<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 2-33889 and 811-01897.
<PAGE>
<PAGE>
FIDUCIARY MANAGEMENT ASSOCIATES
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P.O. Box 1520 Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
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Fiduciary Management Associates--Growth Portfolio (the "Fund") is a diversi-
fied, open-end management investment company that seeks capital appreciation
by investing principally in equity securities. Current income is incidental to
the objective of capital growth. The Fund is designed for investors seeking
superior gains and willing to accept the relatively greater risks associated
with aggressive investment techniques.
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PURCHASE INFORMATION
- -------------------------------------------------------------------------------
Shares of the Fund may be purchased only by investment management clients of
the Adviser or its affiliates and by institutional investors. The minimum ini-
tial investment 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. Further information can be obtained 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.
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ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
This Prospectus sets forth concisely the information which a prospective in-
vestor should know about the Fund before investing. A "Statement of Additional
Information" dated February 1, 1997, which provides further information re-
garding 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, Alli-
ance Capital Management L.P.
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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 3, 1997
Investors are advised to read this Prospectus carefully and to retain it for
future reference.
<PAGE>
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EXPENSE INFORMATION
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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)
<TABLE>
<CAPTION>
<S> <C>
Management Fees......................................................... .75%
12b-1 Fees.............................................................. 0%
Other Expenses.......................................................... .30%
----
Total Fund Operating Expenses............................................ 1.05%
</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>
$11 $33 $58 $128
</TABLE>
The purpose of the foregoing table is to assist the investor in understand-
ing the various costs and expenses that an investor in the Fund will bear di-
rectly or indirectly. The Example set forth above assumes reinvestment of all
dividends and distributions and utilizes a 5% annual rate of return as man-
dated by Securities and Exchange Commission (the "Commission") regulations.
The example should not be considered a representation of past or future ex-
penses; actual expenses may be greater or less than those shown.
2
<PAGE>
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FINANCIAL HIGHLIGHTS--GROWTH PORTFOLIO
PER SHARE INCOME AND CAPITAL CHANGES
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
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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, 1996 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,
---------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year...... $32.90 $29.94 $31.29 $27.41 $30.93 $23.09 $40.61 $29.08 $47.26 $47.51
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income
(loss)................. (.14) (.07) (.20) (.10) (.07) .07 .08 .11 (.02) (.01)
Net realized and
unrealized gain (loss)
on investments......... 11.75 7.51 (.93) 7.29 (2.24) 8.28 (10.45) 11.87 (8.08) 10.93
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net increase (decrease)
in net asset value from
operations............. 11.61 7.44 (1.13) 7.19 (2.31) 8.35 (10.37) 11.98 (8.10) 10.92
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
LESS: DISTRIBUTIONS
Dividends from net
investment income...... -0- -0- -0- -0- (.07) (.10) (.07) (.05) -0- -0-
Distributions from net
realized gains......... (5.51) (4.48) (.22) (3.31) (1.14) (.41) (7.08) (.40) (10.08) (11.17)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions.......... (5.51) (4.48) (.22) (3.31) (1.21) (.51) (7.15) (.45) (10.08) (11.17)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year................... $39.00 $32.90 $29.94 $31.29 $27.41 $30.93 $23.09 $40.61 $29.08 $47.26
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN
Total investment return
based on net asset
value(a)............... 41.04% 30.94% (3.63)% 27.79 % (7.52)% 37.03% (29.53)% 41.94% (9.51)% 28.90%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(000's omitted)........ $160,441 $128,135 $106,435 $138,932 $129,188 $183,538 $130,082 $187,046 $135,357 $181,786
Ratio of expenses to
average net assets..... 1.05% 1.11 % .98 % .97 % .92 % .96% .90 % .96% .93% .89%
Ratio of net investment
income (loss) to
average net assets..... (.40)% (.26)% (.42)% (.31)% (.19)% .25% .30 % .31% (.05)% (.02)%
Portfolio turnover rate. 194 % 159 % 116 % 100 % 122 % 102% 87 % 101% 60% 75%
Average commission
rate(b)................ $ 0.0594 -- -- -- -- -- -- -- -- --
</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.
(b) For fiscal years beginning on or after September 1, 1995, a Fund is re-
quired to disclose an average commission rate per share for trades on
which commissions are charged.
Further information about the Fund's performance is contained in the Portfo-
lio's annual report to shareholders which may be obtained by shareholders
without charge by contacting Alliance Fund Services, Inc. at the address or
telephone number shown on the cover of the Prospectus.
3
<PAGE>
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DESCRIPTION OF THE FUND
- --------------------------------------------------------------------------------
INTRODUCTION TO THE FUND
The Fund is a diversified, open-end management investment company commonly
known as a "mutual fund."
The Fund's investment objective is "fundamental" and cannot be changed with-
out shareholder vote. Except as noted, the Fund's investment policies are not
designated "fundamental policies" and may, therefore, be changed by the Trust-
ees without a shareholder vote. However, the Fund will not change its invest-
ment policies without contemporaneous written notice to shareholders. There
can be, of course, no assurance that the Fund will achieve its investment ob-
jective.
INVESTMENT OBJECTIVE
The Fund's investment objective is to emphasize growth of capital. The
Fund's investments will be made based upon their potential for capital appre-
ciation. Therefore, current income will be incidental to the objective of cap-
ital growth.
INVESTMENT POLICIES
Within this basic framework, the policy of the Fund 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 companies,
but the Fund 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 Fund's assets are invested in the securities of such new
companies.
The Fund will invest in both listed and unlisted securities and in foreign
as well as domestic securities. While the Fund has no present intention of in-
vesting any significant portion of its assets in foreign securities, it re-
serves the right to invest in foreign securities if purchase thereof would not
cause more than 15% of the value of the Fund'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 se-
curities relative to other investment alternatives, trends in the determinants
of corporate profits, and management capability and practices. Generally
speaking, disposal of a security will be based upon factors such as (i) actual
or potential deterioration of the issuer's earning power which the Fund be-
lieves may adversely affect the price of the issuer's securities, (ii) in-
creases 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
Fund's assets will be invested in equity securities (common stocks, securities
convertible into common stocks or rights or warrants to subscribe for or pur-
chase common stocks). The Fund at times may also invest in debt securities and
preferred stocks offering a significant opportunity for price appreciation.
The average dollar weighted maturity of the Fund's portfolio of debt securi-
ties is expected to vary between 1 and 30 years.
The Fund may invest in warrants which entitle the holder to buy equity secu-
rities at a specific price for a specific period of time. Warrants may be con-
sidered 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 se-
curities which may be pur-
4
<PAGE>
chased nor do they represent any rights in the assets 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 exer-
cised prior to the expiration date.
Defensive Position. When business or financial conditions warrant, the Fund
may assume a temporary defensive position and invest without limit in invest-
ment grade debt securities or preferred stocks or hold its assets in cash
equivalents. Such cash equivalents may include (i) obligations of the U.S.
Government and its agencies or instrumentalities, (ii) certificates of depos-
it, bankers' acceptances and interest-bearing savings deposits of banks having
total assets of more than $1 billion and which are members of the Federal De-
posit 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, is-
sued by companies which have an outstanding debt issue rated A or higher by
Moody's or S&P.
Restricted Securities. The Fund may invest in restricted securities (i.e.,
securities that must be registered under the Securities Act of 1933 before
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 Fund's net assets to be invested in all such restricted or
not readily marketable (or other illiquid) assets. Unless so registered, re-
stricted securities may be sold only in privately negotiated transactions or
pursuant to Rule 144 or 144A under such Act.
Portfolio Turnover. The Fund will actively use trading to achieve its in-
vestment 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
factor in the Fund's decision to dispose of any security. Accordingly, the
Fund 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 Fund. See "Dividends Distribution
and Taxes" and "General Information--Portfolio Transactions." Management an-
ticipates that the annual turnover in the Fund may be in excess of 100% in fu-
ture years, but turnover is not expected to exceed 200%. An annual turnover
rate of 200% occurs, for example, when all of the securities in the Fund 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. To maintain portfolio diversifica-
tion and reduce investment risk, as a matter of fundamental policy, the Fund
may not: (i) invest more than 5% of the value of its total assets in the secu-
rities 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 Fund's total assets may be invested without regard to this
limitation; (ii) purchase the securities of any one issuer (other than the
U.S. government and its agencies or instrumentalities) if immediately after
and as a result of such purchase the Fund owns more than 10% of the outstand-
ing securities or of any one class of securities of such issuer; (iii) pur-
chase 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 securi-
ties; 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.
5
<PAGE>
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MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
ADVISER
Alliance Capital Management L.P., a Delaware limited partnership with prin-
cipal offices at 1345 Avenue of the Americas, New York, New York 10105, has
been retained under an advisory agreement (the "Advisory Agreement") to pro-
vide investment advice and, in general, to conduct the management and invest-
ment 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 Alden M. Stewart and Randall E. Haase, who are, respec-
tively, Vice Chairman and a Senior Vice President of ACMC. Mr. Stewart has
been associated with Alliance since prior to 1991 and Mr. Haase has been asso-
ciated with Alliance since 1993. Prior thereto, Mr. Haase was associated with
Equitable Capital.
The Adviser is a leading international investment manager supervising client
accounts with assets as of September 30, 1996 of more than $173 billion (of
which approximately $59 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 52 registered investment companies managed by the Ad-
viser comprising 110 separate investment portfolios currently have over two
million shareholders. As of September 30, 1996, the Adviser was retained as an
investment manager of employee benefit fund assets for 33 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 Equi-
table 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 con-
trolled by AXA, a French insurance holding company. Certain information con-
cerning 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
Adviser will furnish advice and recommendations with respect to the Fund's
portfolio 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 affili-
ates. For the services rendered by the Adviser under the Advisory Agreement,
the Fund pays a quarterly fee on the first business day of July, October, Jan-
uary and April in each year of .1875 of 1% (approximately .75 of 1% on an
annualized basis) of the Fund's net assets. For the fiscal year ended Septem-
ber 30, 1996, the Adviser received from the Fund, a fee equivalent to .75% of
the Fund'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) upon the approval of the Trustees, costs of
personnel of Alliance or its affiliates rendering clerical, accounting or
other office services.
6
<PAGE>
- --------------------------------------------------------------------------------
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 is $5,000,000, except that investment manage-
ment clients of the Adviser or its affiliates may invest in any amount. There
is no minimum for subsequent investments.
Shares of the Fund may be purchased only by investment management clients of
the Adviser or its affiliates and by institutional investors, which for this
purpose are persons other than (i) individuals, sole proprietors or profes-
sional corporations or (ii) individual retirement accounts and employer-spon-
sored 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 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 the Fund computed as of the close of regular
trading on the New York Stock Exchange (the "Exchange") (currently 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.
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 facili-
tates later redemption and relieves the shareholder of the responsibility and
inconvenience of preventing the share certificates from becoming lost or sto-
len. No certificates are issued for fractional shares, although such shares
remain in the shareholder's account on the books of the Fund.
The Fund may refuse any order to purchase shares. In this regard, the Fund
reserves the right to restrict purchases of shares (including through ex-
changes) when there appears to be evidence of a pattern of frequent purchases
and sales made in response to short-term considerations.
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. Proceeds generally will be sent
to you within seven days. However, for shares recently purchased by check or
electronic funds transfer, the Fund will not send proceeds until it is reason-
ably satisfied that the check or electronic funds transfer has been collected
(which may take up to 15 days).
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.
7
<PAGE>
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
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 ex-
actly as the registered name appears on the face of the certificate or, alter-
natively, a stock power signed in the same manner may be attached to the cer-
tificate or certificates or, where tender is made by mail, separately mailed
to the Fund. The signature or signatures on the assignment form must be guar-
anteed 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 for 90 days. Shareholders will receive 60 days'
written notice to increase the account value before the account is closed.
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 (cur-
rently 4:00 p.m. New York time) following receipt of a purchase order or re-
demption order for shares, 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. 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 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 outstanding.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
The Fund intends to distribute to shareholders, after the end of each fiscal
year of the Fund, substantially all of such Fund's net investment income for
such year.
Net capital gains realized 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
The Fund intends to qualify to be taxed as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended, (the "Code"). Qualifica-
tion as a regulated investment company relieves the Fund of Federal income
taxes on the portion of its investment company taxable income and net capital
gain distributed to its shareholders. To so qualify, the Fund must, among
other things, (i) derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign curren-
cies, or certain other income (including but not limited to gains from op-
tions, 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 the Fund's assets is represented by cash, U.S. Government Securi-
ties, securities of other regulated investment
8
<PAGE>
companies and other securities (for this purpose, such other securities will
qualify only if the Fund's investment is limited, in respect of any one issu-
er, to an amount not greater than 5% of the Fund's total assets and 10% of the
outstanding voting securities of such issuer) and (b) not more than 25% of the
total value of the Fund's assets is invested in securities of any one issuer
(other than U.S. Government Securities or securities of other regulated in-
vestment companies).
The Treasury Department is authorized to issue regulations to provide that
foreign currency gains that are "not directly related" to a Fund's principal
business of investing in stock or securities may be excluded from the income
that qualifies for purposes of the 90% gross income requirement described
above with respect to a Fund's qualification as a "regulated investment compa-
ny." No such regulations have yet been issued.
Each income dividend and capital gains distribution, if any, declared by the
Fund on its outstanding shares will, at the election of each shareholder, be
paid in cash or reinvested in additional full and fractional shares of the
Fund. 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 connec-
tion with the reinvestment of dividends and capital gains distributions.
There is no fixed dividend rate and there can be no assurance that the Fund
will pay any dividends or realize any capital gains. The amount of any divi-
dend or distribution paid by the Fund must necessarily depend upon the reali-
zation by the Fund of income and capital gains from its investments. All divi-
dends and distributions will be made to shareholders solely from assets of the
Fund. Such dividends or distributions are subject to applicable taxes to the
extent that the investor is subject 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 the Fund, are taxable to shareholders as ordinary
income. In the case of corporate shareholders, such dividends are eligible for
the dividends-received deduction, except that the amount eligible for the de-
duction is limited to the amount of qualifying dividends received by the Fund.
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 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 Fund shares held by
a tax-deferred or qualified plan, such as a corporate pension or profit shar-
ing plan, will not be taxable to the plan. Distributions from such plans will
be taxable to individual participants under applicable tax rules without re-
gard 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 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 the Fund
will have the effect of reducing the net asset value of such shares by the
amount of such dividend or distribution. Furthermore, a dividend or 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
9
<PAGE>
a shareholder held shares for six months or less and during that period re-
ceived 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 Fund for the preceding year.
Distributions by the Fund may be subject to state and local taxes.
FOREIGN INCOME TAXES
Investment income received by the Fund from sources within foreign countries
may be subject to foreign income taxes withheld at the source. To the extent
that the Fund is liable for foreign income taxes withheld at the source, the
Fund intends, if possible, to operate so as to meet the requirements of the
Code to "pass through" to the Fund's shareholders credits for foreign income
taxes paid, but there can be no assurance that any Fund 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.
The Fund has no obligation to enter into transactions in portfolio securi-
ties with any broker, 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 broker or dealer, the Adviser may, in its discretion, purchase and
sell securities 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 brokerage 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 Ad-
visory Agreement, and the expenses of the Adviser will not necessarily be re-
duced as a result of the receipt of such information. Consistent with the Con-
duct Rules 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 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 se-
curities with Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), an
affiliate of the Adviser, and with brokers which may have their transactions
cleared or settled, or both, by the Pershing Division of DLJ for which DLJ may
receive a portion of the brokerage commission in accordance with Section 11(a)
of the Securities Exchange Act of 1934. In such instances, the placement of
orders 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
10
<PAGE>
under its current name as a business trust under the laws of Massachusetts.
The Fund 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. Shares of the Fund are normally entitled
to one vote for all purposes. Massachusetts law does not require annual meet-
ings 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 the Fund are freely trans-
ferable, are entitled to dividends as determined by the Trustees and, in liq-
uidation of the Fund, are entitled to receive the net assets of the Fund.
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 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., 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.
PERFORMANCE INFORMATION
From time to time the Fund advertises its "total return".
Advertisements of total return disclose the Fund's average annual compounded
total return for recent one, five and ten-year periods.The Fund's total return
for such period is computed by finding, through the use of a formula pre-
scribed by the Commission, the average annual compounded rate of return over
the period that would equate an assumed initial amount invested to the value
of the investment at the end of the period. For purposes of computing total
return, income dividends and capital gains distributions paid on shares of the
Fund 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 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.
11
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
12
<PAGE>
FIDUCIARY MANAGEMENT ASSOCIATES
SUBSCRIPTION APPLICATION
(SEE INSTRUCTIONS ON PAGE 15)
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 $ .
[_] Growth Portfolio.
4. DISTRIBUTION OPTIONS
Income Dividends Capital Gains Distributions
- ------------------------------------- -------------------------------------
ELECT ONE
[_] reinvest ELECT ONE
dividends [_] reinvest capital gains
[_] pay divi- [_] pay capital gains in cash
dends in cash
If no election is made, dividends and capital gains will be automatically
reinvested 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.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION
OF THIS DOCUMENT OTHER THAN THE CERTIFICATION TO AVOID BACK-UP 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
13
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
14
<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, except that investment management clients of the Adviser or its
affiliates may invest in any amount. There is no minimum for subsequent in-
vestments.
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).
15
<PAGE>
FMA PRO 2/97
This prospectus does not constitute an offering in any state in which such
offering may not lawfully be made.
TABLE OF CONTENTS PAGE
- --------------------------------------------------------------------------------
<TABLE>
<S>
Expense Information <C>
Financial Highlights 2
Description of the Fund 3
Management of the Fund 4
Purchase and Redemption of Shares 6
Dividends, Distributions and Taxes 7
General Information 8
Subscription Application 10
</TABLE> 13
INVESTMENT ADVISER
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, NY 10105
Fiduciary
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
Associates
- --------------------------------------------------------------------------------
Prospectus and Application
February 3, 1997
[LOGO] ALLIANCE(R)
Investing without the Mystery.(SM)
- ----------------------------------
<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 2-33889 and 811-01897.
<PAGE>
(LOGO) FIDUCIARY MANAGEMENT ASSOCIATES
P.O Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
_________________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
February 3, 1997
_________________________________________________________________
This Statement of Additional Information is not a prospectus, but
supplements, and should be read in conjunction with the Fund's
current Prospectus. 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.............. 2
Management of the Fund............................ 7
Purchase and Redemption of Shares................. 13
Net Asset Value................................... 15
Dividends, Distributions and Taxes................ 17
Portfolio Transactions............................ 20
General Information............................... 22
Report of Independent Auditors and Financial
Statements....................................... 25
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 the Fiduciary Management Associates-Growth
Portfolio (the "Fund") set forth in the Prospectus of the Fund.
Whenever any investment policy or restriction states a
minimum or maximum percentage of the Fund'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 Fund'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
General. In seeking to attain its objective of capital
growth, the Fund 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 Fund will at any
particular time engage in all or any of the investment activities
in which it is authorized to engage. In the opinion of the
Fund's management, however, the ability to engage in such a broad
range of activities provides an opportunity which is deemed to be
desirable in order to achieve the Fund's investment objective.
The Fund 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 Fund 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
Fund's total assets may be invested in all such restricted or not
readily marketable assets at any one time. Restricted securities
may be sold only in privately negotiated transactions or in a
public offering with respect to which a registration statement is
in effect under the Securities Act of 1933, as amended (the
"Securities Act") or pursuant to Rule 144 or 144A promulgated
2
<PAGE>
under such Act. Where registration is required, the Fund may be
obligated to pay all or part of the registration expense, and a
considerable period may elapse between the time of the decision
to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If during such a
period adverse market conditions were to develop, the Fund might
obtain a less favorable price than that which prevailed when it
decided to sell. Restricted securities and other not readily
marketable assets will be valued in such manner as the Trustees
of the Fund in good faith deem appropriate to reflect their fair
market value.
U.S. Government Securities. For a description of obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, see Appendix A.
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 Fund has adopted the following
investment policy which may be changed by the vote of the
Trustees.
3
<PAGE>
The Fund will not invest in illiquid securities if
immediately after such investment more than 10% of the Fund's
total assets (taken at market value) would be invested in such
securities. In addition, the Fund 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 Fund over-the-counter and the cover for options
written by the Fund 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,
securities which are otherwise not readily marketable and
repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the
Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a
mutual fund might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions within seven
days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market has
developed for certain securities that are not registered under
the Securities Act including repurchase agreements, commercial
paper, foreign securities, municipal securities and corporate
bonds and notes. Institutional investors depend on an efficient
institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.
During the coming year, the Fund 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
4
<PAGE>
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.
The Adviser, acting under the supervision of the Trustees of
the Fund, will monitor the liquidity of restricted securities
held by the Fund 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).
Investment Restrictions
The following restrictions, which supplement those set forth
in the Prospectus, may not be changed without the approval of a
majority of the outstanding voting securities of the Fund which
means the vote of (i) 67% or more of the shares of the Fund
represented at a meeting at which more than 50% of the
outstanding shares of the Fund are represented or (ii) more than
50% of the outstanding shares of the Fund, 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.
5
<PAGE>
The Fund 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 purchase does not result in the
securities of any such issuer exceeding 5% of the value
of the Fund's assets, except when such purchase is part
of a merger, consolidation or acquisition of assets;
3. Act as underwriter of securities of other issuers,
except that, to the extent consistent with its
investment objective and policies, the Fund 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;
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 Fund 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;
6
<PAGE>
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.
_________________________________________________________________
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 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, 1996
of more than $173 billion (of which more than $59 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,
1996, 33 of the FORTUNE 100 Companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,450
employees who operated out of domestic offices and the overseas
offices of subsidiaries in Bombay, Istanbul, London, Paris, Sao
Paolo, Sydney, Tokyo, Toronto, Bahrain, Luxembourg and Singapore.
The 52 registered investment companies comprising 110 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
____________________
* 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.
7
<PAGE>
AXA, a French insurance holding company. As of June 30, 1996,
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 57%
of the issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser ("Units"). As of June 30, 1996, approximately 33% and
10% 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.
As of September 6, 1996, AXA owns approximately 60.7% 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
include activities in life insurance, property and casualty
insurance and reinsurance. The insurance operations are diverse
geographically with activities in France, the United States,
Australia, the United Kingdom, Canada and other countries,
principally in Europe and the Asia/Pacific area. AXA is also
engaged in asset management, investment banking, securities
trading, brokerage, real estate and other financial services
activities in the United States and Europe.
Based on information provided by AXA, as of September 9,
1996, 36.3% of the issued ordinary shares (representing 49.1% of
the voting power) of AXA were owned directly or indirectly by
Finaxa, a French holding company ("Finaxa"). As of September 6,
1996, 61.3% of the voting shares (representing 73.5% 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 34.8% of the voting shares
(representing 40.6% of the voting power), and 23.7% of the voting
shares of Finaxa (representing 15.0% of the voting power) were
owned by Banque Paribas, a French bank. Including the ordinary
shares directly or indirectly owned by Finaxa, the Mutuelles AXA
directly or indirectly owned 42.0% of the issued ordinary shares
(representing 56.8% of the voting power) of AXA as of September
9, 1996. Acting as a group, the Mutuelles AXA control AXA and
Finaxa. In addition, as of September 9, 1996, 7.8% of the issued
ordinary shares of AXA without the power to vote were owned by
subsidiaries of AXA.
For the services rendered by the Adviser under the Advisory
Agreement, the Fund pays 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 Fund's
net assets. For the fiscal years ended September 30, 1994, 1995
and 1996, respectively, the Adviser received advisory fees of
$901,222, $833,866 and $1,155,617 respectively.
8
<PAGE>
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 the
Fund 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 Fund, 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, 1997
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 19, 1996. The Agreement may be
terminated with respect to any Fund at any time, without the
payment of any penalty, by vote of a majority of the outstanding
voting securities of the Fund, or by a vote of a majority of the
Trustees on sixty days' written notice to the Adviser, or by the
Adviser 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.
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
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
9
<PAGE>
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, 1996, the Fund
paid Alliance Fund Services, Inc. $17,980 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,** 51, - Chairman of the Trustees, is the
President, Chief Operating Officer and Chief Financial Officer
and a Director of ACMC, with which he has been associated since
prior to 1992.
RUTH BLOCK, 66, - was formerly Executive Vice President and
Chief Insurance Officer of Equitable. She is a Director of
Ecolab Incorporated (specialty chemicals) and Amoco Corporation
(oil and gas). Her address is Box 4653, Stamford, Connecticut,
06903.
DAVID H. DIEVLER, 66, was formerly a Senior Vice President of
ACMC, with which he was associated since prior to 1992 through
1994. He is currently an independent consultant. His address is
P.O. Box 167, Spring Lake, New Jersey, 07762.
JOHN H. DOBKIN, 54, has been the President of Historic Hudson
Valley (historic preservation) since prior to 1992. 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., 64, is an investment Advisor and
Independent Consultant. He was formerly Senior Manager of
____________________
** An "interested person" of the Fund as defined in the
investment Company Act of 1940.
10
<PAGE>
Barrett Associates, Inc., a registered investment adviser, since
prior to 1992. His address is 2 Hekma Road, Greenwich,
Connecticut 06831.
DR. JAMES M. HESTER, 72, is President of the Harry Frank
Guggenheim Foundation and a Director of Union Carbide
Corporation, with which he has been associated since prior to
1992. He was formerly President of New York University, the New
York Botanical Garden and Rector of the United Nations
University. His address is 45 East 89th Street, New York, New
York 10128.
CLIFFORD L. MICHEL, 57, is a partner in the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1992. He is Chief Executive Officer of Wenonah
Development Company (investments) and Director of Placer Dome,
Inc. (mining) His address is 80 Pine Street, New York, New York
10005.
DONALD J. ROBINSON, 62, was formerly a partner 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, 50, has been an Executive Vice
President of ACMC since July 1993. Prior thereto he was
associated with ECMC.
THOMAS J. BARDONG, Vice President, 51, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1992.
RANDALL E. HAASE, Vice President, 32, has been a Vice
President of ACMC since July, 1993. Prior thereto he was
associated with ECMC.
DANIEL V. PANKER, Vice President, 57, is a Senior Vice
President of ACMC, with which he had been associated since prior
to 1992.
TIMOTHY D. RICE, Vice President, 29, is a Vice President of
ACMC with which he has been associated since prior to 1992.
EDMUND P. BERGAN, JR., Secretary, 46, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD") with which he has been associated since prior to
1992.
11
<PAGE>
DOMENICK PUGLIESE, Assistant Secretary, 35, is a Vice
President and Assistant 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 1992.
MARK D. GERSTEN, Treasurer and Chief Financial Officer, 46,
is a Senior Vice President of Alliance Fund Services, Inc.
("AFS"), with which he has been associated since prior to 1992.
VINCENT S. NOTO, Controller, 31, is an Assistant Vice
President of AFS, with which he has been associated since 1992.
The aggregate compensation paid by the Fund to each of the
Trustees during its fiscal year ended September 30, 1996, the
aggregate compensation paid to each of the Trustees during
calendar year 1996 by all of the funds to which the Adviser
provides investment advisory services (collectively, the
"Alliance Fund Complex") and the total number of registered
investment companies 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.
Total Number
of Funds in
the Alliance
Total Fund Complex,
Compensation Including
From the the Fund,
Alliance as to which
Aggregate Fund Complex, the Trustee
Name of Trustee Compensation Including is a Trustee
of the Fund from the Fund the Fund or Director
John D. Carifa $-0- $-0- 50
Ruth Block $4,750 $157,500 37
David H. Dievler $4,750 $182,000 43
John H. Dobkin $4,750 $121,250 30
William H. Foulk, Jr. $4,750 $144,250 31
Dr. James M. Hester $4,750 $148,500 38
Clifford L. Michel $4,750 $146,068 38
Donald J. Robinson $2,000 $137,250 38
As of January 17, 1997, the Trustees and officers of the Fund as
a group owned less than 1% of the shares of the Fund.
12
<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 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 Fund 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 the 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 Fund, on the 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.
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 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 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 the Fund 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 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 or on a day on which it is not open for trading, such
13
<PAGE>
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 the Fund 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 the Fund 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
(the "Exchange Act").
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.
14
<PAGE>
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 (the "Commission") determines that trading thereon is
restricted, or for any period during which an emergency (as
determined by the Commission) exists as a result of which
disposal by the Fund of securities owned by it is not reasonably
practicable or as a result of which it is not reasonably
practical for the Fund fairly to determine the value of its net
assets, or for such other periods as the Commission may by order
permit for the protection of security holders of the Fund.
Payment of the redemption price will be made in cash.
General
The Fund reserves the right to close out an account that
through redemption has remained below $1,000,000 for 90 days.
Shareholders will receive 60 days' written notice to increase the
account value before the account is closed. In the case of a
redemption or repurchase of shares of the Fund recently purchased
by check, redemption proceeds will not be made available until
the Fund is reasonably assured that the check has cleared,
normally up to 15 calendar days following the purchase date.
________________________________________________________________
NET ASSET VALUE
_________________________________________________________________
The net asset value of each share of beneficial interest of
the Fund on which the subscription and redemption prices are
based is determined by the market value of the securities and
other assets owned by the Fund less its liabilities. The net
asset value of each share of the Fund is computed in accordance
with the Agreement and Declaration of Trust and By-Laws of the
15
<PAGE>
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, as amended (the "Act") by dividing the value, as of such
closing, of the net assets of the Fund (i.e., the value of the
assets of the Fund less its liabilities, including expenses
payable or accrued but excluding capital stock and surplus) by
the total number of shares of beneficial interest of the Fund
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.
Fund 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.
Fund 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 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
16
<PAGE>
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 the Fund's net asset value per
share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. Dollars at the mean of the
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 Fund qualified for the fiscal year ended September 30,
1996 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 the Fund 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 the Fund must meet to
qualify for such treatment. The information set forth in the
Prospectus and the following discussion relate solely to the U.S.
Federal income taxes on dividends and distributions by the Fund
and assumes that the Fund qualifies as a regulated investment
company. Investors should consult their own counsel for further
details, 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.
The Fund intends to declare and distribute dividends in the
amounts and at the times necessary to avoid the application of
the 4% Federal excise tax imposed on certain undistributed income
of regulated investment companies. The Fund will be required to
pay the 4% excise tax to the extent it does not distribute to its
17
<PAGE>
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 the Fund that
is subject to corporate income tax will be considered to have
been distributed by the Fund by year-end. Certain distributions
of the Fund 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 the Fund that is eligible for the dividends-received deduction
for corporations is limited to the amount of qualifying dividends
actually received by the Fund. 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 Fund's investment policies, it is
expected that dividends from domestic corporations will be a
significant part of the investment income of the Fund and,
accordingly, that a significant part of the dividends and
distributions by the Fund will be eligible for the dividends-
received deduction; however, this is largely dependent on the
Fund's investment activities, and accordingly cannot be predicted
with certainty.
The excess of net long-term capital gains over the net short-
term capital losses realized and distributed by the 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 Fund shares. Any dividend or distribution
received by a shareholder on shares of the Fund will have the
effect of reducing the net asset value of such shares by the
amount of such dividend or distribution. Furthermore, a dividend
or distribution made shortly after the purchase of such shares by
a shareholder, although in effect a return of capital to that
particular shareholder, would be taxable to the shareholder as
described above. If a shareholder has held shares in the Fund for
six months or less and during that period has received a
distribution 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.
18
<PAGE>
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 Fund.
The 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
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,
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.
Foreign Income Taxes. Investment income received by the Fund
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 the Fund 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 the
Fund's assets to be invested within various countries is not
known.
19
<PAGE>
If more than 50% of the value of the Fund's total assets at
the close of its taxable year consists of the stock or securities
of foreign corporations, the Fund may elect to "pass through" to
the Fund's shareholders the amount of foreign income taxes paid
by the Fund. 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 Fund; (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 Fund.
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 Fund.
_________________________________________________________________
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
20
<PAGE>
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.
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
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, 1994, 1995 and
1996, the Fund incurred brokerage commissions amounting in the
aggregate to $410,203, $470,250 and $609,329. During the fiscal
years ended September 30, 1994, 1995 and 1996, brokerage
commissions amounting in the aggregate to $5,625, $6,616 and
$-0-, respectively, were paid to DLJ and brokerage commissions
amounting in the aggregate to $-0-, $-0- and $-0-, respectively,
were paid to brokers utilizing the Pershing Division of DLJ.
During the fiscal year ended September 30, 1996, the brokerage
commissions paid to DLJ constituted -0-% of the Fund's aggregate
brokerage commissions and the brokerage commissions paid to
brokers utilizing the Pershing Division of DLJ constituted -0-%
of the Fund's aggregate brokerage commissions. During the fiscal
year ended September 30, 1996, of the Fund's aggregate dollar
amount of brokerage transactions involving the payment of
commissions, -0-% were effected through DLJ and -0-% were
effected through brokers utilizing the Pershing Division of DLJ.
During the fiscal year ended September 30, 1996, transactions
in portfolio securities of the Fund aggregating
$537,018,241 with associated brokerage commissions of
approximately $609,329 were allocated to persons or firms
supplying research services to the Fund or the Adviser.
For the fiscal years ended September 30, 1995 and 1996, the
annual portfolio turnover rates of securities of the Fund were
159% and 194%, respectively.
21
<PAGE>
________________________________________________________________
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 establish one or more
additional Funds 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 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 l6(c)
of the Act are available to shareholders of the Fund.
At January 17, 1997 there were 5,898,503 shares of the Fund
outstanding. Set forth below is certain information as to all
persons who owned of record or beneficially 5% or more of the
Fund's outstanding shares at January 17, 1997.
No. of % of
Name and Address Shares Class
Kane & Co. 348,723 6%
A/C Hoffman-La Roche P93176
Chase Manhattan Bank NA
ATTN: Kathleen O'Conner
Chase Manhattan Metrotech
Mew York, NY 11245
Ortho & Company Trust Dept 4,193,019 71%
Ford General Retirement Plan
C/O Commercial Bank
Mutual Funds Unit/MC 3446
P.O. Box 75000
Detroit, MI 48275-3446
3M Co. 945,945 16%
c/o Boston Safe Deposit & Trust
Attn: Hannah Buxbaum, Admin
ITD Division 5th Floor
31 St. James Avenue
Park Square Building
Boston, MA 02116
22
<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 17, 1997 with respect to an
aggregate of 5,875,178 shares, representing approximately 99% 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, New York, New York.
Ernst & Young LLP, New York, New York, has been appointed as
independent auditors for the Fund.
Performance Information
From time to time, the Fund advertises its "total return".
The Fund's "total return" is its averaged annual compounded total
return for its most recent one-, five- and ten-year periods (or
the period since the Fund's inception). The Fund's total return
for each such period is computed, through the use of a formula
prescribed by the 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 Fund are assumed to have been reinvested when paid.
The Fund's average annual compounded total return for the
year ended September 30, 1996 was 41.04%, for the five years
ended September 30, 1996 was 16.02% and for the ten years ended
September 30, 1996 was 18.60%.
The Fund's total return is not fixed and will fluctuate in
response to prevailing market conditions or as a function of the
type and quality of the securities held by the Fund and the
Fund's expenses. An investor's principal invested in the Fund is
not fixed and will fluctuate in response to prevailing market
conditions.
Advertisements quoting performance rankings of the Fund as
measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc.
("Lipper"), and advertisements presenting the historical record
of payments of income dividends by the Fund may also from time to
time be sent to investors or placed in newspapers, magazines or
other media on behalf of the Fund.
23
<PAGE>
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 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.
24
<PAGE>
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996 FIDUCIARY MANAGEMENT ASSOCIATES - GROWTH PORTFOLIO
_______________________________________________________________________________
COMPANY SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER INVESTMENTS-92.3%
CONSUMER PRODUCTS & SERVICES-26.9%
ADVERTISING-2.0%
HA-LO Industries, Inc. * 48,400 $ 1,403,600
Outdoor Systems, Inc. * 37,400 1,757,800
------------
3,161,400
AIRLINES-2.4%
Alaska Air Group, Inc. * 45,500 972,562
America West Airlines, Inc. * 123,400 1,449,950
Continental Airlines, Inc. * 61,600 1,378,300
------------
3,800,812
APPAREL-2.7%
Jones Apparel Group, Inc. * 18,900 1,204,875
Timberland Co. * 38,100 781,050
Tommy Hilfiger Corp. * 40,700 2,411,475
------------
4,397,400
COMMERCIAL SERVICES-1.3%
TeleSpectrum Worldwide, Inc. * 108,000 2,106,000
ENTERTAINMENT & LEISURE-0.5%
Heritage Media Corp. * 41,700 787,088
RESTAURANTS & LODGING-6.6%
Doubletree Corp. * 21,600 861,300
Extended Stay America, Inc. * 75,900 1,555,950
Host Marriott Corp. * 273,100 3,959,950
Interstate Hotels Co. * 34,000 939,250
La Quinta Inns, Inc. 53,650 1,046,175
Studio Plus Hotels, Inc. * 70,700 1,166,550
Suburban Lodges of America, Inc. * 46,700 980,700
------------
10,509,875
RETAILING-8.6%
Cross-Continent Auto Retailers, Inc. * 35,600 818,800
Designer Holdings, Ltd. * 74,400 1,943,700
Industrie Natuzzi S.p.A. (ADR) (a) 37,900 1,762,350
Marker International * 92,000 897,000
Nine West Group, Inc. * 96,000 5,208,000
Office Max, Inc. * 229,950 3,219,300
------------
13,849,150
OTHER-2.8%
Equity Corp. International * 34,600 1,098,550
Loewen Group, Inc. (b) 63,200 2,646,500
Stewart Enterprises, Inc. 23,450 791,437
------------
4,536,487
------------
43,148,212
TECHNOLOGY-25.4%
COMPUTER PERIPHERALS-2.3%
Western Digital Corp. * 37,800 1,516,725
Xircom, Inc. * 137,400 2,232,750
------------
3,749,475
5
PORTFOLIO OF INVESTMENTS
(CONTINUED) FIDUCIARY MANAGEMENT ASSOCIATES - GROWTH PORTFOLIO
_______________________________________________________________________________
COMPANY SHARES VALUE
- -------------------------------------------------------------------------
COMPUTER SOFTWARE & SERVICES-8.6%
Applix, Inc. * 65,600 $ 1,722,000
Business Objects, S.A. (ADR) *(c) 56,000 1,078,000
Comverse Technology, Inc. * 38,100 1,481,138
DST Systems, Inc. * 28,100 899,200
Exabyte Corp. * 86,100 1,291,500
IDT Corp. * 81,200 1,360,100
Integrated Systems, Inc. * 35,400 1,168,200
Madge Networks N.V. *(d) 6,200 78,275
Network General Corp. * 67,700 1,548,637
Radius, Inc. * 457 743
Sterling Software, Inc. * 20,400 1,558,050
Storage Technology Corp. * 42,000 1,590,750
------------
13,776,593
ELECTRONICS-4.7%
BMC Industries, Inc. 50,200 1,436,975
Cable Design Technologies Corp. * 33,100 1,324,000
Harman International Industries, Inc. 41,400 2,018,250
Kent Electronics Corp.* 14,700 319,725
Uniphase Corp. * 28,500 1,204,125
VLSI Technology, Inc. * 75,000 1,218,750
------------
7,521,825
OFFICE EQUIPMENT-0.7%
Lexmark International Group, Inc. * 54,200 1,104,325
TELECOMMUNICATIONS-9.1%
Advanced Fibre Communications * 4,300 107,500
Andrew Corp. * 23,800 1,187,025
ICG Communications, Inc. * 71,853 1,508,913
Millicom International Cellular, S.A. *(e) 71,000 2,866,625
Premisys Communications, Inc. * 35,900 1,319,325
Telephone and Data Systems, Inc. 108,300 4,359,075
United States Cellular Corp. * 52,800 1,597,200
Westell Technologies, Inc. * 37,000 1,637,250
------------
14,582,913
------------
40,735,131
BASIC INDUSTRIES-22.4%
CHEMICALS-3.5%
Crompton & Knowles Corp. 94,900 1,553,987
Cytec Industries, Inc. * 66,000 2,565,750
Landec Corp. 14,396 140,361
Polymer Group, Inc. * 100,689 1,409,646
------------
5,669,744
ENGINEERING & CONSTRUCTION-0.8%
EMCOR Group, Inc. * 82,300 1,244,788
ENVIRONMENTAL CONTROL-7.1%
Allied Waste Industries, Inc. * 112,900 1,044,325
Republic Industries, Inc. * 117,700 3,413,300
United Waste Systems, Inc. * 80,200 2,786,950
USA Waste Services, Inc. * 132,400 4,170,600
------------
11,415,175
6
FIDUCIARY MANAGEMENT ASSOCIATES - GROWTH PORTFOLIO
_______________________________________________________________________________
COMPANY SHARES VALUE
- -------------------------------------------------------------------------
FOREST PRODUCTS-0.7%
Buckeye Cellulose Corp. * 46,100 $ 1,198,600
METAL HARDWARE-5.0%
AK Steel Holding Corp. 26,500 1,086,500
Alumax, Inc. * 46,900 1,571,150
Century Aluminum Co. 95,400 1,407,150
Gibraltar Steel Corp. * 21,500 483,750
Kaiser Aluminum Corp. * 76,900 893,962
Olympic Steel, Inc. * 21,500 577,813
Titanium Metals Corp. * 44,700 1,296,300
Uranium Resources, Inc. * 54,000 702,000
------------
8,018,625
SURFACE TRANSPORTATION & SHIPPING-2.8%
Team Rental Group, Inc. * 138,100 2,623,900
Xtra Corp. 44,900 1,902,637
------------
4,526,537
TEXTILE PRODUCTS-2.5%
Mohawk Industries, Inc. * 99,500 2,549,688
Unifi, Inc. 50,600 1,391,500
------------
3,941,188
------------
36,014,657
ENERGY-10.4%
OIL & GAS SERVICES-10.4%
Diamond Offshore Drilling, Inc. * 70,824 3,895,320
Diamond Shamrock, Inc. 99,700 3,103,162
Global Marine, Inc. * 46,500 732,375
KCS Energy, Inc. 44,600 1,588,875
Noble Drilling Corp. * 168,500 2,548,563
Reading & Bates Corp. * 36,400 987,350
Rowan Cos., Inc. * 206,400 3,844,200
------------
16,699,845
HEALTH CARE-3.9%
BIOTECHNOLOGY-1.7%
Centocor, Inc. * 35,900 1,274,450
Medimmune, Inc. * 40,100 571,425
Neurex Corp. * 42,200 807,075
------------
2,652,950
DRUGS, HOSPITAL SUPPLIES &
MEDICAL SERVICES-2.2%
Algos Pharmaceutical Corp. * 55,500 777,000
GelTex Pharmaceuticals, Inc. * 83,100 1,662,000
National Surgery Centers, Inc. * 39,900 1,117,200
------------
3,556,200
------------
6,209,150
FINANCIAL SERVICES-3.0%
FINANCE-1.7%
First Merchants Acceptance Corp. * 39,000 780,000
Oxford Resources Corp. * 87,800 1,876,725
------------
2,656,725
INSURANCE-1.3%
Riscorp, Inc. * 28,900 502,138
Twentieth Century Industries, Inc. * 86,100 1,517,512
------------
2,019,650
------------
4,676,375
7
PORTFOLIO OF INVESTMENTS
(CONTINUED) FIDUCIARY MANAGEMENT ASSOCIATES - GROWTH PORTFOLIO
_______________________________________________________________________________
COMPANY SHARES VALUE
- -------------------------------------------------------------------------
RESTRICTED SECURITIES & PRIVATE
PLACEMENTS-0.3%
Menlo Ventures III, A Limited
Partnership *(f) 1,000,000 $ 168,791
Oak Investment Partners III *(f) 2,000,000 273,832
Oscco II, A Limited Partnership *(f) 750,000 10,161
RCS II, A Limited Partnership *(f) 1,000,000 63,550
------------
516,334
Total Common Stocks & Other Investments
(cost $130,958,333) 147,999,704
PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- -------------------------------------------------------------------------
SHORT-TERM DEBT SECURITIES-5.4%
Federal Home Loan Bank
5.70%, 10/01/96 $3,700 $ 3,700,000
Federal Home Loan Mortgage Corp.
5.20%, 11/04/96 5,000 4,975,445
Total Short-Term Debt Securities
(amortized cost $8,675,445) 8,675,445
TOTAL INVESTMENTS-97.7%
(cost $139,633,778) 156,675,149
Other assets less liabilities-2.3% 3,765,384
NET ASSETS-100% $160,440,533
* Non-income producing security.
(a) Country of origin - Italy.
(b) Country of origin - Canada.
(c) Country of origin - France.
(d) Country of origin - Netherlands.
(e) Country of origin - Luxembourg.
(f) Illiquid security, valued at fair value (see Notes A & D).]
Glossary:
ADR - American Depository Receipt
See notes to financial statements.
8
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
FIDUCIARY MANAGEMENT ASSOCIATES - GROWTH PORTFOLIO
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $139,633,778) $156,675,149
Cash 483,140
Receivable for investment securities sold 9,813,988
Dividends receivable 2,207
Total assets 166,974,484
LIABILITIES
Payable for investment securities purchased 6,155,792
Advisory fee payable 300,868
Accrued expenses 77,291
Total liabilities 6,533,951
NET ASSETS $160,440,533
COMPOSITION OF NET ASSETS
Shares of beneficial interest, at par $ 41,144
Additional paid-in capital 94,168,340
Accumulated net realized gain 49,189,678
Net unrealized appreciation of investments 17,041,371
$160,440,533
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(based on 4,114,385 shares of beneficial interest outstanding) $39.00
See notes to financial statements.
9
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
FIDUCIARY MANAGEMENT ASSOCIATES - GROWTH PORTFOLIO
_______________________________________________________________________________
INVESTMENT INCOME
Interest $ 701,027
Dividends (net of foreign taxes withheld of $3,189) 254,806 $ 955,833
EXPENSES
Advisory fee 1,155,617
Administrative 118,966
Custodian 106,973
Audit and legal 80,082
Trustees' fees 28,626
Transfer agency 18,190
Printing 11,137
Registration 4,183
Miscellaneous 9,281
Total expenses 1,533,055
Net investment loss (577,222)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 51,214,394
Net change in unrealized appreciation of investments (1,028,571)
Net gain on investments 50,185,823
NET INCREASE IN NET ASSETS FROM OPERATIONS $49,608,601
STATEMENT OF CHANGES IN NET ASSETS
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment loss $ (577,222) $ (281,092)
Net realized gain on investments 51,214,394 20,853,916
Net change in unrealized appreciation of
investments (1,028,571) 9,662,236
Net increase in net assets from operations 49,608,601 30,235,060
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments (21,476,505) (15,581,382)
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Net increase 4,173,519 7,046,188
Total increase 32,305,615 21,699,866
NET ASSETS
Beginning of year 128,134,918 106,435,052
End of year $160,440,533 $128,134,918
See notes to financial statements.
10
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
FIDUCIARY MANAGEMENT ASSOCIATES - GROWTH PORTFOLIO
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Fiduciary Management Associates - Growth Portfolio (the "Fund") which is a
Massachusetts business trust, is registered under the Investment Company Act of
1940, as a diversified, open-end management investment company. 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 any, 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 $577,222 to
accumulated net realized gain at September 30, 1996. 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, 1996. Pursuant to the advisory agreement, the Fund
paid $118,966 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, 1996.
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 $17,980 for the year ended
September 30, 1996.
Brokerage commissions paid on securities transactions for the year ended
September 30, 1996 amounted to $609,329, none of which was paid to affiliated
brokers.
11
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
FIDUCIARY MANAGEMENT ASSOCIATES - GROWTH PORTFOLIO
_______________________________________________________________________________
NOTE C: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. Government Securities) aggregated $259,498,322 and $277,519,919,
respectively, for the year ended September 30, 1996. At September 30, 1996, the
cost of securities for federal income tax purposes was $140,198,544.
Accordingly, gross unrealized appreciation of investments was $22,859,103 and
gross unrealized depreciation of investments was $6,382,498 resulting in net
unrealized appreciation of $16,476,605.
NOTE D: ILLIQUID SECURITIES
DATE
ACQUIRED COST VALUE
-------- ---------- ---------
Menlo Ventures III, A Limited Partnership 7/28/83 $ 401,747 $168,791
Oak Investment Partners III 9/28/83 1,410,836 273,832
Oscco II, A Limited Partnership 2/16/84 663,779 10,161
RCS II, A Limited Partnership 12/29/82 147,462 63,550
$2,623,824 $516,334
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, 1996 represents 0.3% 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
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------ ------------ -------------- --------------
Shares sold 31,000 673,646 $ 1,145,925 $15,835,914
Shares issued in
reinvestment of
distributions 736,943 -0- 21,430,299 -0-
Shares redeemed (548,790) (332,821) (18,402,705) (8,789,726)
Net increase 219,153 340,825 $ 4,173,519 $ 7,046,188
12
FINANCIAL HIGHLIGHTS FIDUCIARY MANAGEMENT ASSOCIATES - GROWTH PORTFOLIO
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $32.90 $29.94 $31.29 $27.41 $30.93
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (.14) (.07) (.20) (.10) (.07)
Net realized and unrealized gain (loss)
on investments 11.75 7.51 (.93) 7.29 (2.24)
Net increase (decrease) in net asset
value from operations 11.61 7.44 (1.13) 7.19 (2.31)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- -0- -0- -0- (.07)
Distributions from net realized gains (5.51) (4.48) (.22) (3.31) (1.14)
Total dividends and distributions (5.51) (4.48) (.22) (3.31) (1.21)
Net asset value, end of year $39.00 $32.90 $29.94 $31.29 $27.41
TOTAL RETURN
Total investment return based on net
asset value (a) 41.04% 30.94% (3.63)% 27.79% (7.52)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $160,441 $128,135 $106,435 $138,932 $129,188
Ratio of expenses to average net assets 1.05% 1.11% .98% .97% .92%
Ratio of net investment loss to average
net assets (.40)% (.26)% (.42)% (.31)% (.19)%
Portfolio turnover rate 194% 159% 116% 100% 122%
Average commission rate(b) $.0598 -- -- -- --
</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.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on which
commissions are charged.
13
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, including the portfolio of
investments, as of September 30 1996, 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, 1996, 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, 1996, 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 1, 1996
14
25
<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
reduction of the debt by call or purchase are often factors,
B-1
<PAGE>
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 promissory
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
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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.
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APPENDIX C
FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS AND FOREIGN CURRENCIES
Futures Contracts
The Fund 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 Fund 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 Fund 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
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%-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 Fund
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
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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 Fund 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 Fund 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 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 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 Fund would increase at
approximately the same rate, thereby keeping the net asset value
of the Fund from declining as much as it otherwise would have.
The 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 Fund 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 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 Fund could then buy debt securities on the
cash market. To the extent the Fund enters into futures contracts
for this purpose, the assets in the segregated asset account
maintained to cover the Fund'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 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 markets, are
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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 Fund,
if the Adviser's investment judgment about the general direction
of interest rates is incorrect, the Fund's overall performance
would be poorer than if it had not entered into any such
contract. For example, if the 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 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 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 Fund may have to sell securities at a time when it
may be disadvantageous to do so.
Options on Futures Contracts
The Fund 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 Fund is not fully
invested it may purchase a call option on a futures contract to
hedge against a market advance due to declining interest rates.
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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 Fund 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 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 Fund intends to purchase. If a put or call option the
Fund has written is exercised, the 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 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 Fund 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 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.
Options on Foreign Currencies
The Fund 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 Fund may purchase put options on the foreign currency. If the
value of the currency does decline, the Fund 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.
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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 Fund 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 Fund 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 Fund 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 Fund may write options on foreign currencies for the same
types of hedging purposes. For example, where the Fund
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 Fund could write a put option on the relevant
currency which, if rates move in the manner projected, will
expire unexercised and allow the Fund 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 Fund
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 Fund
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 Fund intends to write covered call options on foreign
currencies. A call option written on a foreign currency by the
Fund is "covered" if the Fund owns the 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 Fund has a call on the same foreign currency
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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 Fund in cash, U.S. Government Securities and
other high quality liquid debt securities in a segregated account
with its Custodian.
The Fund 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 Fund
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 Fund 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 Fund 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 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
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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 Fund 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 Fund'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 requirements than in
the United States, and (v) lesser trading volume.
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