paid for
the option plus related transaction costs. In addition to the
correlation risks discussed above, the purchase of an option also
entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the
option purchased.
B-4
00250061.AD2
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements - Growth Portfolio
Included in the Prospectus: Financial Highlights
Included in the Statement of Additional Information:
Portfolio of Investments, September 30, 1995
Statement of Assets and Liabilities, September 30,
1995
Statement of Operations, year ended September 30,
1995
Statement of Changes in Net Assets, years ended
September 30, 1993 and September 30, 1995
Notes to Financial Statements, September 30, 1995
Financial Highlights - for the years ended
September 30, 1990 through September 30, 1995
Report of Independent Auditors - November 3, 1995
Included in Part C of the Registration Statement
All other schedules are either inapplicable or the
required information is contained in the financial
statements.
(b) Exhibits
(1) Agreement and Declaration of Trust - Incorporated
by reference to Exhibit 1 to Post-Effective Amendment
No. 30 of Registrant's Registration Statement (File No.
2-33889) on Form N-1A filed March 13, 1986.
(2) By-Laws - Incorporated by reference to Exhibit 2 to
Post-Effective Amendment No. 30 of Registrant's
Registration Statement (File No. 2-33889) on Form N-1A
filed March 13, 1986.
(3) Not applicable.
(4) (a) Specimen of Share Certificate for the Growth
Portfolio - Incorporated by reference to Exhibit 4 to
Post-Effective Amendment No. 34 of Registrant's
Registration Statement (File No. 2-33889) on Form N-1A
filed January 29, 1988.
(b) Specimen of Share Certificate for the
Short-Term Global Income Portfolio - Incorporated by
C-1
<PAGE>
reference to Exhibit 4 to Post-Effective Amendment No.
43 of Registrant's Registration Statement (File No.
2-33889) on Form N-1A filed January 29, 1992.
(5) Advisory Agreement between the Registrant and
Alliance Capital Management L.P. - Incorporated by
reference to Exhibit 5 to Post-Effective Amendment No.
50 of Registrant's Registration Statement (File No.
2-33889) on Form N-1A filed January 27, 1995.
(6) Distribution Agreement between the Registrant and
Alliance Fund Distributors, Inc. - Incorporated by
reference to Exhibit 6 to Post-Effective Amendment No.
50 of Registrant's Registration Statement (File No.
2-33889) on Form N-1A filed January 27, 1995.
(7) Not applicable.
(8) (a) Custodian Contract between the Registrant and
State Street Bank and Trust Company - Incorporated by
reference to Exhibit 8 to Post-Effective Amendment No.
38 of Registrant's Registration Statement (File No.
2-33889) on Form N-1A filed January 30, 1990.
(b) Custodian Contract between Registrant and Brown
Brothers Harriman & Company - Incorporated by reference
to Exhibit 8 to Post-Effective Amendment No. 43 of
Registrant's Registration Statement (File No. 2-33889)
on Form N-1A filed January 29, 1992.
(9) Transfer Agency Agreement between the Registrant
and Alliance Fund Services, Inc. - Incorporated by
reference to Exhibit 9 to Post-Effective Amendment No.
36 of Registrant's Registration Statement (File No.
2-33889) on Form N-1A filed January 30, 1989.
(10) Not applicable.
(11) Consent of Independent Auditors - included
herewith.
(12) Not applicable.
(13) Not applicable
(14) Not applicable.
(15) Not applicable.
(16) Schedule for computation of total return
performance - Incorporated by reference to Exhibit 16 to
C-2
<PAGE>
Post-Effective Amendment No. 40 of Registrant's
Registration Statement (File No. 2-33889) on Form N-1A
filed January 10, 1991.
(27) Financial Data Schedule - filed herewith.
ITEM 25. Persons Controlled by or under Common Control with
Registrant.
None.
ITEM 26. Number of Holders of Securities.
Number of Record Holders
Title of Class (as of January 12, 1996)
Shares of Beneficial (Growth Portfolio)
Interest par value $.01
Growth Portfolio 20
ITEM 27. Indemnification
It is the Registrant's policy to indemnify its trustees
and officers, employees and other agents as set forth in
Article VIII and Article III of Registrant's Agreement
and Declaration of Trust, filed as Exhibit 1 in response
to Item 24 and Section 6 of the Distribution Services
Agreement filed as Exhibit 6 in response to Item 24, all
as set forth below. The liability of the Registrant's
trustees and officers is dealt with in Article VIII of
Registrant's Agreement and Declaration of Trust, as set
forth below. The Adviser's liability for loss suffered
by the Registrant or its shareholders is set forth in
Section 4 in response to Item 24, as set forth below.
Article VIII of Registrant's Agreement and Declaration
of Trust reads as follows:
"SECTION 8.1 Trustees, Shareholders, etc. Not
Personally Liable; Notice. The Trustees and officers of
the Trust, in incurring any debts, liabilities or
obligations, or in limiting or omitting any other
actions for or in connection with the Trust, are or
shall be deemed to be acting as Trustees or officers of
the Trust and not in their own capacities. No
Shareholder shall be subject to any personal liability
whatsoever in tort, contract or otherwise to any other
Person or Persons in connection with the assets or the
affairs of the Trust or of any Portfolio, and subject to
Section 8.4 hereof, no Trustee, officer, employee or
agent of the Trust shall be subject to any personal
liability whatsoever in tort, contract, or otherwise, to
C-3
<PAGE>
any other Person or Persons in connection with the
assets or affairs of the Trust or of any Portfolio, save
only that arising from his own willful misfeasance, bad
faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office or the
discharge of his functions. The Trust (or if the matter
relates only to a particular Portfolio, that Portfolio)
shall be solely liable for any and all debts, claims,
demands, judgments, decrees, liabilities or obligations
of any and every kind, against or with respect to the
Trust or such Portfolio in tort, contract or otherwise
in connection with the assets or the affairs of the
Trust or such Portfolio, and all Persons dealing with
the Trust or any Portfolio shall be deemed to have
agreed that resort shall be had solely to the Trust
Property of the Trust or the Portfolio Assets of such
Portfolio, as the case may be, for the payment or
performance thereof.
The Trustees shall use their best efforts to ensure that
every note, bond, contract, instrument, certificate or
undertaking made or issued by the Trustees or by any
officers or officer shall give notice that this
Declaration of Trust is on file with the Secretary of
The Commonwealth of Massachusetts and shall recite to
the effect that the same was executed or made by or on
behalf of the Trust or by them as Trustees or Trustee or
as officers or officer, and not individually, and that
the obligations of such instrument are not binding upon
any of them or the Shareholders individually but are
binding only upon the assets and property of the Trust,
or the particular Portfolio in question, as the case may
be, but the omission thereof shall not operate to bind
any Trustees or Trustee or officers or officer or
Shareholders or Shareholder individually, or to subject
the Portfolio Assets of any Portfolio to the obligations
of any other Portfolio.
SECTION 8.2 Trustees' Good Faith Action; Expert Advice;
No Bond or Surety. The exercise by the Trustees of their
powers and discretions hereunder shall be binding upon
everyone interested. Subject to Section 8.4 hereof, a
Trustee shall be liable for his own willful misfeasance,
bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee,
and for nothing else, and shall not be liable for errors
of judgment or mistakes of fact or law. Subject to the
foregoing, (i) the Trustees shall not be responsible or
liable in any event for any neglect or wrongdoing of any
officer, agent, employee, consultant, Investment
Advisor, Administrator, Distributor or Principal
C-4
<PAGE>
Underwriter, Custodian or Transfer Agent, Dividend
Disbursing Agent, Shareholder Servicing Agent or
Accounting Agent of the Trust, nor shall any Trustee be
responsible for the act or omission of any other
Trustee; (ii) the Trustees may take advice of counsel or
other experts with respect to the meaning and operation
of this Declaration of Trust and their duties as
Trustees, and shall be under no liability for any act or
omission in accordance with such advice or for failing
to follow such advice; and (iii) in discharging their
duties, the Trustees, when acting in good faith, shall
be entitled to rely upon the books of account of the
Trust and upon written reports made to the Trustees by
any officer appointed by them, any independent public
accountant, and (with respect to the subject matter of
the contract involved) any officer, partner or
responsible employee of a Contracting Party appointed by
the Trustees pursuant to Section 5.2 hereof. The
Trustees as such shall not be required to give any bond
or surety or any other security for the performance of
their duties.
SECTION 8.3 Indemnification of Shareholders. If any
Shareholder (or former Shareholder) of the Trust shall
be charged or held to be personally liable for any
obligation or liability of the Trust solely by reason of
being or having been a Shareholder and not because of
such Shareholder's acts or omissions or for some other
reason, the Trust (upon proper and timely request by the
Shareholder) shall assume the defense against such
charge and satisfy any judgment thereon, and the
Shareholder or former Shareholder (or the heirs,
executors, administrators or other legal representatives
thereof, or in the case of a corporation or other
entity, its corporate or other general successor) shall
be entitled (but solely out of the assets of the
Portfolio of which such Shareholder or former
Shareholder is or was the holder of Shares) to be held
harmless from and indemnified against all loss and
expense arising from such liability.
SECTION 8.4 Indemnification of Trustees, Officers, etc.
Subject to the limitations set forth hereinafter in this
Section 8.4, the Trust shall indemnify (from the assets
of the Portfolio or Portfolios to which the conduct in
question relates) each of its Trustees and officers
(including Persons who serve at the Trust's request as
directors, officers or trustees of another organization
in which the Trust has any interest as a shareholder,
creditor or otherwise [hereinafter, together with such
Person's heirs, executors, administrators or personal
C-5
<PAGE>
representative, referred to as a "Covered Person"])
against all liabilities, including but not limited to
amounts paid in satisfaction of judgments, in compromise
or as fines and penalties, and expenses, including
reasonable accountants' and counsel fees, incurred by
any Covered Person in connection with the defense or
disposition of any action, suit or other proceeding,
whether civil or criminal, before any court or
administrative or legislative body, in which such
Covered Person may be or may have been involved as a
party or otherwise or with which such Covered Person may
be or may have been threatened, while in office or
thereafter, by reason of being or having been such a
Trustee or officer, director or trustee, except with
respect to any matter as to which it has been determined
that such Covered Person (i) did not act in good faith
in the reasonable belief that such Covered Person's
action was in or not opposed to the best interests of
the Trust or (ii) had acted with willful misfeasance,
bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's
office (either and both of the conduct described in (i)
and (ii) being referred to hereafter as "Disabling
Conduct"). A determination that the Covered Person is
entitled to indemnification may be made by (i) a final
decision on the merits by a court or other body before
whom the proceeding was brought that the Covered Person
to be indemnified was not liable by reason of Disabling
Conduct, (ii) dismissal of a court action or an
administrative proceeding against a Covered Person for
insufficiency of evidence of Disabling Conduct, or (iii)
a reasonable determination, based upon a review of the
facts, that the indemnitee was not liable by reason of
Disabling Conduct by (a) a vote of a majority of a
quorum of Trustees who are neither "interested persons"
of the Trust as defined in Section 2(a)(19) of the 1940
Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion. Expenses, including
accountants' and counsel fees so incurred by any such
Covered Person (but excluding amounts paid in
satisfaction of judgments, in compromise or as fines or
penalties), may be paid from time to time by the
Portfolio or Portfolios to which the conduct in question
related in advance of the final disposition of any such
action, suit or proceeding; provided, that the Covered
Person shall have undertaken to repay the amounts so
paid to such Portfolio or Portfolios if it is ultimately
determined that indemnification of such expenses is not
authorized under this Article VIII and (i) the Covered
Person shall have provided security for such
undertaking, (ii) the Trust shall be insured against
C-6
<PAGE>
losses arising by reason of any lawful advances, or
(iii) a majority of a quorum of the disinterested
Trustees, or an independent legal counsel in a written
opinion, shall have determined, based on a review of
readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the
Covered Person ultimately will be found entitled to
indemnification.
SECTION 8.5 Compromise Payment. As to any matter
disposed of by a compromise payment by any such Covered
Person referred to in Section 8.4 hereof, pursuant to a
consent decree or otherwise, no such indemnification
either for said payment or for any other expenses shall
be provided unless such indemnification shall be
approved (i) by a majority of a quorum of the
disinterested Trustees or (ii) by an independent legal
counsel in a written opinion. Approval by the Trustees
pursuant to clause (i) or by independent legal counsel
pursuant to clause (ii) shall not prevent the recovery
from any Covered Person of any amount paid to such
Covered Person in accordance with either of such clauses
as indemnification if such Covered Person is
subsequently adjudicated by a court of competent
jurisdiction not to have acted in good faith in the
reasonable belief that such Covered Person's action was
in or not opposed to the best interests of the Trust or
to have been liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved
in the conduct of such Covered Person's office.
SECTION 8.6 Indemnification Not Exclusive, etc. The
right of indemnification provided by this Article VIII
shall not be exclusive of or affect any other rights to
which any such Covered Person may be entitled. As used
in this Article VIII, a "disinterested" Person is one
against whom none of the actions, suits or other
proceedings in question, and no other action, suit or
other proceeding on the same or similar grounds is then
or has been pending or threatened. Nothing contained in
this Article VIII shall affect any rights to
indemnification to which personnel of the Trust, other
than Trustees and officers, and other Persons may be
entitled by contract or otherwise under law, nor the
power of the Trust to purchase and maintain liability
insurance on behalf of any such Person.
SECTION 8.7 Liability of Third Persons Dealing with
Trustees. No person dealing with the Trustees shall be
bound to make any inquiry concerning the validity of any
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transaction made or to be made by the Trustees or to see
to the application of any payments made or property
transferred to the Trust or upon its order.
Article III of Registrant's Agreement and Declaration of
Trust reads, in pertinent part, as follows:
"Without limiting the foregoing and to the extent not
inconsistent with the 1940 Act or other applicable law,
the Trustees shall have power and authority:
(s) Indemnification. In addition to the mandatory
indemnification provided for in Article VIII hereof
and to the extent permitted by law, to
indemnification with any Person with whom this
Trust has dealings, including, without limitation,
any independent contractor, to such extent as the
Trustees shall determine."
The Advisory Agreement between the Registrant and
Alliance Capital Management L.P. provides that Alliance
Capital Management L.P. will not be liable under such
agreement for any mistake of judgment or in any event
whatsoever except for lack of good faith and that
nothing therein shall be deemed to protect, or purport
to protect, Alliance Capital Management L.P. against any
liability to Registrant or its security holders to which
it would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the
performance of its duties thereunder, or by reason of
reckless disregard of its obligations and duties
thereunder.
The Distribution Agreement between the Registrant and
Alliance Fund Distributors, Inc. provides that the
Registrant will indemnify, defend and hold Alliance Fund
Distributors, Inc., and any person who controls it
within the meaning of Section 15 of the Investment
Company Act of 1940, free and harmless from and against
any and all claims, demands, liabilities and expenses
which Alliance Fund Distributors, Inc. or any
controlling person may incur arising out of or based
upon any alleged untrue statement of a material fact
contained in Registrant's Registration Statement or
Prospectus and Statement of Additional Information or
arising out of, or based upon any alleged omission to
state a material fact required to be stated in or
necessary to make the statements in either thereof any
one of the foregoing not misleading, provided that
nothing therein shall be so construed as to protect
Alliance Fund Distributors, Inc. against any liability
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<PAGE>
to Registrant or its security holders to which it would
otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of its
duties thereunder, or by reason of reckless disregard of
its obligations and duties thereunder.
The foregoing summaries are qualified by the entire text
of Registrant's Agreement and Declaration of Trust, the
Advisory Agreement between Registrant and Alliance
Capital Management L.P. and the Distribution Services
Agreement between Registrant and Alliance Fund
Distributors, Inc.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Securities Act") may be
permitted to trustees, officers and controlling persons
of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that, in
the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as
expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid
by a trustee, officer or controlling person of the
Registrant in the successful defense of any action, suit
or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities
being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such
indemnification by it is against public policy as
expressed in the Securities Act and will be governed by
the final adjudication of such issue.
In accordance with Release No. IC-11330 (September 2,
1980), the Registrant will indemnify its trustees,
officers, investment adviser and principal underwriters
only if (1) a final decision on the merits was issued by
the court or other body before whom the proceeding was
brought that the person to be indemnified (the
"indemnitee") was not liable by reason of willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office ("disabling conduct") or (2) a reasonable
determination is made, based upon a review of the facts,
that the indemnitee was not liable by reason of
disabling conduct, by (a) the vote of a majority of a
quorum of the trustees who are neither "interested
persons" of the Registrant as defined in section
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<PAGE>
2(a)(19) of the Investment Company Act of 1940 nor
parties to the proceeding ("disinterested, non-party
trustees"), or (b) an independent legal counsel in a
written opinion. The Registrant will advance attorneys
fees or other expenses incurred by its trustees,
officers, investment adviser or principal underwriters
in defending a proceeding, upon the undertaking by or on
behalf of the indemnitee to repay the advance unless it
is ultimately determined that he is entitled to
indemnification and, as a condition to the advance,
(1) the indemnitee shall provide a security for his
undertaking, (2) the Registrant shall be insured against
losses arising by reason of any lawful advances, or
(3) a majority of a quorum of disinterested, non-party
trustees of the Registrant, or an independent legal
counsel in a written opinion, shall determine, based on
a review of readily available facts (as opposed to a
full trial-type inquiry), that there is reason to
believe that the indemnitee ultimately will be found
entitled to indemnification.
The Registrant participates in a joint trustees/
directors and officers liability insurance policy issued
by the ICI Mutual Insurance Company. Coverage under
this policy has been extended to directors, trustees and
officers of the investment companies managed by Alliance
Capital Management L.P. Under this policy, outside
trustees and directors are covered up to the limits
specified for any claim against them for acts committed
in their capacities as trustee or director. A pro rata
share of the premium for this coverage is charged to
each investment company and to the Adviser.
Item 28. Business and Other Connections of Adviser.
The descriptions of Alliance Capital Management L.P.
under the captions "Management of the Fund" in the
Prospectus and in the Statement of Additional
Information constituting Parts A and B, respectively, of
this Registration Statement are incorporated by
reference herein.
The information as to the directors and executive
officers of Alliance Capital Management Corporation, the
general partner of Alliance Capital Management L.P., set
forth in Alliance Capital Management L.P.'s Form ADV
filed with the Securities and Exchange Commission on
April 21, 1988 (File No. 801-32361) and amended through
the date hereof, is incorporated by reference.
Item 29. Principal Underwriters
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<PAGE>
(a) Alliance Fund Distributors, Inc., the Registrant's
Principal Underwriter in connection with the sale
of shares of the Registrant. Alliance Fund
Distributors, Inc. also acts as Principal
Underwriter or Distributor for the following
investment companies:
ACM Institutional Reserves, Inc.
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
Alliance Capital Reserves
Alliance Counterpoint Fund
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Money Market Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Mortgage Strategy Trust, 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 Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Variable Products Series Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
Fiduciary Management Associates
The Alliance Fund, Inc.
The Alliance Portfolios
(b) The following are the Directors and Officers
of Alliance Fund Distributors, Inc., the
principal place of business of which is 1345
Avenue of the Americas, New York, New York,
10105.
C-11
<PAGE>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES
NAME UNDERWRITER WITH REGISTRANT
Michael J. Laughlin Chairman
Robert L. Errico President
Kimberly A. Baumgardner Senior Vice President
Edmund P. Bergan, Jr. Senior Vice President, Secretary
General Counsel
and Secretary
Daniel J. Dart Senior Vice President
Richard A. Davies Senior Vice President,
Managing Director
Byron M. Davis Senior Vice President
Geoffrey L. Hyde Senior Vice President
Barbara J. Krumsiek Senior Vice President
Stephen R. Laut Senior Vice President
Daniel D. McGinley Senior Vice President
Dusty W. Paschall Senior Vice President
Antonios G. Poleondakis Senior Vice President
Gregory K. Shannahan Senior Vice President
Joseph F. Sumanski Senior Vice President
Peter J. Szabo Senior Vice President
Nicholas K. Willett Senior Vice President
Richard A. Winge Senior Vice President
Benji A. Baer Vice President
Warren W. Babcock III Vice President
Kenneth F. Barkoff Vice President
William P. Beanblossom Vice President
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<PAGE>
Jack C. Bixler Vice President
Casimir F. Bolanowski Vice President
Kevin T. Cannon Vice President
Leo H. Cook Vice President
Richard W. Dabney Vice President
Mark J. Dunbar Vice President
Sohaila S. Farsheed Vice President
Linda A. Finnerty Vice President
William C. Fisher Vice President
Robert M. Frank Vice President
Gerard J. Friscia Vice President &
Controller
Andrew L. Gangolf Vice President
Mark D. Gersten Vice President Treasurer and
Chief Financial
Officer
Joseph W. Gibson Vice President
Troy L. Glawe Vice President
Herbert H. Goldman Vice President
James E. Gunter Vice President
Alan Halfenger Vice President
George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
Robert H. Joseph, Jr. Vice President
and Treasurer
Richard D. Keppler Vice President
Sheila F. Lamb Vice President
Donna M. Lamback Vice President
C-13
<PAGE>
Thomas Leavitt, III Vice President
James M. Liptrot Vice President
James P. Luisi Vice President
Christopher J. MacDonald Vice President
Maura A. McGrath Vice President
Matthew P. Mintzer Vice President
Joanna D. Murray Vice President
Nicole Nolan-Koester Vice President
Daniel J. Phillips Vice President
Robert T. Pigozzi Vice President
James J. Posch Vice President
Robert E. Powers Vice President
Domenick Pugliese Vice President Assistant
Secretary
Bruce W. Reitz Vice President
Dennis A. Sanford Vice President
Raymond S. Sclafani Vice President
Richard J. Sidell Vice President
J. William Strott, Jr. Vice President
Richard E. Tambourine Vice President
Joseph T. Tocyloski Vice President
Neil S. Wood Vice President
Emilie D. Wrapp Vice President
Maria L. Carreras Assistant Vice President
Sarah A. Chodera Assistant Vice President
John W. Cronin Assistant Vice President
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<PAGE>
Leon M. Fern Assistant Vice President
William B. Hanigan Assistant Vice President
Vicky M. Hayes Assistant Vice President
Daniel M. Hazard Assistant Vice President
John C. Hershock Assistant Vice President
James J. Hill Assistant Vice President
Kalen H. Holliday Assistant Vice President
Thomas K. Intoccia Assistant Vice President
Edward W. Kelly Assistant Vice President
Patrick Look Assistant Vice President &
Assistant Treasurer
Michael F. Mahoney Assistant Vice President
Shawn P. McClain Assistant Vice President
Thomas F. Monnerat Assistant Vice President
Jeanette M. Nardella Assistant Vice President
Carol H. Rappa Assistant Vice President
Lisa Robinson-Cronin Assistant Vice President
Karen C. Satterberg Assistant Vice President
Robert M. Smith Assistant Vice President
Mark R. Manley Assistant Secretary
ITEM 30. Location of Accounts and Records.
The majority of the accounts, books and other documents
required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder
are maintained as follows: journals, ledgers,
securities records and other original records are
maintained principally at the offices of Alliance Fund
Services, Inc., 500 Plaza Drive, Secaucus, New Jersey
07094 and at the offices of (i) State Street Bank and
Trust Company, the Registrant's Custodian with respect
to the Growth Portfolio and the South Africa-Free
C-15
<PAGE>
International Portfolio, 225 Franklin Street, Boston,
Massachusetts 02110 and (ii) Brown Brothers Harriman &
Co., the Registrant's Custodian with respect to the
Short-Term Global Income Portfolio, 40 Water Street,
Boston, Massachusetts 02109. All other records so
required to be maintained are maintained at the offices
of Alliance Capital Management L.P., 1345 Avenue of the
Americas, New York, New York, 10105.
ITEM 31. Management Services. Not applicable.
ITEM 32. Undertakings.
(c) The Registrant undertakes to furnish each person to
whom a Prospectus is delivered a copy of the
Registrant's latest annual report to shareholders, upon
request and without charge.
The Registrant undertakes to provide assistance to
shareholders in communications concerning the removal of
any Trustee of the Fund in accordance with Section 16 of
the Investment Company Act of 1940.
C-16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant certifies
that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b)
under the Securities Act of 1933 and has duly caused this
Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City
and State of New York, on the 31st day of January, 1996.
FIDUCIARY MANAGEMENT ASSOCIATES
By /s/ John D. Carifa
_____________________________
John D. Carifa
Chairman
Pursuant to the requirements of the Securities Act of
1933, this Amendment to the Registration Statement has been
signed below by the following persons in the capacities and on
the date indicated:
Signature
Title
Date
(1) Principal Executive
Officer
/s/ John D. Carifa
______________________ Chairman January 31, 1996
John D. Carifa
(2) Principal Financial and
Accounting Officer
/s/ Mark D. Gersten Treasurer and
______________________ Chief Financial January 31, 1996
Mark D. Gersten Officer
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<PAGE>
(3) All of the Trustees
Ruth Block
John D. Carifa
David H. Dievler
John H. Dobkin
William H. Foulk, Jr.
Dr. James M. Hester
Clifford L. Michel
Donald J. Robinson
/s/ Edmund P. Bergan, Jr.
by ______________________
(Attorney-in-fact) January 31, 1996
Edmund P. Bergan, Jr.
C-18
<PAGE>
Index to Exhibits
(11) Consent of Independent Auditors
(27) Financial Data Schedule
C-19
00250061.AD2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Financial Highlights", "Shareholder Services - Statements and
Reports" and "General Information - Independent Auditors" and to
the use of our report dated November 3, 1995, in this
Registration Statement (Form N-1A 2-33889) of Fiduciary
Management Associates.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
January 25, 1996
00250061.AD4
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK>000035429
<NAME>FIDUCIARY MANAGEMENT ASSOCIATES, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-1-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 111,180,574
<INVESTMENTS-AT-VALUE> 129,250,516
<RECEIVABLES> 497,554
<ASSETS-OTHER> 60,498
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 129,808,568
<PAYABLE-FOR-SECURITIES> 1,334,941
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 338,709
<TOTAL-LIABILITIES> 1,673,650
<SENIOR-EQUITY> 38,952
<PAID-IN-CAPITAL-COMMON> 89,230,462
<SHARES-COMMON-STOCK> 3,895,232
<SHARES-COMMON-PRIOR> 3,554,407
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,795,562
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18,069,942
<NET-ASSETS> 128,134,918
<DIVIDEND-INCOME> 452,155
<INTEREST-INCOME> 464,409
<OTHER-INCOME> 0
<EXPENSES-NET> 1,197,656
<NET-INVESTMENT-INCOME> (281,092)
<REALIZED-GAINS-CURRENT> 20,853,916
<APPREC-INCREASE-CURRENT> 9,662,236
<NET-CHANGE-FROM-OPS> 30,235,060
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 15,581,382
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,835,914
<NUMBER-OF-SHARES-REDEEMED> 8,789,726
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 21,699,866
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 15,523,028
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 833,866
<INTEREST-EXPENSE> 0
<PAGE>
<GROSS-EXPENSE> 1,197,656
<AVERAGE-NET-ASSETS> 108,008,332
<PER-SHARE-NAV-BEGIN> 29.94
<PER-SHARE-NII> (0.07)
<PER-SHARE-GAIN-APPREC> 7.51
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 4.48
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 32.9
00250061.AD7
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