<PAGE>
As filed with the Securities and Exchange Commission
on October 30, 1998
File No. 33-12988
811-05088
Securities and Exchange Commission
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 30
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 32
THE ALLIANCE PORTFOLIOS
(Exact Name of Registrant as Specified in Charter)
1345 Avenue of the Americas, New York, N.Y. 10105
(800) 221-5672
(Registrant's Telephone Number, including Area Code)
EDMUND P. BERGAN, JR.
Alliance Capital Management L.P.
1345 Avenue of the Americas, New York, N.Y. 10105
(Name and address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box):
X immediately upon filing pursuant to paragraph (b)
on ___________ pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(i)
on (date) pursuant to paragraph (a)(i)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of Rule 485.
<PAGE>
Cross Reference Sheet
(as required by Rule 481(a))
ITEM NUMBER OF FORM N-1A PROSPECTUS LOCATION
PART A OR CAPTION
1. Cover Page Front Cover Page
2. Synopsis Expense Information
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant General Information;
Description of the
Funds
5. Management of the Trust Management of the
Funds
5A. Management's Discussion of Fund's Not Applicable
Performance
6. Capital Stock and Other Securities General Information;
Dividends, Distri-
butions and Taxes
7. Purchase of Securities Being Offered Purchase and Sale of
Shares; Management of
the Funds
8. Redemption or Repurchase Purchase and Sale of
Shares
9. Pending Legal Proceedings Not Applicable
<PAGE>
STATEMENT OF
ADDITIONAL
INFORMATION
ITEM NUMBER IN PART B CAPTION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
13. Investment Objectives and Policies Investment Policies
and Restrictions;
Investment Techniques
of the Funds;
Investment
Restrictions
14. Management of the Fund Management of the
Funds
15. Control Persons and Principal General Information
Holders of Securities
16. Investment Advisory and Other Management of the
Services Funds; Expenses of
the Funds
17. Brokerage Allocation and Other Portfolio Trans-
actions; Expenses of
the Funds
18. Capital Stock and Other Securities General Information
19. Purchase, Redemption and Pricing Purchase of Shares;
of Securities Being Offered Redemption and
Repurchase of Shares;
Net Asset Value
20. Tax Status Dividends, Distribu-
tion and Taxes
21. Underwriters Expenses of the
Funds; Purchase of
Shares; Redemption
and Repurchase of
Shares
22. Calculation of Performance Data General Information
23. Financial Statements Financial Statements
<PAGE>
This Post-Effective Amendment No. 32 relates solely to
Alliance Growth Fund and Alliance Short Term U.S. Government
Fund. No information contained in the Registrant's Registration
Statement relating to any other series of the Registrant is
amended or superseded hereby.
<PAGE>
<PAGE>
THE ALLIANCE
- --------------------------------------------------------------------------------
STOCK FUNDS
- --------------------------------------------------------------------------------
c/o Alliance Fund Services, Inc.
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
Prospectus and Application
November 2, 1998
Domestic Stock Funds Global Stock Funds
- -The Alliance Fund -Alliance International Fund
-Alliance International
Premier Growth Fund
- -Alliance Growth Fund -Alliance Worldwide Privatization Fund
- -Alliance Premier Growth Fund -Alliance New Europe Fund
- -Alliance Technology Fund -Alliance All-Asia Investment Fund
-Alliance Greater China '97
Fund
- -Alliance Quasar Fund -Alliance Global Small Cap Fund
-Alliance Global Environment Fund
Total Return Funds
-Alliance Balanced Shares
-Alliance Utility Income Fund
-Alliance Growth and Income Fund
-Alliance Real Estate Investment Fund
<TABLE>
<CAPTION>
Table of Contents Page
<S> <C>
The Funds at a Glance ..................................................... 2
Expense Information ....................................................... 4
Financial Highlights ...................................................... 7
Glossary .................................................................. 19
Description of the Funds .................................................. 20
Investment Objectives and Policies ..................................... 20
Additional Investment Practices ........................................ 32
Certain Fundamental Investment Policies ................................ 40
Risk Considerations .................................................... 42
Purchase and Sale of Shares ............................................... 49
Management of the Funds ................................................... 52
Dividends, Distributions and Taxes ........................................ 57
General Information ....................................................... 58
</TABLE>
Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105
The Alliance Stock Funds provide a broad selection of investment alternatives to
investors seeking capital growth or high total return. The Domestic Stock Funds
invest mainly in the United States equity markets and the Global Stock Funds
diversify their investments among equity markets around the world, while the
Total Return Funds invest in both equity and fixed-income securities.
Each fund or portfolio (each a "Fund") is, or is a series of, an open-end
management investment company. This Prospectus sets forth concisely the
information which a prospective investor should know about each Fund before
investing. A "Statement of Additional Information" for each Fund which provides
further information regarding certain matters discussed in this Prospectus and
other matters which may be of interest to some investors has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. For
a free copy, call or write Alliance Fund Services, Inc. at the indicated address
or call the "For Literature" telephone number shown above.
Each Fund offers three classes of shares through this Prospectus. These shares
may be purchased, at the investor's choice, at a price equal to their net asset
value (i) plus an initial sales charge imposed at the time of purchase (the
"Class A shares"), (ii) with a contingent deferred sales charge imposed on most
redemptions made within four years of purchase (the "Class B shares"), or (iii)
without any initial or contingent deferred sales charge, as long as the shares
are held for one year or more (the "Class C shares"). See "Purchase and Sale of
Shares."
An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.
Investors are advised to read this Prospectus carefully and to retain it for
future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[LOGO]Alliance(R)
Investing without the Mystery.(SM)
(R)/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
<PAGE>
The Funds At A Glance
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
The Funds' Investment Adviser Is . . .
Alliance Capital Management L.P. ("Alliance"), a global investment manager
providing diversified services to institutions and individuals through a broad
line of investments including more than 120 mutual funds. Since 1971, Alliance
has earned a reputation as a leader in the investment world with over $262
billion in assets under management as of June 30, 1998. Alliance provides
investment management services to employee benefit plans for 32 of the FORTUNE
100 companies.
Domestic Stock Funds
Alliance Fund
Seeks . . . Long-term growth of capital and income primarily through investment
in common stocks.
Invests Principally in . . . A diversified portfolio of equity securities that,
in the judgment of Alliance, have the potential to achieve capital appreciation.
Growth Fund
Seeks . . . Long-term growth of capital by investing primarily in common stocks
and other equity securities.
Invests Principally in . . . A diversified portfolio of equity securities of
companies with a favorable outlook for earnings and whose rate of growth is
expected to exceed that of the United States economy over time.
Premier Growth Fund
Seeks . . . Long-term growth of capital by investing in the equity securities of
a limited number of large, carefully selected, high-quality American companies
from a relatively small universe of intensively researched companies.
Invests Principally in . . . A diversified portfolio of equity securities that,
in the judgment of Alliance, are likely to achieve superior earnings growth.
Normally, approximately 40-50 companies will be represented in the Fund's
investment portfolio. The Fund's investments in 25 of these companies most
highly regarded at any point in time by Alliance will usually constitute
approximately 70% of the Fund's net assets.
Technology Fund
Seeks . . . Growth of capital through investment in companies expected to
benefit from advances in technology.
Invests Principally in . . . A diversified portfolio of securities of companies
which use technology extensively in the development of new or improved products
or processes.
Quasar Fund
Seeks . . . Growth of capital by pursuing aggressive investment policies.
Invests Principally in . . . A diversified portfolio of equity securities of any
company and industry and in any type of security which is believed to offer
possibilities for capital appreciation.
Global Stock Funds
International Fund
Seeks . . . A total return on its assets from long-term growth of capital and
from income.
Invests Principally in . . . A diversified portfolio of marketable securities of
established non-United States companies, companies participating in foreign
economies with prospects for growth, and foreign government securities.
International Premier Growth Fund
Seeks . . . Long-term capital appreciation.
Invests Principally in . . . A diversified portfolio of equity securities of a
limited number of large, carefully selected, high-quality non-U.S. companies
that are judged likely to achieve superior earnings growth.
Worldwide Privatization Fund
Seeks . . . Long-term capital appreciation.
Invests Principally in . . . A non-diversified portfolio of equity securities
issued by enterprises that are undergoing, or have undergone, privatization. The
balance of the Fund's investment portfolio will include securities of companies
that are believed by Alliance to be beneficiaries of the privatization process.
New Europe Fund
Seeks . . . Long-term capital appreciation through investment primarily in the
equity securities of companies based in Europe.
Invests Principally in . . . A non-diversified portfolio of equity securities of
European companies.
All-Asia Investment Fund
Seeks . . . Long-term capital appreciation.
Invests Principally in . . . A non-diversified portfolio of equity securities of
Asian/Pacific companies.
Greater China '97 Fund
Seeks . . . Long-term capital appreciation.
Invests Prinicpally in . . . A non-diversified portfolio of equity securities of
Greater China companies.
Global Small Cap Fund
Seeks . . . Long-term growth of capital.
Invests Principally in . . . A diversified global portfolio of the equity
securities of small capitalization companies.
Global Environment Fund
Seeks . . . Long-term capital appreciation.
2
<PAGE>
Invests Principally in . . . A non-diversified portfolio of equity securities of
companies expected to benefit from advances or improvements in products,
processes or services intended to foster the protection of the environment.
Total Return Funds
Balanced Shares
Seeks . . . A high return through a combination of current income and capital
appreciation.
Invests Principally in . . . A diversified portfolio of equity and fixed-income
securities such as common and preferred stocks, U.S. Government and agency
obligations, bonds and senior debt securities.
Utility Income Fund
Seeks . . . Current income and capital appreciation through investment in the
utilities industry.
Invests Principally in . . . A diversified portfolio of equity securities, such
as common stocks, securities convertible into common stocks and rights and
warrants to subscribe for purchase of common stocks, and in fixed-income
securities such as bonds and preferred stocks.
Growth and Income Fund
Seeks . . . Income and appreciation through investment in dividend-paying common
stocks of quality companies.
Invests Principally in . . . A diversified portfolio of dividend-paying common
stocks of good quality, and, under certain market conditions, other types of
securities, including bonds, convertible bonds and preferred stocks.
Real Estate Investment Fund
Seeks . . . Total return on its assets from long-term growth of capital and from
income.
Invests Principally in . . . A diversified portfolio of equity securities of
issuers that are primarily engaged in or related to the real estate industry.
Distributions . . .
Balanced Shares, Utility Income Fund, Growth and Income Fund and Real Estate
Investment Fund intend to make distributions quarterly to shareholders. These
distributions may include ordinary income and capital gain (each of which is
taxable) and a return of capital (which is generally non-taxable). See
"Dividends, Distributions and Taxes."
A Word About Risk . . .
The price of the shares of the Alliance Stock Funds will fluctuate as the daily
prices of the individual securities in which they invest fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost. With
respect to those Funds permitted to invest in foreign currency denominated
securities, these fluctuations may be magnified by changes in foreign exchange
rates. Investment in the Global Stock Funds involves risks not associated with
funds that invest primarily in securities of U.S. issuers. While the Funds
invest principally in common stocks and other equity securities, in order to
achieve their investment objectives the Funds may at times use certain types of
investment derivatives such as options, futures, forwards and swaps. These
involve risks different from, and, in certain cases, greater than, the risks
presented by more traditional investments. An investment in the Real Estate
Investment Fund is subject to certain risks associated with the direct ownership
of real estate in general, including possible declines in the value of real
estate, general and local economic conditions, environmental problems and
changes in interest rates. Investments by Greater China '97 Fund in Greater
China companies entail certain risks which are different from, and in certain
cases, greater than, risks associated with investments in other international
markets. These risks are fully discussed in this Prospectus.
Getting Started . . .
Shares of the Funds are available through your financial representative and most
banks, insurance companies and brokerage firms nationwide. Shares can be
purchased for a minimum initial investment of $250, and subsequent investments
can be made for as little as $50. For detailed information about purchasing and
selling shares, see "Purchase and Sale of Shares." In addition, the Funds offer
several time and money saving services to investors. Be sure to ask your
financial representative about:
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AUTOMATIC REINVESTMENT
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PROGRAM
- --------------------------------------------------------------------------------
RETIREMENT PLANS
- --------------------------------------------------------------------------------
SHAREHOLDER COMMUNICATIONS
- --------------------------------------------------------------------------------
DIVIDEND DIRECTION PLANS
- --------------------------------------------------------------------------------
AUTO EXCHANGE
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWALS
- --------------------------------------------------------------------------------
A CHOICE OF PURCHASE PLANS
- --------------------------------------------------------------------------------
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
24-HOUR INFORMATION
- --------------------------------------------------------------------------------
[LOGO]Alliance(R)
Investing without the Mystery.(SM)
(R)/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
3
<PAGE>
- --------------------------------------------------------------------------------
EXPENSE INFORMATION
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses are one of several factors to consider when you
invest in a Fund. The following table summarizes your maximum transaction costs
from investing in a Fund and annual expenses for each class of shares of each
Fund. For each Fund, the "Examples" to the right of the table below show the
cumulative expenses attributable to a hypothetical $1,000 investment in each
class for the periods specified.
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Maximum sales charge imposed on purchases (as a percentage of
offering price) ................................................. 4.25%(a) None None
Sales charge imposed on dividend reinvestments .................. None None None
Deferred sales charge (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower) ............................................. None(a) 4.0% 1.0%
during the during the
first year, first year,
decreasing 1.0% 0% thereafter
annually to 0%
after the
fourth year (b)
Exchange fee .................................................... None None None
</TABLE>
- --------------------------------------------------------------------------------
(a) Reduced for larger purchases. Purchases of $1,000,000 or more are not
subject to an initial sales charge but may be subject to a 1% deferred
sales charge on redemptions within one year of purchase. See "Purchase and
Sale of Shares-How to Buy Shares".
(b) Class B shares of each Fund automatically convert to Class A after eight
years. See "Purchase and Sale of Shares-How to Buy Shares."
<TABLE>
<CAPTION>
Operating Expenses Examples
- --------------------------------------------------------- -------------------------------------------------------------
Alliance Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ---------------- ------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .68% .68% .68% After 1 year $ 53 $ 59 $ 19 $ 29 $ 19
12b-1 fees .20% 1.00% 1.00% After 3 years $ 74 $ 78 $ 58 $ 58 $ 58
Other expenses (a) .15% .17% .15% After 5 years $ 97 $100 $100 $ 99 $ 99
---- ---- ---- After 10 years $163 $195(b) $195(b) $215 $215
Total fund
operating expenses 1.03% 1.85% 1.83%
==== ==== ====
<CAPTION>
Growth Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ---------------- ------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .74% .74% .74% After 1 year $ 55 $ 60 $ 20 $ 30 $ 20
12b-1 fees .30% 1.00% 1.00% After 3 years $ 81 $ 82 $ 62 $ 62 $ 62
Other expenses (a) .22% .22% .23% After 5 years $109 $106 $106 $106 $106
---- ---- ---- After 10 years $188 $210(b) $210(b) $230 $230
Total fund
operating expenses 1.26% 1.96% 1.97%
==== ==== ====
<CAPTION>
Premier Growth Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ---------------- ------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.00% 1.00% 1.00% After 1 year $ 58 $ 63 $ 23 $ 33 $ 23
12b-1 fees .33% 1.00% 1.00% After 3 years $ 90 $ 90 $ 70 $ 70 $ 70
Other expenses (a) .24% .25% .24% After 5 years $124 $120 $120 $120 $120
---- ---- ---- After 10 years $221 $241(b) $241(b) $257 $257
Total fund
operating expenses 1.57% 2.25% 2.24%
==== ==== ====
<CAPTION>
Technology Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ---------------- ------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (f) 1.04% 1.04% 1.04% After 1 year $ 59 $ 64 $ 24 $ 34 $ 24
12b-1 fees .30% 1.00% 1.00% After 3 years $ 93 $ 94 $ 74 $ 74 $ 74
Other expenses (a) .33% .34% .34% After 5 years $129 $127 $127 $127 $127
---- ---- ---- After 10 years $232 $254(b) $254(b) $272 $272
Total fund
operating expenses 1.67% 2.38% 2.38%
==== ==== ====
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 6.
4
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Operating Expenses Examples
- --------------------------------------------------------- -------------------------------------------------------------
Quasar Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees (f) 1.16% 1.16% 1.16% After 1 year $ 59 $ 65 $ 25 $ 35 $ 25
12b-1 fees .22% 1.00% 1.00% After 3 years $ 93 $ 98 $ 78 $ 78 $ 78
Other expenses (a) .29% .35% .34% After 5 years $129 $134 $134 $133 $133
---- ---- ---- After 10 years $232 $264(b) $264(b) $284 $284
Total fund
operating expenses 1.67% 2.51% 2.50%
==== ==== ====
<CAPTION>
International Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees
(after waiver) (c)(f) .85% .85% .85% After 1 year $ 59 $ 65 $ 25 $ 35 $ 25
12b-1 fees .21% 1.00% 1.00% After 3 years $ 92 $ 98 $ 78 $ 77 $ 77
Other expenses (a) .59% .64% .63% After 5 years $128 $133 $133 $132 $132
---- ---- ---- After 10 years $230 $262(b) $262(b) $282 $282
Total fund
operating expenses (d) 1.65% 2.49% 2.48%
==== ==== ====
<CAPTION>
International Premier
Growth Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.00% 1.00% 1.00% After 1 year $ 67 $ 72 $ 32 $ 42 $ 32
12b-1 fees .30% 1.00% 1.00% After 3 years $117 $119 $ 99 $ 99 $ 99
Other expenses (a) 1.20% 1.20% 1.20% After 5 years $170 $167 $167 $167 $167
---- ---- ---- After 10 years $314 $334(b) $334(b) $350 $350
Total fund
operating expenses (d) 2.50% 3.20% 3.20%
==== ==== ====
<CAPTION>
Worldwide Privatization Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.00% 1.00% 1.00% After 1 year $ 59 $ 65 $ 25 $ 35 $ 25
12b-1 fees .30% 1.00% 1.00% After 3 years $ 95 $ 96 $ 76 $ 76 $ 76
Other expenses (a) .43% .45% .44% After 5 years $132 $131 $131 $130 $130
---- ---- ---- After 10 years $238 $261(b) $261(b) $278 $278
Total fund
operating expenses 1.73% 2.45% 2.44%
==== ==== ====
<CAPTION>
New Europe Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.02% 1.02% 1.02% After 1 year $ 60 $ 66 $ 26 $ 36 $ 26
12b-1 fees .30% 1.00% 1.00% After 3 years $ 98 $ 99 $ 79 $ 79 $ 79
Other expenses (a) .52% .52% .52% After 5 years $138 $135 $135 $135 $135
---- ---- ---- After 10 years $249 $270(b) $270(b) $288 $288
Total fund
operating expenses 1.84% 2.54% 2.54%
==== ==== ====
<CAPTION>
All-Asia Investment Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees After 1 year $ 63 $ 68 $ 28 $ 38 $ 28
(after waiver) (c) .65% .65% .65% After 3 years $104 $106 $ 86 $ 86 $ 86
12b-1 fees .30% 1.00% 1.00% After 5 years $149 $146 $146 $146 $146
Other expenses After 10 years $271 $293(b) $293(b) $310 $310
Administration fees
(after waiver) (e) .00% .00% .00%
Other operating
expenses (a) 1.11% 1.12% 1.12%
---- ---- ----
Total fund
operating expenses (d) 2.06% 2.77% 2.77%
==== ==== ====
<CAPTION>
Greater China '97 Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.00% 1.00% 1.00% After 1 year $ 67 $ 72 $ 32 $ 42 $ 32
12b-1 fees .30% 1.00% 1.00% After 3 years $117 $119 $ 99 $ 99 $ 99
Other expenses (a) 1.20% 1.20% 1.20% After 5 years $170 $167 $167 $167 $167
---- ---- ---- After 10 years $314 $334(b) $334(b) $350 $350
Total fund
operating expenses 2.50% 3.20% 3.20%
==== ==== ====
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 6.
5
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Operating Expenses Examples
- -------------------------------------------------------- -------------------------------------------------------------
Global Small Cap Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ---------------- ------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.00% 1.00% 1.00% After 1 year $ 63 $ 69 $ 29 $ 39 $ 29
12b-1 fees .30% 1.00% 1.00% After 3 years $107 $109 $ 89 $ 88 $ 88
Other expenses (a) .84% .86% .85% After 5 years $153 $151 $151 $150 $150
---- ---- ---- After 10 years $279 $301(b) $301(b) $318 $318
Total fund
operating expenses 2.14% 2.86% 2.85%
==== ==== ====
<CAPTION>
Global Environment Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ---------------- ------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.10% 1.10% 1.10% After 1 year $ 69 $ 74 $ 34 $ 44 $ 34
12b-1 fees .30% 1.00% 1.00% After 3 years $122 $123 $103 $104 $104
Other expenses (a) 1.29% 1.26% 1.29% After 5 years $179 $175 $175 $176 $176
---- ---- ---- After 10 years $332 $350(b) $350(b) $368 $368
Total fund
operating expenses 2.69% 3.36% 3.39%
==== ==== ====
<CAPTION>
Balanced Shares Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ---------------- ------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .63% .63% .63% After 1 year $ 55 $ 61 $ 21 $ 31 $ 21
12b-1 fees .24% 1.00% 1.00% After 3 years $ 82 $ 84 $ 64 $ 64 $ 64
Other expenses (a) .42% .42% .41% After 5 years $110 $110 $110 $110 $110
---- ---- ---- After 10 years $192 $218(b) $218(b) $237 $237
Total fund
operating expenses 1.29% 2.05% 2.04%
==== ==== ====
<CAPTION>
Utility Income Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ---------------- ------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 0.00% 0.00% 0.00% After 1 year $ 57 $ 62 $ 22 $ 32 $ 22
(after waiver) (c) After 3 years $ 88 $ 89 $ 69 $ 69 $ 69
12b-1 fees .30% 1.00% 1.00% After 5 years $121 $118 $118 $118 $118
Other expenses (a) 1.20% 1.20% 1.20% After 10 years $214 $236(b) $236(b) $253 $253
---- ---- ----
Total fund
operating expenses (d) 1.50% 2.20% 2.20%
==== ==== ====
<CAPTION>
Growth and Income Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ---------------- ------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .49% .49% .49% After 1 year $ 51 $ 57 $ 17 $ 27 $ 17
12b-1 fees .22% 1.00% 1.00% After 3 years $ 71 $ 74 $ 54 $ 54 $ 54
Other expenses (a) .21% .23% .22% After 5 years $ 91 $ 93 $ 93 $ 93 $ 93
---- ---- ---- After 10 years $151 $182(b) $182(b) $202 $202
Total fund
operating expenses .92% 1.72% 1.71%
==== ==== ====
<CAPTION>
Real Estate Investment Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ---------------- ------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .90% .90% .90% After 1 year $ 58 $ 63 $ 23 $ 33 $ 23
12b-1 fees .30% 1.00% 1.00% After 3 years $ 89 $ 91 $ 71 $ 71 $ 71
Other expenses (a) .35% .36% .36% After 5 years $123 $121 $121 $121 $121
---- ---- ---- After 10 years $219 $242(b) $242(b) $260 $260
Total fund
operating expenses 1.55% 2.26% 2.26%
==== ==== ====
</TABLE>
- --------------------------------------------------------------------------------
+ Assumes redemption at end of period.
++ Assumes no redemption at end of period.
(a) These expenses include a transfer agency fee payable to Alliance Fund
Services, Inc., an affiliate of Alliance. The expenses shown reflect the
application of credits that reduce Fund expenses.
(b) Assumes Class B shares converted to Class A shares after eight years.
(c) Net of voluntary fee waiver. In the absence of such waiver, management fees
would be .75% for Utility Income Fund, 1.00% for All-Asia Investment Fund
and 1.00% for International Fund.
(d) Net of voluntary fee waivers and expense reimbursements. Absent such
waivers and/or reimbursements, total fund annualized operating expenses
would have been as follows:
All-Asia Investment Fund Greater China '97 Fund
Class A 2.56% Class A 18.27%
Class B 3.27% Class B 19.18%
Class C 3.27% Class C 19.37%
International Fund International Premier Growth Fund
Class A 1.80% Class A 6.40%
Class B 2.64% Class B 7.05%
Class C 2.63% Class C 6.70%
Utility Income Fund
Class A 3.55%
Class B 4.28%
Class C 4.28%
(e) Net of voluntary fee waiver. Absent such fee waiver, administration fees
would have been .15% for the Fund's Class A, Class B and Class C shares.
Reflects the fees payable by All-Asia Investment Fund to Alliance pursuant
to an administration agreement.
(f) Calculated based on average daily net assets. Maximum contractual rate,
based on quarter-end net assets, is 1.00% for each of International Fund,
Quasar Fund and Technology Fund.
6
<PAGE>
The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in a Fund will bear directly or
indirectly. Long-term shareholders of a Fund may pay aggregate sales charges
totaling more than the economic equivalent of the maximum initial sales charges
permitted by the Conduct Rules of the National Association of Securities
Dealers, Inc. See "Management of the Funds--Distribution Services Agreements."
The Rule 12b-1 fee for each class comprises a service fee not exceeding .25% of
the aggregate average daily net assets of the Fund attributable to the class and
an asset-based sales charge equal to the remaining portion of the Rule 12b-1
fee. "Management fees" for All-Asia Investment Fund and "Administration fees"
for All-Asia Investment Fund have been restated to reflect current voluntary fee
waivers. "Other Expenses" for Global Environment Fund and International Premier
Growth are based on estimated amounts for its current fiscal year. The Examples
set forth above assume reinvestment of all dividends and distributions and
utilize a 5% annual rate of return as mandated by Commission regulations. The
Examples should not be considered representative of past or future expenses;
actual expenses may be greater or less than those shown.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The tables on the following pages present, for each Fund, per share income and
capital changes for a share outstanding throughout each period indicated. Except
as otherwise indicated, the information in the tables for Alliance Fund, Growth
Fund, Premier Growth Fund, Balanced Shares, Utility Income Fund, Worldwide
Privatization Fund International Premier Growth Fund and Growth and Income Fund
has been audited by PricewaterhouseCooper LLP, the independent accountants for
each Fund, and for All-Asia Investment Fund, Technology Fund, Quasar Fund,
International Fund, New Europe Fund, Greater China '97 Fund, Global Small Cap
Fund, Global Environment Fund and Real Estate Investment Fund by Ernst & Young
LLP, the independent auditors for each Fund. A report of PricewaterhouseCooper
LLP or Ernst & Young LLP, as the case may be, on the information with respect to
each Fund, appears in the Fund's Statement of Additional Information. The
following information for each Fund should be read in conjunction with the
financial statements and related notes which are included in the Fund's
Statement of Additional Information.
Further information about a Fund's performance is contained in the Fund's annual
report to shareholders, which may be obtained without charge by contacting
Alliance Fund Services, Inc. at the address or the "For Literature" telephone
number shown on the cover of this Prospectus.
7
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment
Fiscal Year or Period Period Income (Loss) Investments From Operations Income
------------------- ------------ -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Alliance Fund
Class A
12/1/97 to 5/31/98+++........... $8.70 $(.01)(b) $ .48 $. 47 $0.00
Year ended 11/30/97 ............ 7.71 (.02)(b) 2.09 2.07 (.02)
Year ended 11/30/96 ............ 7.72 .02 1.06 1.08 (.02)
Year ended 11/30/95 ............ 6.63 .02 2.08 2.10 (.01)
1/1/94 to 11/30/94** ........... 6.85 .01 (.23) (.22) 0.00
Year ended 12/31/93 ............ 6.68 .02 .93 .95 (.02)
Year ended 12/31/92 ............ 6.29 .05 .87 .92 (.05)
Year ended 12/31/91 ............ 5.22 .07 1.70 1.77 (.07)
Year ended 12/31/90 ............ 6.87 .09 (.32) (.23) (.18)
Year ended 12/31/89 ............ 5.60 .12 1.19 1.31 (.04)
Year ended 12/31/88 ............ 5.15 .08 .80 .88 (.08)
Class B
12/1/97 to 5/31/98+++........... $8.25 $(.04)(b) $ .45 $. 41 $0.00
Year ended 11/30/97 ............ 7.40 (.08)(b) 1.99 1.91 0.00
Year ended 11/30/96 ............ 7.49 (.01) .99 .98 0.00
Year ended 11/30/95 ............ 6.50 (.03) 2.02 1.99 0.00
1/1/94 to 11/30/94** ........... 6.76 (.03) (.23) (.26) 0.00
Year ended 12/31/93 ............ 6.64 (.03) .91 .88 0.00
Year ended 12/31/92 ............ 6.27 (.01)(b) .87 .86 (.01)
3/4/91++ to 12/31/91 ........... 6.14 .01 (b) .79 .80 (.04)
Class C
12/1/97 to 5/31/98+++........... $8.26 $(.04)(b) $ .45 $. 41 $0.00
Year ended 11/30/97 ............ 7.41 (.08)(b) 1.99 1.91 0.00
Year ended 11/30/96 ............ 7.50 (.02) 1.00 .98 0.00
Year ended 11/30/95 ............ 6.50 (.03) 2.03 2.00 0.00
1/1/94 to 11/30/94** ........... 6.77 (.03) (.24) (.27) 0.00
5/3/93++ to 12/31/93 ........... 6.67 (.02) .88 .86 0.00
Growth Fund (g)
Class A
11/1/97 to 4/30/98+++........... $43.95 $(.06)(b) $ 7.47 $ 7.53 $0.00
Year ended 10/31/97 ............ 34.91 (.10)(b) 10.17 10.07 0.00
Year ended 10/31/96 ............ 29.48 .05 6.20 6.25 (.19)
Year ended 10/31/95 ............ 25.08 .12 4.80 4.92 (.11)
5/1/94 to 10/31/94** ........... 23.89 .09 1.10 1.19 0.00
Year ended 4/30/94 ............. 22.67 (.01)(c) 3.55 3.54 0.00
Year ended 4/30/93 ............. 20.31 .05 (c) 3.68 3.73 (.14)
Year ended 4/30/92 ............. 17.94 .29 (c) 3.95 4.24 (.26)
9/4/90++ to 4/30/91 ............ 13.61 .17 (c) 4.22 4.39 (.06)
Class B
11/1/97 to 4/30/98+++........... $36.31 $(.09)(b) $ 6.11 $ 6.02 $0.00
Year ended 10/31/97 ............ 29.21 (.31)(b) 8.44 8.13 0.00
Year ended 10/31/96 ............ 24.78 (.12) 5.18 5.06 0.00
Year ended 10/31/95 ............ 21.21 (.02) 4.01 3.99 (.01)
5/1/94 to 10/31/94** ........... 20.27 .01 .93 .94 0.00
Year ended 4/30/94 ............. 19.68 (.07)(c) 2.98 2.91 0.00
Year ended 4/30/93 ............. 18.16 (.06)(c) 3.23 3.17 (.03)
Year ended 4/30/92 ............. 16.88 .17 (c) 3.67 3.84 (.21)
Year ended 4/30/91 ............. 14.38 .08 (c) 3.22 3.30 (.09)
Year ended 4/30/90 ............. 14.13 .01 (b)(c) 1.26 1.27 0.00
Year ended 4/30/89 ............. 12.76 (.01)(c) 2.44 2.43 0.00
10/23/87+ to 4/30/88 ........... 10.00 (.02)(c) 2.78 2.76 0.00
Class C
11/1/97 to 4/30/98+++........... $36.33 $(.09)(b) $ 6.11 $ 6.02 $0.00
Year ended 10/31/97 ............ 29.22 (.31)(b) 8.45 8.14 0.00
Year ended 10/31/96 ............ 24.79 (.12) 5.18 5.06 0.00
Year ended 10/31/95 ............ 21.22 (.03) 4.02 3.99 (.01)
5/1/94 to 10/31/94** ........... 20.28 .01 .93 .94 0.00
8/2/93++ to 4/30/94 ............ 21.47 (.02)(c) 1.15 1.13 0.00
Premier Growth Fund
Class A
12/1/97 to 5/31/98+++........... $22.00 $(.05)(b) $ 4.71 $ 4.66 $0.00
Year ended 11/30/97 ............ 17.98 (.10)(b) 5.20 5.10 0.00
Year ended 11/30/96 ............ 16.09 (.04)(b) 3.20 3.16 0.00
Year ended 11/30/95 ............ 11.41 (.03) 5.38 5.35 0.00
Year ended 11/30/94 ............ 11.78 (.09) (.28) (.37) 0.00
Year ended 11/30/93 ............ 10.79 (.05) 1.05 1.00 (.01)
9/28/92+ to 11/30/92 ........... 10.00 .01 .78 .79 0.00
Class B
12/1/97 to 5/31/98+++........... $21.26 $(.12)(b) $ 4.53 $ 4.41 $0.00
Year ended 11/30/97 ............ 17.52 (.23)(b) 5.05 4.82 0.00
Year ended 11/30/96 ............ 15.81 (.14)(b) 3.12 2.98 0.00
Year ended 11/30/95 ............ 11.29 (.11) 5.30 5.19 0.00
Year ended 11/30/94 ............ 11.72 (.15) (.28) (.43) 0.00
Year ended 11/30/93 ............ 10.79 (.10) 1.03 .93 0.00
9/28/92+ to 11/30/92 ........... 10.00 0.00 .79 .79 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 18.
8
<PAGE>
<TABLE>
<CAPTION>
Total
Total Net Asset Investment
Distributions Dividends Value Return Based
From Net And End Of on Net Asset
Fiscal Year or Period Realized Gains Distributions Period Value (a)
------------------- -------------- -------------- ---------- ------------
<S> <C> <C> <C> <C>
Alliance Fund
Class A $(2.17) $(2.17) $7.00 7.31%
Year ended 11/30/97 ............ (1.06) (1.08) 8.70 31.82
Year ended 11/30/96 ............ (1.07) (1.09) 7.71 16.49
Year ended 11/30/95 ............ (1.00) (1.01) 7.72 37.87
1/1/94 to 11/30/94** ........... 0.00 0.00 6.63 (3.21)
Year ended 12/31/93 ............ (.76) (.78) 6.85 14.26
Year ended 12/31/92 ............ (.48) (.53) 6.68 14.70
Year ended 12/31/91 ............ (.63) (.70) 6.29 33.91
Year ended 12/31/90 ............ (1.24) (1.42) 5.22 (4.36)
Year ended 12/31/89 ............ 0.00 (.04) 6.87 23.42
Year ended 12/31/88 ............ (.35) (.43) 5.60 17.10
Class B
$(2.17) $(2.17) $6.49 6.87%
Year ended 11/30/97 ............ (1.06) (1.06) 8.25 30.74
Year ended 11/30/96 ............ (1.07) (1.07) 7.40 15.47
Year ended 11/30/95 ............ (1.00) (1.00) 7.49 36.61
1/1/94 to 11/30/94** ........... 0.00 0.00 6.50 (3.85)
Year ended 12/31/93 ............ (.76) (.76) 6.76 13.28
Year ended 12/31/92 ............ (.48) (.49) 6.64 13.75
3/4/91++ to 12/31/91 ........... (.63) (.67) 6.27 13.10
Class C
$(2.17) $(2.17) $6.50 6.86%
Year ended 11/30/97 ............ (1.06) (1.06) 8.26 30.72
Year ended 11/30/96 ............ (1.07) (1.07) 7.41 15.48
Year ended 11/30/95 ............ (1.00) (1.00) 7.50 36.79
1/1/94 to 11/30/94** ........... 0.00 0.00 6.50 (3.99)
5/3/93++ to 12/31/93 ........... (.76) (.76) 6.77 13.95
Growth Fund (i)
Class A
$(2.91) $(2.91) $48.57 17.96%
Year ended 10/31/97 ............ (1.03) (1.03) 43.95 29.54
Year ended 10/31/96 ............ (.63) (.82) 34.91 21.65
Year ended 10/31/95 ............ (.41) (.52) 29.48 20.18
5/1/94 to 10/31/94** ........... 0.00 0.00 25.08 4.98
Year ended 4/30/94 ............. (2.32) (2.32) 23.89 15.66
Year ended 4/30/93 ............. (1.23) (1.37) 22.67 18.89
Year ended 4/30/92 ............. (1.61) (1.87) 20.31 23.61
9/4/90++ to 4/30/91 ............ 0.00 (.06) 17.94 32.40
Class B
$(2.91) $(2.91) $39.42 17.56%
Year ended 10/31/97 ............ (1.03) (1.03) 36.31 28.64
Year ended 10/31/96 ............ (.63) (.63) 29.21 20.82
Year ended 10/31/95 ............ (.41) (.42) 24.78 19.33
5/1/94 to 10/31/94** ........... 0.00 0.00 21.21 4.64
Year ended 4/30/94 ............. (2.32) (2.32) 20.27 14.79
Year ended 4/30/93 ............. (1.62) (1.65) 19.68 18.16
Year ended 4/30/92 ............. (2.35) (2.56) 18.16 22.75
Year ended 4/30/91 ............. (.71) (.80) 16.88 24.72
Year ended 4/30/90 ............. (1.02) (1.02) 14.38 8.81
Year ended 4/30/89 ............. (1.06) (1.06) 14.13 20.31
10/23/87+ to 4/30/88 ........... 0.00 0.00 12.76 27.60
Class C
$(2.91) $(2.91) $39.44 17.55%
Year ended 10/31/97 ............ (1.03) (1.03) 36.33 28.66
Year ended 10/31/96 ............ (.63) (.63) 29.22 20.81
Year ended 10/31/95 ............ (.41) (.42) 24.79 19.32
5/1/94 to 10/31/94** ........... 0.00 0.00 21.22 4.64
8/2/93++ to 4/30/94 ............ (2.32) (2.32) 20.28 5.27
Premier Growth Fund
Class A
$(1.44) $(1.44) $25.22 22.74%
Year ended 11/30/97 ............ (1.08) (1.08) 22.00 30.46
Year ended 11/30/96 ............ (1.27) (1.27) 17.98 21.52
Year ended 11/30/95 ............ (.67) (.67) 16.09 49.95
Year ended 11/30/94 ............ 0.00 0.00 11.41 (3.14)
Year ended 11/30/93 ............ 0.00 (.01) 11.78 9.26
9/28/92+ to 11/30/92 ........... 0.00 0.00 10.79 7.90
Class B
$(1.44) $(1.44) $24.23 22.33%
Year ended 11/30/97 ............ (1.08) (1.08) 21.26 29.62
Year ended 11/30/96 ............ (1.27) (1.27) 17.52 20.70
Year ended 11/30/95 ............ (.67) (.67) 15.81 49.01
Year ended 11/30/94 ............ 0.00 0.00 11.29 (3.67)
Year ended 11/30/93 ............ 0.00 0.00 11.72 8.64
9/28/92+ to 11/30/92 ........... 0.00 0.00 10.79 7.90
<CAPTION>
Net Assets Ratio Of Net
At End Of Ratio Of Investment
Period Expenses Income (Loss)
(000's To Average To Average Portfolio
Fiscal Year or Period omitted) Net Assets Net Assets Turnover Rate
------------------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C>
Alliance Fund
Class A $1,188,742 98%* (.29)%* 53%
Year ended 11/30/97 ........... 1,201,435 1.03 (.29) 158
Year ended 11/30/96 ........... 999,067 1.04 .30 80
Year ended 11/30/95 ........... 945,309 1.08 .31 81
1/1/94 to 11/30/94** .......... 760,679 1.05* .21* 63
Year ended 12/31/93 ........... 831,814 1.01 .27 66
Year ended 12/31/92 ........... 794,733 .81 .79 58
Year ended 12/31/91 ........... 748,226 .83 1.03 74
Year ended 12/31/90 ........... 620,374 .81 1.56 71
Year ended 12/31/89 ........... 837,429 .75 1.79 81
Year ended 12/31/88 ........... 760,619 .82 1.38 65
Class B
$ 99,866 1.80%* 1.09%* 53%
Year ended 11/30/97 ........... 70,461 1.85 (1.12) 158
Year ended 11/30/96 ........... 44,450 1.87 (.53) 80
Year ended 11/30/95 ........... 31,738 1.90 (.53) 81
1/1/94 to 11/30/94** .......... 18,138 1.89* (.60)* 63
Year ended 12/31/93 ........... 12,402 1.90 (.64) 66
Year ended 12/31/92 ........... 3,825 1.64 (.04) 58
3/4/91++ to 12/31/91 .......... 852 1.64* .10* 74
Class C
$ 30,980 1.79%* 1.09%* 53%
Year ended 11/30/97 ........... 18,871 1.83 (1.10) 158
Year ended 11/30/96 ........... 13,899 1.86 (.51) 80
Year ended 11/30/95 ........... 10,078 1.89 (.51) 81
1/1/94 to 11/30/94** .......... 6,230 1.87* (.59)* 63
5/3/93++ to 12/31/93 .......... 4,006 1.94* (.74)* 66
Growth Fund (i)
Class A
$ 982,831 1.17%* .24%* 27%
ear ended 10/31/97 ........... 783,110 1.26 (i) (.25) 48
Year ended 10/31/96 ........... 499,459 1.30 .15 46
Year ended 10/31/95 ........... 285,161 1.35 .56 61
5/1/94 to 10/31/94** .......... 167,800 1.35* .86* 24
Year ended 4/30/94 ............ 102,406 1.40 (f) .32 87
Year ended 4/30/93 ............ 13,889 1.40 (f) .20 124
Year ended 4/30/92 ............ 8,228 1.40 1.44 137
9/4/90++ to 4/30/91 ........... 713 1.40* 1.99* 130
Class B
$4,352,301 1.88%* (.47)% 27%
Year ended 10/31/97 ........... 3,578,806 1.96 (i) (.94) 48
Year ended 10/31/96 ........... 2,498,097 1.99 (.54) 46
Year ended 10/31/95 ........... 1,052,020 2.05 (.15) 61
5/1/94 to 10/31/94** .......... 751,521 2.05* .16* 24
Year ended 4/30/94 ............ 394,227 2.10 (f) (.36) 87
Year ended 4/30/93 ............ 56,704 2.15 (f) (.53) 124
Year ended 4/30/92 ............ 37,845 2.15 .78 137
Year ended 4/30/91 ............ 22,710 2.10 .56 130
Year ended 4/30/90 ............ 15,800 2.00 .07 165
Year ended 4/30/89 ............ 7,672 2.00 (.03) 139
10/23/87+ to 4/30/88 .......... 1,938 2.00* (.40)* 52
Class C
$ 730,631 1.88% (.47)%* 27%
Year ended 10/31/97 ........... 599,449 1.97 (i) (.95)% 48
Year ended 10/31/96 ........... 403,478 2.00 (.55) 46
Year ended 10/31/95 ........... 226,662 2.05 (.15) 61
5/1/94 to 10/31/94** .......... 114,455 2.05* .16* 24
8/2/93++ to 4/30/94 ........... 64,030 2.10*(f) (.31)* 87
Premier Growth Fund
Class A
$ 796,794 1.51%* (.40)% 30%
Year ended 11/30/97 ........... 373,099 1.57 (.52) 76
Year ended 11/30/96 ........... 172,870 1.65 (.27) 95
Year ended 11/30/95 ........... 72,366 1.75 (.28) 114
Year ended 11/30/94 ........... 35,146 1.96 (.67) 98
Year ended 11/30/93 ........... 40,415 2.18 (.61) 68
9/28/92+ to 11/30/92 .......... 4,893 2.17* .91* 0
Class B
$1,633,922 2.20% (1.10)%* 30%
Year ended 11/30/97 ........... 858,449 2.25 (1.20)% 76
Year ended 11/30/96 ........... 404,137 2.32 (.94) 95
Year ended 11/30/95 ........... 238,088 2.43 (.95) 114
Year ended 11/30/94 ........... 139,988 2.47 (1.19) 98
Year ended 11/30/93 ........... 151,600 2.70 (1.14) 68
9/28/92+ to 11/30/92 .......... 19,941 2.68* .35* 0
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment
Fiscal Year or Period Period Income (Loss) Investments From Operations Income
------------------- ------------ -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Premier Growth Fund (continued)
Class C
12/1/97 to 5/31/98+++........... $21.29 $(.12)(b) $4.54 $4.42 $0.00
Year ended 11/30/97 ............ 17.54 (.24)(b) 5.07 4.83 0.00
Year ended 11/30/96 ............ 15.82 (.14)(b) 3.13 2.99 0.00
Year ended 11/30/95 ............ 11.30 (.08) 5.27 5.19 0.00
Year ended 11/30/94 ............ 11.72 (.09) (.33) (.42) 0.00
5/3/93++ to 11/30/93 ........... 10.48 (.05) 1.29 1.24 0.00
Technology Fund
Class A
12/1/97 to 5/31/98+++........... $54.44 $(.30)(b) $6.90 $6.60 $0.00
Year ended 11/30/97 ............ 51.15 (.51)(b) 4.22 3.71 0.00
Year ended 11/30/96 ............ 46.64 (.39)(b) 7.28 6.89 0.00
Year ended 11/30/95 ............ 31.98 (.30) 18.13 17.83 0.00
1/1/94 to 11/30/94** ........... 26.12 (.32) 6.18 5.86 0.00
Year ended 12/31/93 ............ 28.20 (.29) 6.39 6.10 0.00
Year ended 12/31/92 ............ 26.38 (.22)(b) 4.31 4.09 0.00
Year ended 12/31/91 ............ 19.44 (.02) 10.57 10.55 0.00
Year ended 12/31/90 ............ 21.57 (.03) (.56) (.59) 0.00
Year ended 12/31/89 ............ 20.35 0.00 1.22 1.22 0.00
Year ended 12/31/88 ............ 20.22 (.03)(c) .16 .13 0.00
Class B
12/1/97 to 5/31/98+++........... $52.58 $(.49)(b) $6.66 $6.17 $0.00
Year ended 11/30/97 ............ 49.76 (.88)(b) 4.12 3.24 0.00
Year ended 11/30/96 ............ 45.76 (.70)(b) 7.08 6.38 0.00
Year ended 11/30/95 ............ 31.61 (.60)(b) 17.92 17.32 0.00
1/1/94 to 11/30/94** ........... 25.98 (.23) 5.86 5.63 0.00
5/3/93++ to 12/31/93 ........... 27.44 (.12) 6.84 6.72 0.00
Class C
12/1/97 to 5/31/98+++........... $52.57 $(.48)(b) $6.65 $6.17 $0.00
Year ended 11/30/97 ............ 49.76 (.88)(b) 4.11 3.23 0.00
Year ended 11/30/96 ............ 45.77 (.70)(b) 7.07 6.37 0.00
Year ended 11/30/95 ............ 31.61 (.58)(b) 17.91 17.33 0.00
1/1/94 to 11/30/94** ........... 25.98 (.24) 5.87 5.63 0.00
5/3/93++ to 12/31/93 ........... 27.44 (.13) 6.85 6.72 0.00
Quasar Fund
Class A
10/1/97 to 3/31/98+++........... $30.37 $(.09)(b) $2.36 $2.27 $0.00
Year ended 9/30/97 ............. 27.92 (.24)(b) 6.80 6.56 0.00
Year ended 9/30/96 ............. 24.16 (.25) 8.82 8.57 0.00
Year ended 9/30/95 ............. 22.65 (.22)(b) 5.59 5.37 0.00
Year ended 9/30/94 ............. 24.43 (.60) (.36) (.96) 0.00
Year ended 9/30/93 ............. 19.34 (.41) 6.38 5.97 0.00
Year ended 9/30/92 ............. 21.27 (.24) (1.53) (1.77) 0.00
Year ended 9/30/91 ............. 15.67 (.05) 5.71 5.66 (.06)
Year ended 9/30/90 ............. 24.84 .03(b) (7.18) (7.15) 0.00
Year ended 9/30/89 ............. 17.60 .02(b) 7.40 7.42 0.00
Year ended 9/30/88 ............. 24.47 (.08)(c) (2.08) (2.16) 0.00
Class B
10/1/97 to 3/31/98+++........... $27.83 $(.19)(b) $2.15 $1.96 $0.00
Year ended 9/30/97 ............. 26.13 (.42)(b) (6.23) 5.81 0.00
Year ended 9/30/96 ............. 23.03 (.20) 8.11 7.91 0.00
Year ended 9/30/95 ............. 21.92 (.37)(b) 5.34 4.97 0.00
Year ended 9/30/94 ............. 23.88 (.53) (.61) (1.14) 0.00
Year ended 9/30/93 ............. 19.07 (.18) 5.87 5.69 0.00
Year ended 9/30/92 ............. 21.14 (.39) (1.52) (1.91) 0.00
Year ended 9/30/91 ............. 15.66 (.13) 5.67 5.54 (.06)
9/17/90++ to 9/30/90 ........... 17.17 (.01) (1.50) (1.51) 0.00
Class C
10/1/97 to 3/31/98+++........... $27.85 $(.19)(b) $2.14 $1.95 $0.00
Year ended 9/30/97 ............. 26.14 (.42)(b) 6.24 5.82 0.00
Year ended 9/30/96 ............. 23.05 (.20) 8.10 7.90 0.00
Year ended 9/30/95 ............. 21.92 (.37)(b) 5.36 4.99 0.00
Year ended 9/30/94 ............. 23.88 (.36) (.78) (1.14) 0.00
5/3/93++ to 9/30/93 ............ 20.33 (.10) 3.65 3.55 0.00
International Fund
Class A
Year ended 6/30/98+++........... $18.69 $(.01)(b)(c) $1.13 $1.12 $(.05)
Year ended 6/30/97 ............. 18.32 .06(b) 1.51 1.57 (.12)
Year ended 6/30/96 ............. 16.81 .05(b) 2.51 2.56 0.00
Year ended 6/30/95 ............. 18.38 .04 .01 .05 0.00
Year ended 6/30/94 ............. 16.01 (.09) 3.02 2.93 0.00
Year ended 6/30/93 ............. 14.98 (.01) 1.17 1.16 (.04)
Year ended 6/30/92 ............. 14.00 .01(b) 1.04 1.05 (.07)
Year ended 6/30/91 ............. 17.99 .05 (3.54) (3.49) (.03)
Year ended 6/30/90 ............. 17.24 .03 2.87 2.90 (.04)
Year ended 6/30/89 ............. 16.09 .05 3.73 3.78 (.13)
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 18.
10
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets
Total Net Asset Investment At End Of
Distributions Dividends Value Return Based Period
From Net And End of on Net Asset (000's
Fiscal Year or Period Realized Gains Distributions Period Value (a) omitted)
--------------------- -------------- ------------- ------ --------- ----------
<S> <C> <C> <C> <C> <C>
Premier Growth Fund (continued)
Class C
12/1/97 to 5/31/98+++............. $(1.44) $(1.44) $24.27 22.35% $ 422,016
Year ended 11/30/97............... (1.08) (1.08) 21.29 29.64 177,923
Year ended 11/30/96............... (1.27) (1.27) 17.54 20.76 60,194
Year ended 11/30/95............... (.67) (.67) 15.82 48.96 20,679
Year ended 11/30/94............... 0.00 0.00 11.30 (3.58) 7,332
5/3/93++ to 11/30/93.............. 0.00 0.00 11.72 11.83 3,899
Technology Fund
Class A
12/1/97 to 5/31/98+++............. $(.58) $ (.58) $60.46 12.25% $ 720,675
Year ended 11/30/97............... (.42) (.42) 54.44 7.32 624,716
Year ended 11/30/96............... (2.38) (2.38) 51.15 16.05 594,861
Year ended 11/30/95............... (3.17) (3.17) 46.64 61.93 398,262
1/1/94 to 11/30/94/**/............ 0.00 0.00 31.98 22.43 202,929
Year ended 12/31/93............... (8.18) (8.18) 26.12 21.63 173,732
Year ended 12/31/92............... (2.27) (2.27) 28.20 15.50 173,566
Year ended 12/31/91............... (3.61) (3.61) 26.38 54.24 191,693
Year ended 12/31/90............... (1.54) (1.54) 19.44 (3.08) 131,843
Year ended 12/31/89............... 0.00 0.00 21.57 6.00 141,730
Year ended 12/31/88............... 0.00 0.00 20.35 0.64 169,856
Class B
12/1/97 to 5/31/98+++............. $ (.58) $ (.58) $58.17 11.87% $1,248,323
Year ended 11/30/97............... (.42) (.42) 52.58 6.57 1,053,436
Year ended 11/30/96............... (2.38) (2.38) 49.76 15.20 660,921
Year ended 11/30/95............... (3.17) (3.17) 45.76 60.95 277,111
1/1/94 to 11/30/94/**/............ 0.00 0.00 31.61 21.67 18,397
5/3/93++ to 12/31/93.............. (8.18) (8.18) 25.98 24.49 1,645
Class C
12/1/97 to 5/31/98+++............. $ (.58) $ (.58) $58.16 11.86% $ 219,120
Year ended 11/30/97............... (.42) (.42) 52.57 6.55 184,194
Year ended 11/30/96............... (2.38) (2.38) 49.76 15.17 108,488
Year ended 11/30/95............... (3.17) (3.17) 45.77 60.98 43,161
1/1/94 to 11/30/94/**/............ 0.00 0.00 31.61 21.67 7,470
5/3/93++ to 12/31/93.............. (8.18) (8.18) 25.98 24.49 1,096
Quasar Fund
Class A
10/1/97 to 3/31/98+++............. $(1.23) $(1.23) $31.41 7.97% $ 562,517
Year ended 9/30/97................ (4.11) (4.11) 30.37 27.81 402,081
Year ended 9/30/96................ (4.81) (4.81) 27.92 42.42 229,798
Year ended 9/30/95................ (3.86) (3.86) 24.16 30.73 146,663
Year ended 9/30/94................ (.82) (.82) 22.65 (4.05) 155,470
Year ended 9/30/93................ (.88) (.88) 24.43 31.58 228,874
Year ended 9/30/92................ (.16) (.16) 19.34 (8.34) 252,140
Year ended 9/30/91................ 0.00 (.06) 21.27 36.28 333,806
Year ended 9/30/90................ (2.02) (2.02) 15.67 (30.81) 251,102
Year ended 9/30/89................ (.18) (.18) 24.84 42.68 263,099
Year ended 9/30/88................ (4.71) (4.71) 17.60 (8.61) 90,713
Class B
10/1/97 to 3/31/98+++............. $(1.23) $(1.23) $28.56 7.57% $ 716,818
Year ended 9/30/97................ (4.11) (4.11) 27.83 26.70 503,037
Year ended 9/30/96................ (4.81) (4.81) 26.13 41.48 112,490
Year ended 9/30/95................ (3.86) (3.86) 23.03 29.78 16,604
Year ended 9/30/94................ (.82) (.82) 21.92 (4.92) 13,901
Year ended 9/30/93................ (.88) (.88) 23.88 30.53 16,779
Year ended 9/30/92................ (.16) (.16) 19.07 (9.05) 9,454
Year ended 9/30/91................ 0.00 (.06) 21.14 35.54 7,346
9/17/90++ to 9/30/90.............. 0.00 0.00 15.66 (8.79) 71
Class C
10/1/97 to 3/31/98+++............. $(1.23) $(1.23) $28.57 7.53% $ 206,104
Year ended 9/30/97................ (4.11) (4.11) 27.85 26.74 145,494
Year ended 9/30/96................ (4.81) (4.81) 26.14 41.46 28,541
Year ended 9/30/95................ (3.86) (3.86) 23.05 29.87 1,611
Year ended 9/30/94................ (.82) (.82) 21.92 (4.92) 1,220
5/3/93++ to 9/30/93............... 0.00 0.00 23.88 17.46 118
International Fund
Class A
Year ended 6/30/98................ $(1.21) $(1.26) $18.55 6.79% $ 131,565
Year ended 6/30/97................ (1.08) (1.20) 18.69 9.30 190,173
Year ended 6/30/96................ (1.05) (1.05) 18.32 15.83 196,261
Year ended 6/30/95................ (1.62) (1.62) 16.81 .59 165,584
Year ended 6/30/94................ (.56) (.56) 18.38 18.68 201,916
Year ended 6/30/93................ (.09) (.13) 16.01 7.86 161,048
Year ended 6/30/92................ 0.00 (.07) 14.98 7.52 179,807
Year ended 6/30/91................ (.47) (.50) 14.00 (19.34) 214,442
Year ended 6/30/90................ (2.11) (2.15) 17.99 16.98 265,999
Year ended 6/30/89................ (2.50) (2.63) 17.24 27.65 166,003
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ratio Of Net
Ratio Of Investment
Expenses Income (Loss)
To Average To Average Portfolio
Fiscal Year or Period Net Assets Net Assets Turnover Rate
--------------------- ---------- ---------- -------------
<S> <C> <C> <C>
Premier Growth Fund (continued)
Class C
12/1/97 to 5/31/98+++............. 2.19%* (1.10)%* 30%
Year ended 11/30/97............... 2.24 (1.22) 76
Year ended 11/30/96............... 2.32 (.94) 95
Year ended 11/30/95............... 2.42 (.97) 114
Year ended 11/30/94............... 2.47 (1.16) 98
5/3/93++ to 11/30/93.............. 2.79* (1.35)* 68
Technology Fund
Class A
12/1/97 to 5/31/98+++............. 1.63%* (1.04)%* 31%
Year ended 11/30/97............... 1.67(i) (.97) 51
Year ended 11/30/96............... 1.74 (.87) 30
Year ended 11/30/95............... 1.75 (.77) 55
1/1/94 to 11/30/94/**/............ 1.66* (1.22)* 55
Year ended 12/31/93............... 1.73 (1.32) 64
Year ended 12/31/92............... 1.61 (.90) 73
Year ended 12/31/91............... 1.71 (.20) 134
Year ended 12/31/90............... 1.77 (.18) 147
Year ended 12/31/89............... 1.66 .02 139
Year ended 12/31/88............... 1.42 (.16) 139
Class B
12/1/97 to 5/31/98+++............. 2.35%(i)* (1.76)%* 31%
Year ended 11/30/97............... 2.38(i) (1.70) 51
Year ended 11/30/96............... 2.44 (1.61) 30
Year ended 11/30/95............... 2.48 (1.47) 55
1/1/94 to 11/30/94/**/............ 2.43* (1.95)* 55
5/3/93++ to 12/31/93.............. 2.57* (2.30)* 64
Class C
12/1/97 to 5/31/98+++............. 2.35%(i)* (1.77)%* 31%
Year ended 11/30/97............... 2.38(i) (1.70) 51
Year ended 11/30/96............... 2.44 (1.60) 30
Year ended 11/30/95............... 2.48 (1.47) 55
1/1/94 to 11/30/94/**/............ 2.41* (1.94)* 55
5/3/93++ to 12/31/93.............. 2.52* (2.25)* 64
Quasar Fund
Class A
10/1/97 to 3/31/98+++............. 1.56%* (.66)%* 63%
Year ended 9/30/97................ 1.67 (.91) 135
Year ended 9/30/96................ 1.79 (1.11) 168
Year ended 9/30/95................ 1.83 (1.06) 160
Year ended 9/30/94................ 1.67 (1.15) 110
Year ended 9/30/93................ 1.65 (1.00) 102
Year ended 9/30/92................ 1.62 (.89) 128
Year ended 9/30/91................ 1.64 (.22) 118
Year ended 9/30/90................ 1.66 .16 90
Year ended 9/30/89................ 1.73 .10 90
Year ended 9/30/88................ 1.28 (.40) 58
Class B
10/1/97 to 3/31/98+++............. 2.34%* (1.44)%* 63%
Year ended 9/30/97................ 2.51 (1.73) 135
Year ended 9/30/96................ 2.62 (1.96) 168
Year ended 9/30/95................ 2.65 (1.88) 160
Year ended 9/30/94................ 2.50 (1.98) 110
Year ended 9/30/93................ 2.46 (1.81) 102
Year ended 9/30/92................ 2.42 (1.67) 128
Year ended 9/30/91................ 2.41 (1.28) 118
9/17/90++ to 9/30/90.............. 2.09* (.26)* 90
Class C
10/1/97 to 3/31/98+++............. 2.33%* (1.44)%* 63%
Year ended 9/30/97................ 2.50 (1.72) 135
Year ended 9/30/96................ 2.61 (1.94) 168
Year ended 9/30/95................ 2.64* (1.76)* 160
Year ended 9/30/94................ 2.48 (1.96) 110
5/3/93++ to 9/30/93............... 2.49* (1.90)* 102
International Fund
Class A
Year ended 6/30/98................ 1.65%(f) (.05)% 121%
Year ended 6/30/97................ 1.74(i) .31 94
Year ended 6/30/96................ 1.72 .31 78
Year ended 6/30/95................ 1.73 .26 119
Year ended 6/30/94................ 1.90 (.50) 97
Year ended 6/30/93................ 1.88 (.14) 94
Year ended 6/30/92................ 1.82 .07 72
Year ended 6/30/91................ 1.73 .37 71
Year ended 6/30/90................ 1.45 .33 37
Year ended 6/30/89................ 1.41 .39 87
- ------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase Distributions
Value Unrealized (Decrease) In Dividends From In Excess Of
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment Net Investment
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Income
------------------- ------------ -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
International Fund (continued)
Class B
Year ended 6/30/98 ............. $17.71 $(.16)(b)(c) $ 1.07 $ .91 $0.00 $0.00
Year ended 6/30/97 ............. 17.45 (.09)(b) 1.43 1.34 0.00 0.00
Year ended 6/30/96 ............. 16.19 (.07)(b) 1.38) 2.31 0.00 0.00
Year ended 6/30/95 ............. 17.90 (.01) (0.08) (.09) 0.00 0.00
Year ended 6/30/94 ............. 15.74 (.19)(b) 2.91 2.72 0.00 0.00
Year ended 6/30/93 ............. 14.81 (.12) 1.14 1.02 0.00 0.00
Year ended 6/30/92 13.93 (.11)(b) 1.02 .91) (.03) 0.00
9/17/90++ to 6/30/91 ........... 15.52 .03 (1.12) (1.09) (.03) 0.00
Class C
Year ended 6/30/98 ............. $17.73 $(.15)(b)(c) $ 1.05 $ .90 $0.00 $0.00
Year ended 6/30/97 ............. 17.46 (.09)(b) 1.44 1.35 0.00 0.00
Year ended 6/30/96 ............. 16.20 (.07)(b) 2.38 2.31 0.00 0.00
Year ended 6/30/95 ............. 17.91 (.14) .05 (.09) 0.00 0.00
Year ended 6/30/94 ............. 15.74 (.11) 2.84 2.73 0.00 0.00
5/3/93++ to 6/30/93 ............ 15.93 0.00 (.19) (.19) 0.00 0.00
International Premier Growth fund
Class A
-------
3/3/98+ to 5/31/98+++ .......... $10.00 $ .04(b)(c) $ .30 $ .34 $0.00 $0.00
Class B
-------
3/3/98+ to 5/31/98+++ .......... $10.00 $ .03(b)(c) $ .30 $ .33 $0.00 $0.00
Class C
-------
3/3/98+ to 5/31/98+++ .......... $10.00 $ .02(b)(c) $ .30 $ .32 $0.00 $0.00
Worldwide Privatization Fund
Class A
Year ended 6/30/98 ............. $13.26 $ .10(b) $ .85 $ .95 $(.18) $0.00
Year ended 6/30/97 ............. 12.13 .15(b) 2.55 2.70 (.15) 0.00
Year ended 6/30/96 ............. 10.18 .10(b) 1.85 1.95 0.00 0.00
Year ended 6/30/95 ............. 9.75 .06 .37 .43 0.00 0.00
6/2/94+ to 6/30/94 ............. 10.00 .01 (.26) (.25) 0.00 0.00
Class B
Year ended 6/30/98 ............. $13.04 $ .02(b) $ .82 $ .84 $(.15) $0.00
Year ended 6/30/97 ............. 11.96 .08(b) 2.50 2.58 (.08) 0.00
Year ended 6/30/96 ............. 10.10 (.02) 1.88 1.86 0.00 0.00
Year ended 6/30/95 ............. 9.74 .02 .34 .36 0.00 0.00
6/2/94+ to 6/30/94 ............. 10.00 .00 (.26) (.26) 0.00 0.00
Class C
Year ended 6/30/98 ............. $13.04 $ .05(b) $ .79 $ .84 $(.15) $0.00
Year ended 6/30/97 ............. 11.96 .12(b) 2.46 2.58 (.08) 0.00
Year ended 6/30/96 ............. 10.10 .03 1.83 1.86 0.00 0.00
2/8/95++ to 6/30/9 ............. 9.53 .05 .52 .57 0.00 0.00
New Europe Fund
Class A
Year ended 7/31/98 ............. $18.61 $ .05(b) $ 5.28 $ 5.33 $0.00 $(.04)
Year ended 7/31/97 ............. 15.84 .07(b) 4.20 4.27 (.15) (.03)
Year ended 7/31/96 ............. 15.11 .18 1.02 1.20 0.00 0.00
Year ended 7/31/95 ............. 12.66 .04 2.50 2.54 (.09) 0.00
Period ended 7/31/94**.......... 12.53 .09 .04 .13 0.00 0.00
Year ended 2/28/94 ............. 9.37 .02(b) 3.14 3.16 0.00 0.00
Year ended 2/28/93 ............. 9.81 .04 (.33) (.29) (.15) 0.00
Year ended 2/29/92 ............. 9.76 .02(b) .05 .07 (.02) 0.00
4/2/90+ to 2/28/91 ............. 11.11(e) .26 (.91) (.65) (.26) 0.00
Class B
Year ended 7/31/98 ............. $17.87 $(.08)(b) $ 5.02 $ 4.94 $0.00 $0.00
Year ended 7/31/97 ............. 15.31 (.04)(b) 4.02 3.98 0.00 (.10)
Year ended 7/31/96 ............. 14.71 .08 .99 1.07 0.00 0.00
Year ended 7/31/95 ............. 12.41 (.05) 2.44 2.39 (.09) 0.00
Period ended 7/31/94**.......... 12.32 .07 .02 .09 0.00 0.00
Year ended 2/28/94 ............. 9.28 (.05)(b) 3.09 3.04 0.00 0.00
Year ended 2/28/93 ............. 9.74 (.02) (.33) (.35) (.11) 0.00
3/5/91++ to 2/29/92 ............ 9.84 (.04)(b) (.04) (.08) (.02) 0.00
Class C
Year ended 7/31/98 ............. $17.89 $(.08)(b) $ 5.01 $ 4.93 $0.00 $0.00
Year ended 7/31/97 ............. 15.33 (.04)(b) 4.02 3.98 0.00 (.10)
Year ended 7/31/96 ............. 14.72 .08 1.00 1.08 0.00 0.00
Year ended 7/31/95 ............. 12.42 (.07) 2.46 2.39 (.09) 0.00
Period ended 7/31/94**.......... 12.33 .06 .03 .09 0.00 0.00
5/3/93++ to 2/28/94 ............. 10.21 (.04)(b) 2.16 2.12 0.00 0.00
All-Asia Investment Fund
Class A
11/1/97 to 4/30/98+++........... $ 7.54 $(.07)(b)(c) $ (.26) $ (.33) $0.00 $0.00
Year ended 10/31/97 ............. 11.04 (.21)(b)(c) (2.95) (3.16) 0.00 0.00
Year ended 10/31/96 ............. 10.45 (.21)(b)(c) .88 .67 0.00 0.00
11/28/94+ to 10/31/9 ............ 10.00 (.19)(c) .64 .45 0.00 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 18.
12
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets
Total Net Asset Investment At End of
Distributions Dividends Value Return Based Period
From Net And End of On Net Asset (000's
Fiscal Year or Period Realized Gains Distributions Period Value (a) omitted)
------------------- -------------- -------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
International Fund (continued)
Class B
Year ended 6/30/98 ............. $(1.21) $(1.21) $17.41 5.92% $ 71,370
Year ended 6/30/97 ............. (1.08) (1.08) 17.71 8.37 77,725
Year ended 6/30/96 ............. (1.05) (1.05) 17.45 14.87 72,470
Year ended 6/30/95 ............. (1.62) (1.62) 16.19 (.22) 48,998
Year ended 6/30/94 ............. (.56) (.56) 17.90 17.65 29,943
Year ended 6/30/93 ............. (.09) (.09) 14.74 6.98 6,363
Year ended 6/30/92 ............. 0.00 (.03) 14.81 6.54 5,585
9/17/90++ to 6/30/91 ........... (.47) (.50) 13.93 (6.97) 3,515
Class C
Year ended 6/30/98 ............. $(1.21) $(1.21) $17.42 5.85% $ 20,428
Year ended 6/30/97 ............. (1.08) (1.08) 17.73 8.42 23,268
Year ended 6/30/96 ............. (1.05) (1.05) 17.46 14.85 26.965
Year ended 6/30/95 ............. (1.62) (1.62) 16.20 (.22) 19,395
Year ended 6/30/94 ............. (.56) (.56) 17.91 17.72 13,503
5/3/93++ to 6/30/93 ............ 0.00 0.00 15.74 (1.19) 229
International Premier Growth fund
Class A
3/3/98+ to 5/31/98+++ .......... 0.00 0.00 10.34 3.40 2,764
Class B
3/3/98+ to 5/31/98+++ .......... 0.00 0.00 10.33 3.30 7,042
Class C
3/3/98+ to 5/31/98+++ .......... 0.00 0.00 10.32 3.20 1,017
Worldwide Privatization Fund
Class A
Year ended 6/30/98 ............. $(1.36) $(1.54) $12.67 9.11% $ 467,960
Year ended 6/30/97 ............. (1.42) (1.57) 13.26 25.16 561,793
Year ended 6/30/96 ............. 0.00 0.00 12.13 19.16 672,732
Year ended 6/30/95 ............. 0.00 0.00 10.18 4.41 13,535
6/2/94+ to 6/30/94 ............. 0.00 0.00 9.75 (2.50) 4,990
Class B
Year ended 6/30/98 ............. $(1.36) $(1.51) $12.37 8.34% $ 156,348
Year ended 6/30/97 ............. (1.42) (1.50) 13.04 24.34 121,173
Year ended 6/30/96 ............. 0.00 0.00 11.96 18.42 83,050
Year ended 6/30/95 ............. 0.00 0.00 10.10 3.70 79,359
6/2/94+ to 6/30/94 ............. 0.00 0.00 9.74 (2.60) 22,859
Class C
Year ended 6/30/98 ............. $(1.36) $(1.51) $12.37 8.34% $ 26,635
Year ended 6/30/97 ............. (1.42) (1.50) 13.04 24.33 12,929
Year ended 6/30/96 ............. 0.00 0.00 11.96 18.42 2,383
2/8/95++ to 6/30/9 ............. 0.00 0.00 10.10 5.98 338
New Europe Fund
Class A
Year ended 7/31/98 ............. $(2.05) $(2.09) $21.85 32.21% $ 130,777
Year ended 7/31/97 ............. (1.32) (1.50) 18.61 28.78 78,578
Year ended 7/31/96 ............. (.47) (.47) 15.84 8.20 74,026
Year ended 7/31/95 ............. 0.00 (.09) 15.11 20.22 86,112
Period ended 7/31/94**.......... 0.00 0.00 12.66 1.04 86,739
Year ended 2/28/94 ............. 0.00 0.00 12.53 33.73 90,372
Year ended 2/28/93 ............. 0.00 (.15) 9.37 (2.82) 79,285
Year ended 2/29/92 ............. 0.00 (.02) 9.81 .74 108,510
4/2/90+ to 2/28/91 ............. (.44) (.70) 9.76 (5.63) 188,016
Class B
Year ended 7/31/98 ............. $(2.05) $(2.05) $20.76 31.22% $ 137,425
Year ended 7/31/97 ............. (1.32) (1.42) 17.87 27.76 77,032
Year ended 7/31/96 ............. (.47) (.47) 15.31 7.53 42,662
Year ended 7/31/95 ............. 0.00 (.09) 14.71 19.42 34,527
Period ended 7/31/94**.......... 0.00 0.00 12.41 .73 31,404
Year ended 2/28/94 ............. 0.00 0.00 12.32 32.76 20,729
Year ended 2/28/93 ............. 0.00 (.11) 9.28 (3.49) 1,732
3/5/91++ to 2/29/92............. 0.00 (.02) 9.74 .03 1,423
Class C
Year ended 7/31/98 ............. $(2.05) $(2.05) $20.77 31.19% $ 39,618
Year ended 7/31/97 ............. (1.32) (1.42) 17.89 27.73 16,907
Year ended 7/31/96 ............. (.47) (.47) 15.33 7.59 10,141
Year ended 7/31/95 ............. 0.00 (.09) 14.72 19.40 7,802
Period ended 7/31/94**.......... 0.00 0.00 12.42 .73 11,875
5/3/93++ to 2/28/94............. 0.00 0.00 12.33 20.77 10,886
All-Asia Investment Fund
Class A
11/1/97 to 4/30/98 ............ $ 0.00 $(0.00) $ 7.21 (4.38)% $ 4,816
Year ended 10/31/97 ............ .34 .34 7.54 (29.61) 5,916
Year ended 10/31/96 ............ (.08) (.08) 11.04 6.43 12,284
11/28/94+ to 10/31/95........... 0.00 0.00) 10.45 4.50 2,870
Ratio of Net
Ratio of Investment
Expenses Income (Loss)
To Average To Average Portfolio
Net Assets Net Assets Turnover Rate
------------ ------------- ---------------
Class B
Year ended 6/30/98 ............. 2.49%(f) (.90)% 121%
Year ended 6/30/97 ............. 2.59 (i) (.51) 94
Year ended 6/30/96 ............. 2.55 (.46) 78
Year ended 6/30/95 ............. 2.57 (.62) 119
Year ended 6/30/94 ............. 2.78 (1.15) 97
Year ended 6/30/93 ............. 2.70 (.96) 94
Year ended 6/30/92 ............. 2.68 (.70) 72
9/17/90++ to 6/30/91 ........... 3.39* .84* 71
Class C
Year ended 6/30/98 ............. 2.48%(f) (.90)% 121%
Year ended 6/30/97 ............. 2.58 (.51) 94
Year ended 6/30/96 ............. 2.53 (.47) 78
Year ended 6/30/95 ............. 2.54 (.88) 119
Year ended 6/30/94 ............. 2.78 (1.12) 97
5/3/93++ to 6/30/93 ............ 2.57* .08* 94
International Premier Growth fund
Class A
3/3/98+ to 5/31/98+++ .......... 2.50%* 2.08%* 26%
Class B
3/3/98+ to 5/31/98+++ .......... 3.20% 1.59%* 26%
Class C
3/3/98+ to 5/31/98+++ .......... 3.20% 1.42%* 26%
Worldwide Privatization Fund
Class A
Year ended 6/30/98 ............. 1.73% .80% 53%
Year ended 6/30/97 ............. 1.72 1.27 48
Year ended 6/30/96 ............. 1.87 .95 28
Year ended 6/30/95 ............. 2.56 .66 36
6/2/94+ to 6/30/94 ............. 2.75* 1.03* 0
Class B
Year ended 6/30/98 ............. 2.45% .20% 53%
Year ended 6/30/97 ............. 2.43 .66 48
Year ended 6/30/96 ............. 2.83 (.20) 28
Year ended 6/30/95 ............. 3.27 .01 36
6/2/94+ to 6/30/94 ............. 3.45* .33* 0
Class C
Year ended 6/30/98 ............. 2.44% .38% 53%
Year ended 6/30/97 ............. 2.42 1.06 48
Year ended 6/30/96 ............. 2.57 .63 28
2/8/95++ to 6/30/9 ............. 3.27* 2.65* 36
New Europe Fund
Class A
Year ended 7/31/98 ............. 1.85%(i) .25% 99%
Year ended 7/31/97 ............. 2.05 (i) .40 89
Year ended 7/31/96 ............. 2.14 1.10 69
Year ended 7/31/95 ............. 2.09 .37 74
Period ended 7/31/94**.......... 2.06* 1.85* 35
Year ended 2/28/94 ............. 2.30 .17 94
Year ended 2/28/93 ............. 2.25 .47 125
Year ended 2/29/92 ............. 2.24 .16 34
4/2/90+ to 2/28/91 ............. 1.52* 2.71* 48
Class B
Year ended 7/31/98 ............. 2.56%(i) (.40)% 99%
Year ended 7/31/97 ............. 2.75 (i) (.23) 89
Year ended 7/31/96 ............. 2.86 .59 69
Year ended 7/31/95 ............. 2.79 (.33) 74
Period ended 7/31/94**.......... 2.76 1.15* 35
Year ended 2/28/94 ............. 3.02 (.52) 94
Year ended 2/28/93 ............. 3.00 (.50) 125
3/5/91++ to 2/29/92............. 3.02* (.71)* 34
Class C
Year ended 7/31/98 ............. 2.56%(i) (.41)% 99%
Year ended 7/31/97 ............. 2.74 (i) (.23) 89
Year ended 7/31/96 ............. 2.87 .58 69
Year ended 7/31/95 ............. 2.78 (.33) 74
Period ended 7/31/94**.......... 2.76* 1.15* 35
5/3/93++ to 2/28/94............. 3.00* (.52)* 94
All-Asia Investment Fund
Class A
11/1/97 to 4/30/98 ............ 3.74%* (1.86)%* 87%
Year ended 10/31/97 ............ 3.45 (f) (1.97) 70
Year ended 10/31/96 ............ 3.37*(f) (1.75) 66
11/28/94+ to 10/31/95........... 4.42*(f) (1.87)* 90
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment
Fiscal Year or Period Period Income (Loss) Investments From Operations Income
------------------- ------------ -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
All-Asia Investment Fund (continued)
Class B
11/1/97 to 4/30/98+++..... $ 7.39 $(.09)(b)(c) $ (.25) $ (.34) $0.00
Year ended 10/31/97....... 10.90 (.28)(b)(c) (2.89) (3.17) 0.00
Year ended 10/31/96....... 10.41 (.28)(b)(c) .85 .57 0.00
11/28/94+ to 10/31/95..... 10.00 (.25)(c) .66 .41 0.00
Class C
11/1/97 to 4/30/98+++..... $ 7.40 $(.09)(b)(c) $ (.25) $ (.34) $0.00
Year ended 10/31/97....... $10.91 $(.27)(b)(c) $(2.90) $(3.17) $0.00
Year ended 10/31/96....... 10.41 (.28)(b)(c) .86 .58 0.00
11/28/94+ to 10/31/95..... 10.00 (.35)(c) .76 .41 0.00
Greater China '97 Fund
Class A
September 3, 1997 to 7/31/98..... $10.00 $ .08(b)(c) $(5.18) $(5.10) $(.06)
Class B
September 3, 1997 to 7/31/98..... $10.00 $ .03(b)(c) $(5.17) $(5.14) $(.03)
Class c
September 3, 1997 to 7/31/98..... $10.00 $ .03(b)(c) $(5.17) $(5.14) $(.03)
Global Small Cap Fund
Class A
Year ended 7/31/98........ $12.87 $(.11)(b) $ .37 $ .26 $0.00
Year ended 7/31/97........ 11.61 (.15)(b) 2.97 2.82 0.00
Year ended 7/31/96........ 10.38 (.14)(b) 1.90 1.76 0.00
Year ended 7/31/95........ 11.08 (.09) 1.50 1.41 0.00
Period ended 7/31/94**.... 11.24 (.15)(b) (.01) (.16) 0.00
Year ended 9/30/93........ 9.33 (.15) 2.49 2.34 0.00
Year ended 9/30/92........ 10.55 (.16) (1.03) (1.19) 0.00
Year ended 9/30/91........ 8.26 (.06) 2.35 2.29 0.00
Year ended 9/30/90........ 15.54 (.05)(b) (4.12) (4.17) 0.00
Year ended 9/30/89........ 11.41 (.03) 4.25 4.22 0.00
Class B
Year ended 7/31/98........ $12.03 $(.18)(b) $ .34 $ .16 $0.00
Year ended 7/31/97........ 11.03 (.21)(b) 2.77 2.56 0.00
Year ended 7/31/96........ 9.95 (.20)(b) 1.81 1.61 0.00
Year ended 7/31/95........ 10.78 (.12) 1.40 1.28 0.00
Period ended 7/31/94**.... 11.00 (.17)(b) (.05) (.22) 0.00
Year ended 9/30/93........ 9.20 (.15) 2.38 2.23 0.00
Year ended 9/30/92........ 10.49 (.20) (1.06) (1.26) 0.00
Year ended 9/30/91........ 8.26 (.07) 2.30 2.23 0.00
9/17/90++ to 9/30/90...... 9.12 (.01) (.85) (.86) 0.00
Class C
Year ended 7/31/98........ $12.05 $(.19)(b) $ .35 $ .16 $0.00
Year ended 7/31/97........ 11.05 (.22)(b) 2.78 2.56 0.00
Year ended 7/31/96........ 9.96 (.20)(b) 1.82 1.62 0.00
Year ended 7/31/95........ 10.79 (.17) 1.45 1.28 0.00
Period ended 7/31/94**.... 11.00 (.17)(b) (.04) (.21) 0.00
5/3/93++ to 9/30/93....... 9.86 (.05) 1.19 1.14 0.00
Global Environment Fund (k)
Class A
11/1/97 to 4/30/98++...... $18.77 $(.14)(b) $ 1.30 $ 1.16 $0.00
Year ended 10/31/97 ...... 16.48 (.23)(b) 3.65 3.42 0.00
Year ended 10/31/96 ...... 12.37 (.13)(b) 4.26 4.13 (.02)
Year ended 10/31/95 ...... 11.74 .03 .60 .63 0.00
Year ended 10/31/94 ...... 10.97 0.00 .77 .77 0.00
Year ended 10/31/93 ...... 10.78 .01 .18 .19 0.00
Year ended 10/31/92 ...... 13.12 .01 (2.17) (2.16) (.10)
Year ended 10/31/91 ...... 12.46 .13 .87 1.00 (.25)
6/1/90+ to 10/31/90 ...... 13.83 .20 (1.57) (1.37) 0.00
Class B
11/1/97 to 4/30/98++...... $18.76 $(.15)(b) $ 1.30 $ 1.15 $0.00
10/3/97++to 10/31/97...... 19.92 (.20)(b) (.96) (1.16) 0.00
Class C
11/1/97 to 4/30/98++...... $19.15 $(.16)(b) $ 0.88 $ .72 $0.00
Balanced Shares
Class A
Year ended 7/31/98 ....... $16.17 $ .33 (b) $ 1.86 $ 2.19 $(.32)
Year ended 7/31/97 ....... 14.01 .31(b) 3.97 4.28 (.32)
Year ended 7/31/96 ....... 15.08 .37 .45 .82 (.41)
Year ended 7/31/95 ....... 13.38 .46 1.62 2.08 (.36)
Period ended 7/31/94** ... 14.40 .29 (.74) (.45) (.28)
Year ended 9/30/93 ....... 13.20 .34 1.29 1.63 (.43)
Year ended 9/30/92 ....... 12.64 .44 .57 1.01 (.45)
Year ended 9/30/91 ....... 10.41 .46 2.17 2.63 (.40)
Year ended 9/30/90 ....... 14.13 .45 (2.14) (1.69) (.40)
Year ended 9/30/89 ....... 12.53 .42 2.18 2.60 (.46)
Class B
Year ended 7/31/98 ....... $15.83 $ .21(b) $ 1.81 $ 2.02 $(.24)
Year ended 7/31/97 ....... 13.79 .19(b) 3.89 4.08 (.24)
Year ended 7/31/96 ....... 14.88 .28 .42 .70 (.31)
Year ended 7/31/95 ....... 13.23 .30 1.65 1.95 (.28)
Period ended 7/31/94** ... 14.27 .22 (.75) (.53) (.22)
Year ended 9/30/93 ....... 13.13 .29 1.22 1.51 (.37)
Year ended 9/30/92 ....... 12.61 .37 .54 .91 (.39)
2/4/91++ to 9/30/91 ...... 11.84 .25 .80 1.05 (.28)
2/4/91++ to 9/30/91 ...... 11.84 .25 .80 1.05 (.28)
<CAPTION>
Distributions
In Excess Of
Net Investment
Fiscal Year or Period Income
------------------- --------------
<S> <C>
All-Asia Investment Fund (continued)
Class B
11/1/97 to 4/30/98+++..... $0.00
Year ended 10/31/97....... 0.00
Year ended 10/31/96....... 0.00
11/28/94+ to 10/31/95..... 0.00
Class C
11/1/97 to 4/30/98+++..... $0.00
Year ended 10/31/97....... 0.00
Year ended 10/31/96....... 0.00
11/28/94+ to 10/31/95..... 0.00
Greater China '97 Fund
Class A
September 3, 1997 to 7/31/98..... $0.00
Class B
September 3, 1997 to 7/31/98..... $(.01)
Class c
September 3, 1997 to 7/31/98..... $(.01)
Global Small Cap Fund
Class A
Year ended 7/31/97........ $0.00
Year ended 7/31/97........ 0.00
Year ended 7/31/96........ 0.00
Year ended 7/31/95........ 0.00
Period ended 7/31/94**.... 0.00
Year ended 9/30/93........ 0.00
Year ended 9/30/92........ 0.00
Year ended 9/30/91........ 0.00
Year ended 9/30/90........ 0.00
Year ended 9/30/89........ 0.00
Year ended 9/30/88........ 0.00
Class B
Year ended 7/31/97........ $0.00
Year ended 7/31/97........ 0.00
Year ended 7/31/96........ 0.00
Year ended 7/31/95........ 0.00
Period ended 7/31/94**.... 0.00
Year ended 9/30/93........ 0.00
Year ended 9/30/92........ 0.00
Year ended 9/30/91........ 0.00
9/17/90++ to 9/30/90...... 0.00
Class C
Year ended 7/31/98........ $0.00
Year ended 7/31/97........ 0.00
Year ended 7/31/97........ 0.00
Year ended 7/31/96........ 0.00
Year ended 7/31/95........ 0.00
Period ended 7/31/94**.... 0.00
5/3/93++ to 9/30/93....... 0.00
Global Environment Fund (k)
Class A
11/1/97 to 4/30/98++...... $0.00
Year ended 10/31/97 ...... 0.00
Year ended 10/31/96 ...... 0.00
Year ended 10/31/95 ...... 0.00
Year ended 10/31/94 ...... 0.00
Year ended 10/31/93 ...... 0.00
Year ended 10/31/92 ...... 0.00
Year ended 10/31/91 ...... 0.00
6/1/90+ to 10/31/90 ...... 0.00
Class B
11/1/97 to 4/30/98++...... $0.00
10/3/97++to 10/31/97...... 0.00
Class C
11/1/97 to 4/30/98++...... $0.00
Balanced Shares
Class A
Year ended 7/31/98 ....... $0.00
Year ended 7/31/97 ....... 0.00
Year ended 7/31/96 ....... 0.00
Year ended 7/31/95 ....... 0.00
Period ended 7/31/94** ... 0.00
Year ended 9/30/93 ....... 0.00
Year ended 9/30/92 ....... 0.00
Year ended 9/30/91 ....... 0.00
Year ended 9/30/90 ....... 0.00
Year ended 9/30/89 ....... 0.00
Class B
Year ended 7/31/98 ....... $0.00
Year ended 7/31/97 ....... 0.00
Year ended 7/31/96 ....... 0.00
Year ended 7/31/95 ....... 0.00
Period ended 7/31/94** ... 0.00
Year ended 9/30/93 ....... 0.00
Year ended 9/30/92 ....... 0.00
2/4/91++ to 9/30/91 ...... 0.00
2/4/91++ to 9/30/91 ...... 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to footnotes on page 18.
14
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets
Total Net Asset Investment At End Of
Distributions Dividends Value Return Based Period
From Net And End Of on Net Asset (000's
Fiscal Year or Period Realized Gains Distributions Period Value (a) omitted)
------------------- -------------- ------------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
All-Asia Investment Fund (continued)
Class B
11/1/97 to 4/30/98+++..... $ (0.00) $ (.00) $ 7.05 (4.60)% $ 11,139
Year ended 10/31/97....... (.34) (.34) 7.39 (30.09) 11,439
Year ended 10/31/96....... (.08) (.08) 10.90 5.49 23,784
11/28/94+ to 10/31/95..... 0.00 0.00 10.41 4.10 5,170
Class C
11/1/97 to 4/30/98+++..... $ (0.00) $(0.00) $ 7.06 (4.60)% $ 1,981
Year ended 10/31/97....... (.34) (.34) 7.40 (30.06) 1,859
Year ended 10/31/96....... (.08) (.08) 10.91 5.59 4,228
11/28/94+ to 10/31/95..... 0.00 0.00 10.41 4.10 597
Greater China '97 Fund
Class A
September 3, 1997 to 7/31/98..... $ 0.00 $ (.06) $ 4.84 (51.20)% $ 445
Class B
September 3, 1997 to 7/31/98..... $ 0.00 (.04) $ 4.82 (51.53)% $ 1,551
Class C
September 3, 1997 to 7/31/98..... $ 0.00 (.04) $ 4.82 (51.53)% $ 102
Global Small Cap Fund
Class A
Year ended 7/31/98........ $ ( .99) $( .99) $12.14 2.49% $ 82,843
Year ended 7/31/97........ (1.56) (1.56) 12.87 26.47 85,217
Year ended 7/31/96........ (.53) (.53) 11.61 17.46 68,623
Year ended 7/31/95........ (2.11)(h) (2.11) 10.38 16.62 60,057
Period ended 7/31/94**.... 0.00 0.00 11.08 (1.42) 61,372
Year ended 9/30/93........ (.43) (.43) 11.24 25.83 65,713
Year ended 9/30/92........ (.03) (.03) 9.33 (11.30) 58,491
Year ended 9/30/91........ 0.00 0.00 10.55 27.72 84,370
Year ended 9/30/90........ (3.11) (3.11) 8.26 (31.90) 68,316
Year ended 9/30/89........ (.09) (.09) 15.54 37.34 113,583
Class B
Year ended 7/31/98........ $ ( .99) $( .99) $11.20 1.80% $ 38,827
Year ended 7/31/97........ (1.56) (1.56) 12.03 25.42 31,946
Year ended 7/31/96........ (.53) (.53) 11.03 16.69 14,247
Year ended 7/31/95........ (2.11)(h) (2.11) 9.95 15.77 5,164
Period ended 7/31/94**.... 0.00 0.00 10.78 (2.00) 3,889
Year ended 9/30/93........ (.43) (.43) 11.00 24.97 1,150
Year ended 9/30/92........ (.03) (.03) 9.20 (12.03) 819
Year ended 9/30/91........ 0.00 0.00 10.49 27.00 121
9/17/90++ to 9/30/90...... 0.00 0.00 8.26 (9.43) 183
Class C
Year ended 7/31/98........ $ ( .99) $( .99) $11.22 1.79% $ 9,471
Year ended 7/31/97........ (1.56) (1.56) 12.05 25.37 8,718
Year ended 7/31/96........ (.53) (.53) 11.05 16.77 4,119
Year ended 7/31/95........ (2.11)(h) (2.11) 9.96 15.75 1,407
Period ended 7/31/94**.... 0.00 0.00 10.79 (1.91) 1,330
5/3/93++ to 9/30/93....... 0.00 0.00 11.00 11.56 261
Global Environment Fund (k)
Class A
11/1/97 to 4/30/98++...... $(9.07) $(9.07) $10.86 16.53% $ 29,087
Year ended 10/31/97 ...... (1.13) (1.13) 18.77 23.51 52,378
Year ended 10/31/96 ...... 0.00 (.02) 16.48 33.48 100,271
Year ended 10/31/95 ...... 0.00 0.00 12.37 5.37 85,416
Year ended 10/31/94 ...... 0.00 0.00 11.74 7.02 81,102
Year ended 10/31/93 ...... 0.00 0.00 10.97 1.76 75,805
Year ended 10/31/92 ...... (.08) (.18) 10.78 (16.59) 74,442
Year ended 10/31/91 ...... (.09) (.34) 13.12 8.66 90,612
6/1/90+ to 10/31/90 ...... 0.00 0.00 12.46 (10.68) 86,041
Class B
11/1/97 to 4/30/98++...... $(9.07) $(9.07) $10.84 16.50% $ 114
10/3/97++to 10/31/97...... 0.00 $0.00 $18.76 (5.82) 235
Class C
11/1/97 to 4/30/98++...... $(9.07) $(9.07) $10.80 13.78% $ 4
Balanced Shares
Class A
Year ended 7/31/98 ....... $ 2.07 $(2.39) $15.97 14.99% $123,623
Year ended 7/31/97 ....... 1.80 (2.12) 16.17 33.46 115,500
Year ended 7/31/96 ....... (1.48) (1.89) 14.01 5.23 102,567
Year ended 7/31/95 ....... (.02) (.38) 15.08 15.99 122,033
Period ended 7/31/94** ... (.29) (.57) 13.38 (3.21) 157,637
Year ended 9/30/93 ....... 0.00 (.43) 14.40 12.52 172,484
Year ended 9/30/92 ....... 0.00 (.45) 13.20 8.14 143,883
Year ended 9/30/91 ....... 0.00 (.40) 12.64 25.52 154,230
Year ended 9/30/90 ....... (1.63) (2.03) 10.41 (13.12) 140,913
Year ended 9/30/89 ....... (.54) (1.00) 14.13 22.27 159,290
Class B
Year ended 7/31/98 ....... $ 2.07 $(2.31) $15.54 14.13% $ 47,728
Year ended 7/31/97 ....... 1.80 (2.04) 15.83 32.34 24,192
Year ended 7/31/96 ....... (1.48) (1.79) 13.79 4.45 18,393
Year ended 7/31/95 ....... (.02) (.30) 14.88 15.07 15,080
Period ended 7/31/94** ... (.29) (.51) 13.23 (3.80) 14,347
Year ended 9/30/93 ....... 0.00 (.37) 14.27 11.65 12,789
Year ended 9/30/92 ....... 0.00 (.39) 13.13 7.32 6,499
2/4/91++ to 9/30/91 ...... 0.00 (.28) 12.61 8.96 1,830
2/4/91++ to 9/30/91 ...... 0.00
<CAPTION>
Ratio Of Net
Ratio Of Investment
Expenses Income (Loss)
To Average To Average Portfolio
Fiscal Year or Period Net Assets Net Assets Turnover Rate
--------------------- ---------- ---------- -------------
<S> <C> <C> <C>
All-Asia Investment Fund (continued)
Class B
11/1/97 to 4/30/98+++..... 4.46%* (2.56)%* 87%
Year ended 10/31/97....... 4.15(f) (2.67) 70
Year ended 10/31/96....... 4.07(f) (2.44) 66
11/28/94+ to 10/31/95..... 5.20*(f) (2.64)* 90
Class C
11/1/97 to 4/30/98+++..... 4.47%* (2.56)%* 87%
Year ended 10/31/97....... 4.15(f) (2.66) 70
Year ended 10/31/96....... 4.07(f) (2.42) 66
11/28/94+ to 10/31/95..... 5.84*(f) (3.41) 90
Greater China '97 Fund
Class A
September 3, 1997 to 7/31/98..... 2.52%(f)(i) 1.20% 58%
Class B
September 3, 1997 to 7/31/98..... 3.22%(f)(i) .53%* 58%
Class C
September 3, 1997 to 7/31/98..... 3.22%(f)(i) .50% 58%
Global Small Cap Fund
Class A
Year ended 7/31/98........ 2.16%(i) (.88)% 113%
Year ended 7/31/97........ 2.41(i) (1.25) 129
Year ended 7/31/96........ 2.51 (1.22) 139
Year ended 7/31/95........ 2.54(f) (1.17) 128
Period ended 7/31/94**.... 2.42* (1.26)* 78
Year ended 9/30/93........ 2.53 (1.13) 97
Year ended 9/30/92........ 2.34 (.85) 108
Year ended 9/30/91........ 2.29 (.55) 104
Year ended 9/30/90........ 1.73 (.46) 89
Year ended 9/30/89........ 1.56 (.17) 106
Class B
Year ended 7/31/98........ 2.88%(i) (1.58)% 113%
Year ended 7/31/97........ 3.11(i) (1.92) 129
Year ended 7/31/96........ 3.21 (1.88) 139
Year ended 7/31/95........ 3.20(f) (1.92) 128
Period ended 7/31/94**.... 3.15* (1.93)* 78
Year ended 9/30/93........ 3.26 (1.85) 97
Year ended 9/30/92........ 3.11 (1.31) 108
Year ended 9/30/91........ 2.98 (1.39) 104
9/17/90++ to 9/30/90...... 2.61* (1.30)* 89
Class C
Year ended 7/31/98........ 2.88%(i) (1.59)% 113%
Year ended 7/31/97........ 3.10(i) (1.93) 129
Year ended 7/31/96........ 3.19 (1.85) 139
Year ended 7/31/95........ 3.25(f) (2.10) 128
Period ended 7/31/94**.... 3.13* (1.92)* 78
5/3/93++ to 9/30/93....... 3.75* (2.51)* 97
Global Environment Fund (k)
Class A
11/1/97 to 4/30/98++............ 2.75%* (2.31)%* 199%
Year ended 10/31/97 ............ 2.39 (1.35) 145
Year ended 10/31/96 ............ 1.60 (.85) 268
Year ended 10/31/95 ............ 1.57 .21 109
Year ended 10/31/94 ............ 1.67 (.04) 42
Year ended 10/31/93 ............ 1.62 .15 25
Year ended 10/31/92 ............ 1.63 .10 41
Year ended 10/31/91 ............ 1.49 .95 32
6/1/90+ to 10/31/90 ............ 1.72* 3.95* 4
Class B
11/1/97++ to 4/30/98++.......... 3.55% (3.08)%* 199%
10/3/97++ to 10/31/97 .......... 20.84 (1.03) 145
Class C
11/1/97++ to 4/30/98++.......... 3.32%* (2.71)% 199%
Balanced Shares
Class A
Year ended 7/31/98 ............. 1.30%(i) 2.07% 145%
Year ended 7/31/97 ............. 1.47(i) 2.11 207
Year ended 7/31/96 ............. 1.38 2.41 227
Year ended 7/31/95 ............. 1.32 3.12 179
Period ended 7/31/94** ......... 1.27* 2.50* 116
Year ended 9/30/93 ............. 1.35 2.50 188
Year ended 9/30/92 ............. 1.40 3.26 204
Year ended 9/30/91 ............. 1.44 3.75 70
Year ended 9/30/90 ............. 1.36 4.01 169
Year ended 9/30/89 ............. 1.42 3.29 132
Class B
Year ended 7/31/98 ............. 2.06%(i) 1.34% 145%
Year ended 7/31/97 ............. 2.25(i) 1.32 207
Year ended 7/31/96 ............. 2.16 1.61 227
Year ended 7/31/95 ............. 2.11 2.30 179
Period ended 7/31/94** ......... 2.05* 1.73* 116
Year ended 9/30/93 ............. 2.13 1.72 188
Year ended 9/30/92 ............. 2.16 2.46 204
2/4/91++ to 9/30/91 ............ 2.13* 3.19* 70
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
___________________ ______________ _____________ _______________ ______________ ______________ ______________
<S> <C> <C> <C> <C> <C> <C>
Balanced Shares (continued)
Class C
Year ended 7/31/98 ............. $15.86 $ .21(b) $1.81 $ 2.02 $ (.24) $(2.07)
Year ended 7/31/97 ............. 13.81 .20(b) 3.89 4.09 (.24) (1.80)
Year ended 7/31/96 ............. 14.89 .26 .45 .71 (.31) (1.48)
Year ended 7/31/95 ............. 13.24 .30 1.65 1.95 (.28) (.02)
Period ended 7/31/94** ......... 14.28 .24 (.77) (.53) (.22) (.29)
5/3/93++ to 9/30/93............. 13.63 .11 .71 .82 (.17) 0.00
Utility Income Fund
Class A
12/1/97 to 5/31/98+++............ $12.48 $ .15(b)(c) $1.41 $ 1.56 $ (.16) $ (.47)
Year ended 11/30/97 ............. 10.59 .32(b)(c) 2.04 2.36 (.34) (.13)
Year ended 11/30/96 ............. 10.22 .18(b)(c) .65 .83 (.46) 0.00
Year ended 11/30/95 ............. 8.97 .27(c) 1.43 1.70 (.45) 0.00
Year ended 11/30/94 ............. 9.92 .42(c) (.89) (.47) (.48) 0.00
10/18/93+ to 11/30/93............ 10.00 .02(c) (.10) (.08) 0.00 0.00
Class B
12/1/97 to 5/31/98+++............ $12.46 $ .11(b)(c) $1.38 $ 1.49 $ (.12) $ (.47)
Year ended 11/30/97 ............. 10.57 .25(b)(c) 2.04 2.29 (.27) (.13)
Year ended 11/30/96 ............. 10.20 .10(b)(c) .67 .77 (.40) 0.00
Year ended 11/30/95 ............. 8.96 .18(c) 1.45 1.63 (.39) 0.00
Year ended 11/30/94 ............. 9.91 .37(c) (.91) (.54) (.41) 0.00
10/18/93+ 11/30/93............... 10.00 .01(c) (.10) (.09) 0.00 0.00
Class C
12/1/97 to 5/31/98+++............ $12.47 $ .10(b)(c) $1.41 $ 1.51 $ (.12) $ (.47)
Year ended 11/30/97 ............. 10.59 .25(b)(c) 2.03 2.28 (.27) (.13)
Year ended 11/30/96 ............. 10.22 .11(b)(c) .66 .77 (.40) 0.00
Year ended 11/30/95 ............. 8.97 .18(c) 1.46 1.64 (.39) 0.00
Year ended 11/30/94 ............. 9.92 .39(c) (.93) (.54) (.41) 0.00
10/27/93+ to 11/30/93............ 10.00 .01(c) (.09) (.08) 0.00 0.00
Growth and Income Fund
Class A
11/1/97 to 4/30/98+++............ $ 3.48 $ .02(b) $ .58 $ .60 $ (.02) $ (.46)
Year ended 10/31/97 ............. 3.00 .04(b) .87 .91 (.05) (.38)
Year ended 10/31/96 ............. 2.71 .05 .50 .55 (.05) (.21)
Year ended 10/31/95 ............. 2.35 .02 .52 .54 (.06) (.12)
Year ended 10/31/94 ............. 2.61 .06 (.08) (.02) (.06) (.18)
Year ended 10/31/93 ............. 2.48 .06 .29 .35 (.06) (.16)
Year ended 10/31/92 ............. 2.52 .06 .11 .17 (.06) (.15)
Year ended 10/31/91 ............. 2.28 .07 .56 .63 (.09) (.30)
Year ended 10/31/90 ............. 3.02 .09 (.30) (.21) (.10) (.43)
Year ended 10/31/89 ............. 3.05 .10 .43 .53 (.08) (.48)
Year ended 10/31/88 ............. 3.48 .10 .33 .43 (.08) (.78)
Class B
11/1/97 to 4/30/98+++............ $ 3.45 $0.00(b) $ .59 $ .59 $ (.01) $ (.46)
Year ended 10/31/97 ............. 2.99 .02(b) .85 .87 (.03) (.38)
Year ended 10/31/96 ............. 2.69 .03 .51 .54 (.03) (.21)
Year ended 10/31/95 ............. 2.34 .01 .49 .50 (.03) (.12)
Year ended 10/31/94 ............. 2.60 .04 (.08) (.04) (.04) (.18)
Year ended 10/31/93 ............. 2.47 .05 .28 .33 (.04) (.16)
Year ended 10/31/92 ............. 2.52 .04 .11 .15 (.05) (.15)
2/8/91++ to 10/31/91 2.40 .04 .12 .16 (.04) 0.00
Class C
11/1/97 to 4/30/98+++............ $ 3.45 $0.00(b) $ .59 $ .59 $ (.01) $ (.46)
Year ended 10/31/97 ............. 2.99 .02(b) .85 .87 (.03) (.38)
Year ended 10/31/96 ............. 2.70 .03 .50 .53 (.03) (.21)
Year ended 10/31/95 ............. 2.34 .01 .50 .51 (.03) (.12)
Year ended 10/31/94 ............. 2.60 .04 (.08) (.04) (.04) (.18)
5/3/93 ++ to 10/31/93............ 2.43 .02 .17 .19 (.02) 0.00
Real Estate Investment Fund
Class A
Year ended 8/31/98 .............. $12.80 $ .52(b) $(2.33) $(1.81) $ (.51) $ (.01)
10/1/96+ to 8/31/97.............. 10.00 .30(b) 2.88 3.18 (.38)(j) 0.00
Class B
Year ended 8/31/98 .............. $12.79 $ .42(b) $(2.33) $(1.91) $ (.43) $ (.01)
10/1/96+ to 8/31/97.............. 10.00 .23(b) 2.89 3.12 (.33)(j) 0.00
Class C
Year ended 8/31/98 .............. $12.79 $ .42(b) $(2.33) $(1.91) $ (.43) $ (.01)
10/1/96+ to 8/31/97.............. 10.00 .23(b) 2.89 3.12 (.33)(j) 0.00
</TABLE>
Please refer to the footnotes on page 18.
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets
Total Net Asset Investment At End Of
Dividends Value Return Based Period
And End Of on Net Asset (000's
Fiscal Year or Period Distributions Period Value (a) omitted)
------------------- -------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Balanced Shares (continued)
Class C
Year ended 7/31/98 ............. $(2.31) $15.57 14.09% $ 10,855
Year ended 7/31/97 ............. (2.04) 15.86 32.37 5,510
Year ended 7/31/96 ............. (1.79) 13.81 4.52 6,096
Year ended 7/31/95 ............. (.30) 14.89 15.06 5,108
Period ended 7/31/94** ......... (.51) 13.24 (3.80) 6,254
5/3/93++ to 9/30/93 ............ (.17) 14.28 6.01 1,487
Utility Income Fund
Class A
12/1/97 to 5/31/98+++........... $(.63) $13.41 12.83% $ 6,196
Year ended 11/30/97 ............ (.47) 12.48 23.10% 4,117
Year ended 11/30/96 ............ (.46) 10.59 8.47 3,294
Year ended 11/30/95 ............ (.45) 10.22 19.58 2,748
Year ended 11/30/94 ............ (.48) 8.97 (4.86) 1,068
10/18/93+ to 11/30/93 .......... 0.00 9.92 (.80) 229
Class B
12/1/97 to 5/31/98+++........... $(.59) $13.36 12.29% $ 19,744
Year ended 11/30/97 ............ (.40) 12.46 22.35 14,782
Year ended 11/30/96 ............ (.40) 10.57 7.82 13,561
Year ended 11/30/95 ............ (.39) 10.20 18.66 10,988
Year ended 11/30/94 ............ (.41) 8.96 (5.59) 2,353
10/18/93+ 11/30/93 ............. 0.00 9.91 (.90) 244
Class C
12/1/97 to 5/31/98+++........... $(.59) $13.39 12.44% $ 4,259
Year ended 11/30/97 ............ (.40) 12.47 22.21 3,413
Year ended 11/30/96 ............ (.40) 10.59 7.81 3,376
Year ended 11/30/95 ............ (.39) 10.22 18.76 3,500
Year ended 11/30/94 ............ (.41) 8.97 (5.58) 2,651
10/27/93+ to 11/30/93 .......... 0.00 9.92 (.80) 18
Growth and Income Fund
Class A
11/1/97 to 4/30/98+++........... $(.48) $3.60 19.32% $ 966,167
Year ended 10/31/97 ............ (.43) 3.48 33.28 787,566
Year ended 10/31/96 ............ (.26) 3.00 21.51 553,151
Year ended 10/31/95 ............ (.18) 2.71 24.21 458,158
Year ended 10/31/94 ............ (.24) 2.35 (.67) 414,386
Year ended 10/31/93 ............ (.22) 2.61 14.98 459,372
Year ended 10/31/92 ............ (.21) 2.48 7.23 417,018
Year ended 10/31/91 ............ (.39) 2.52 31.03 409,597
Year ended 10/31/90 ............ (.53) 2.28 (8.55) 314,670
Year ended 10/31/89 ............ (.56) 3.02 21.59 377,168
Year ended 10/31/88 ............ (.86) 3.05 16.45 350,510
Class B
11/1/97 to 4/30/98+++........... $(.47) $3.57 19.14% $ 666,923
Year ended 10/31/97 ............ (.41) 3.45 31.83 456,399
Year ended 10/31/96 ............ (.24) 2.99 21.20 235,263
Year ended 10/31/95 ............ (.15) 2.69 22.84 136,758
Year ended 10/31/94 ............ (.22) 2.34 (1.50) 102,546
Year ended 10/31/93 ............ (.20) 2.60 14.22 76,633
Year ended 10/31/92 ............ (.20) 2.47 6.22 29,656
2/8/91++ to 10/31/91 ........... (.04) 2.52 6.83 10,221
Class C
11/1/97 to 4/30/98+++........... $(.47) $3.57 19.14% $ 150,335
Year ended 10/31/97 ............ (.41) 3.45 31.83 106,526
Year ended 10/31/96 ............ (.24) 2.99 20.72 61,356
Year ended 10/31/95 ............ (.15) 2.70 23.30 35,835
Year ended 10/31/94 ............ (.22) 2.34 (1.50) 19,395
5/3/93 ++ to 10/31/93 .......... (.02) 2.60 7.85 7,774
Real Estate Investment Fund
Class A
Year ended 8/31/98 ............. $(.52) $10.47 (14.90)% $ 51,214
10/1/96+ to 8/31/97 ............ (.38) 12.80 32.24 37,638
Class B
Year ended 8/31/98 ............. $(.44) $10.44 (15.56)% $ 268,856
10/1/96+ to 8/31/97 ............ (.33) 12.79 31.49 186,802
Class C
Year ended 8/31/98 ............. $(.44) $10.44 (15.56)% $ 69,575
10/1/96+ to 8/31/97 ............ (.33) 12.79 31.49 42,719
Ratio Of Net
Ratio Of Investment
Expenses Income (Loss)
To Average To Average Portfolio
Fiscal Year or Period Net Assets Net Assets Turnover Rate
------------------- ----------- ------------- -------------
<S> <C> <C> <C>
Balanced Shares (continued)
Class C
Year ended 7/31/98 ............. 2.05%(i) 1.36% 145%
Year ended 7/31/97 ............. 2.23(l) 1.37 207
Year ended 7/31/96 ............. 2.15 1.63 227
Year ended 7/31/95 ............. 2.09 2.32 179
Period ended 7/31/94** ......... 2.03* 1.81* 116
5/3/93++ to 9/30/93 ............ 2.29* 1.47* 188
Utility Income Fund
Class A
12/1/97/ to 5/31/98+++.......... 1.51%(i) 2.30% 9%
Year ended 11/30/97 ............ 1.50(i) 2.89 37
Year ended 11/30/96 ............ 1.50(f) 1.67 98
Year ended 11/30/95 ............ 1.50(f) 2.48 162
Year ended 11/30/94 ............ 1.50(f) 4.13 30
10/18/93+ to 11/30/93 .......... 1.50*(f) 2.35* 11
Class B
12/1/97/ to 5/31/98+++.......... 2.21%(i) 1.60% 9%
Year ended 11/30/97 ............ 2.20(f) 2.27 37
Year ended 11/30/96 ............ 2.20(f) .95 98
Year ended 11/30/95 ............ 2.20(f) 1.60 162
Year ended 11/30/94 ............ 2.20(f) 3.53 30
10/18/93+ 11/30/93 ............. 2.20*(f) 2.84* 11
Class C
12/1/97/ to 5/31/98+++.......... 2.21%(i) 1.59% 9%
Year ended 11/30/97 ............ 2.20(f) 2.27 37
Year ended 11/30/96 ............ 2.20(f) .94 98
Year ended 11/30/95 ............ 2.20(f) 1.88 162
Year ended 11/30/94 ............ 2.20(f) 3.60 30
10/27/93+ to 11/30/93 .......... 2.20*(f) 3.08* 11
Growth and Income Fund
Class A
11/1/97/ to 4/30/98+++.......... .88% .97% 41%
Year ended 10/31/97 ............ .92(i) 1.39* 88
Year ended 10/31/96 ............ .97 1.73 88
Year ended 10/31/95 ............ 1.05 1.88 142
Year ended 10/31/94 ............ 1.03 2.36 68
Year ended 10/31/93 ............ 1.07 2.38 91
Year ended 10/31/92 ............ 1.09 2.63 104
Year ended 10/31/91 ............ 1.14 2.74 84
Year ended 10/31/90 ............ 1.09 3.40 76
Year ended 10/31/89 ............ 1.08 3.49 79
Year ended 10/31/88 ............ 1.09 3.09 66
Class B
11/1/97/ to 4/30/98+++.......... 1.66% .18% 41%
Year ended 10/31/97 ............ 1.72(i) .56 88
Year ended 10/31/96 ............ 1.78 .91 88
Year ended 10/31/95 ............ 1.86 1.05 142
Year ended 10/31/94 ............ 1.85 1.56 68
Year ended 10/31/93 ............ 1.90 1.58 91
Year ended 10/31/92 ............ 1.90 1.69 104
2/8/91++ to 10/31/91 ........... 1.99* 1.67* 84
Class C
11/1/97/ to 4/30/98+++.......... 1.66% .18% 41%
Year ended 10/31/97 ............ 1.71(i) .58 88
Year ended 10/31/96 ............ 1.76 .93 88
Year ended 10/31/95 ............ 1.84 1.04 142
Year ended 10/31/94 ............ 1.84 1.61 68
5/3/93 ++ to 10/31/93 .......... 1.96* 1.45* 91
Real Estate Investment Fund
Class A
Year ended 8/31/98 ............ 1.55% 3.87% 23%
10/1/96+ to 8/31/97 ............ 1.77*(l) 2.73* 20
Class B
Year ended 8/31/98 ............ 2.26% 3.16% 23%
10/1/96+ to 8/31/97 ............ 2.44*(i) 2.08* 20
Class C
Year ended 8/31/98 ............ 2.26% 3.15% 23%
10/1/96+ to 8/31/97 ............ 2.43*(i) 2.06* 20
</TABLE>
- --------------------------------------------------------------------------------
17
<PAGE>
- ----------
+ Commencement of operations.
++ Commencement of distribution.
+++ Unaudited
* Annualized.
** Reflects a change in fiscal year end.
(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 the net asset value during the period, and a
redemption on the last day of the period. Initial sales charges or
contingent deferred sales charges are not reflected in the calculation of
total investment return. Total investment returns calculated for periods of
less than one year are not annualized.
(b) Based on average shares outstanding.
(c) Net of fee waiver and expense reimbursement.
(d) Not Applicable.
(e) Net of offering costs of ($.05).
(f) Net of expenses assumed and/or waived/reimbursed. If the following Funds
had borne all expenses in their most recent five fiscal years, their
expense ratios, without giving effect to the expense offset arrangement
described in (l) below, would have been as follows:
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
All-Asia Investment Fund
<S> <C> <C> <C> <C> <C> <C>
Class A -- -- 10.57%* 3.61% 3.57% --
Class B -- -- 11.32%* 4.33% 4.27% --
Class C -- -- 11.38%* 4.30% 4.27% --
Growth Fund
Class A 1.84% 1.46% -- -- -- --
Class B 2.52% 2.13% -- -- -- --
Class C -- 2.13%* -- -- -- --
Global Small Cap Fund
Class A -- -- 2.61% -- -- --
Class B -- -- 3.27% -- -- --
Class C -- -- 3.31% -- -- --
Utility Income Fund
Class A 145.63%* 13.72% 4.86%* 3.38% 3.55% --
Class B 133.62%* 14.42% 5.34%* 4.08% 4.28% --
Class C 148.03%* 14.42% 5.99%* 4.07% 4.28% --
International Fund
Class A -- -- -- -- -- 1.80%
Class B -- -- -- -- -- 2.64%
Class C -- -- -- -- -- 2.63%
Greater China '97 Fund
Class A -- -- -- -- -- 18.27%*
Class B -- -- -- -- -- 19.18%*
Class C -- -- -- -- -- 19.37%*
</TABLE>
- ----------
For the expense ratios of the Funds in years prior to fiscal year 1993, assuming
the Funds had borne all expenses, please see the Financial Statements in each
Fund's Statement of Additional Information.
(g) Prior to July 22, 1993, Equitable Capital Management Corporation
("Equitable Capital") served as the investment adviser to the predecessor
to The Alliance Portfolios, of which Growth Fund is a series. On July 22,
1993, Alliance acquired the business and substantially all assets of
Equitable Capital and became investment adviser to the Fund.
(h) "Distributions from Net Realized Gains" includes a return of capital of
$(.12).
(i) Amounts do not reflect the impact of expense offset arrangements with the
transfer agent. Taking into account such expense offset arrangements, the
ratio of expenses to average net assets, assuming the assumption and/or
waiver/reimbursement of expenses described in (f) above, would have been as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Balanced Shares 1997 1998 Technology Fund 1997 1998
Class A 1.46% 1.29% Class A 1.66% --
Class B 2.24% 2.05% Class B 2.36% --
Class C 2.22% 2.04% Class C 2.37% --
Real Estate Greater China
Investment Fund 1997 1998 '97 Fund 1997 1998
Class A 1.77% -- Class A -- 2.50%
Class B 2.43% -- Class B -- 3.20%
Class C 2.42% -- Class C -- 3.20%
Growth Fund 1997 1998 New Europe Fund 1997 1998
Class A 1.25% -- Class A 2.04% 1.84%
Class B 1.95% -- Class B 2.74% 2.54%
Class C 1.95% -- Class C 2.73% 2.54%
International Fund 1997 1998 Growth and Income Fund 1997 1998
Class A 1.73% -- Class A .91% --
Class B 2.58% -- Class B 1.71% --
Class C 2.56% -- Class C 1.70% --
Global Small Cap Fund 1997 1998
Class A 2.38% 2.14%
Class B 3.08% 2.86%
Class C 3.08% 2.85%
</TABLE>
(j) Distributions from net investment income include a tax return of capital of
$.08, $.09 and $.08 for Class A, B and C shares, respectively.
(k) Global Environment Fund operated as a closed-end investment company
through October 3, 1997, when it converted to an open-end investment
company and all shares of its common stock then outstanding were
reclassified as Class A shares.
18
<PAGE>
- --------------------------------------------------------------------------------
GLOSSARY
- --------------------------------------------------------------------------------
The following terms are frequently used in this Prospectus.
Equity securities, except as noted otherwise, are (i) common stocks, partnership
interests, business trust shares and other equity or ownership interests in
business enterprises, and (ii) securities convertible into, and rights and
warrants to subscribe for the purchase of, such stocks, shares and
interests.
Debt securities are bonds, debentures, notes, bills, repurchase agreements,
loans, other direct debt instruments and other fixed, floating and variable rate
debt obligations, but do not include convertible securities.
Fixed-income securities are debt securities and dividend-paying preferred stocks
and include floating rate and variable rate instruments.
Convertible securities are fixed-income securities that are convertible into
common stock.
U.S. Government securities are securities issued or guaranteed by the United
States Government, its agencies or instrumentalities.
Foreign government securities are securities issued or guaranteed, as to payment
of principal and interest, by governments, quasi-governmental entities,
governmental agencies or other governmental entities.
Asian company is an entity that (i) is organized under the laws of an Asian
country and conducts business in an Asian country, (ii) derives 50% or more of
its total revenues from business in Asian countries, or (iii) issues equity or
debt securities that are traded principally on a stock exchange in an Asian
country.
Asian countries are Australia, the Democratic Socialist Republic of Sri Lanka,
the Hong Kong Special Administrative Region of the People's Republic of China
(Hong Kong), the Islamic Republic of Pakistan, Japan, the Kingdom of Thailand,
Malaysia, Negara Brunei Darussalam (Brunei), New Zealand, the People's Republic
of China, the People's Republic of Kampuchea (Cambodia), the Republic of China
(Taiwan), the Republic of India, the Republic of Indonesia, the Republic of
Korea (South Korea), the Republic of the Philippines, the Republic of Singapore,
the Socialist Republic of Vietnam and the Union of Myanmar.
Greater China company is an entity that (i) is organized under the laws of a
Greater China country and conducts business in a Greater China country, (ii)
derives 50% or more of its total revenues from businesses in Greater China
countries, or (iii) issues equity or debt securities that are trade principally
on a stock exchange in a Greater China country. A company of a particular
Greater China country is a company that meets any of these criteria with respect
to that country.
Greater China countries are the People's Republic of China ("China"), the Hong
Kong Special Administrative Region of the People's Republic of China ("Hong
Kong") and the Republic of China ("Taiwan").
Non-U.S. company is an entity that (i) is organized under the laws of a foreign
country and conducts business in a foreign country, (ii) derives 50% or more of
its total revenues from business in foreign countries, or (iii) issues equity or
debt securities that are traded principally on a stock exchange in a foreign
country.
Eligible Companies are companies expected to benefit from advances or
improvements in products, processes or services intended to foster the
protection of the environment.
Environmental Companies are Eligible Companies that have a principal business
involving the sale of systems or services intended to foster environmental
protection, such as waste treatment and disposal, remediation, air pollution
control and recycling.
Beneficiary Companies are Eligible Companies whose principal businesses lie
outside the environmental sector but nevertheless anticipate environmental
regulations or consumer preferences through the development of new products,
processes or services that are intended to contribute to a cleaner and healthier
environment, such as companies that anticipate the demand for plastic
substitutes, aerosol substitutes, alternative fuels and processes that generate
less hazardous waste.
Moody's is Moody's Investors Service, Inc.
S&P is Standard & Poor's Ratings Services.
Duff & Phelps is Duff & Phelps Credit Rating Co.
Fitch is Fitch IBCA, Inc
Investment grade securities are fixed-income securities rated Baa and above by
Moody's or BBB and above by S&P, Duff & Phelps or Fitch, or determined by
Alliance to be of equivalent quality.
Lower-rated securities are fixed-income securities rated Ba or below by Moody's
or BB or below by S&P, Duff & Phelps or Fitch, or determined by Alliance to be
of equivalent quality, and are commonly referred to as "junk bonds."
Prime commercial paper is commercial paper rated Prime 1 by Moody's or A-1 or
higher by S&P or, if not rated, issued by companies that have an outstanding
debt issue rated Aa or higher by Moody's or AA or higher by S&P.
Qualifying bank deposits are certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of banks having total assets of more than $1
billion and which are members of the Federal Deposit Insurance Corporation.
Rule 144A securities are securities that may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "Securities Act").
Depositary receipts include American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") and other types of depositary receipts.
Commission is the Securities and Exchange Commission.
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
Exchange is the New York Stock Exchange.
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DESCRIPTION OF THE FUNDS
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Except as noted, (i) the Funds' investment objectives are "fundamental" and
cannot be changed without shareholder vote, and (ii) the Funds' investment
policies are not fundamental and thus can be changed without a shareholder vote.
No Fund will change a non-fundamental objective or policy without notifying its
shareholders. There is no guarantee that any Fund will achieve its investment
objective.
INVESTMENT OBJECTIVES AND POLICIES
DOMESTIC STOCK FUNDS
The Domestic Stock Funds have been designed to offer investors seeking capital
appreciation a range of alternative approaches to investing in the U.S. equity
markets.
The Alliance Fund
The Alliance Fund, Inc. ("Alliance Fund") is a diversified investment company
that seeks long-term growth of capital and income primarily through investment
in common stocks. The Fund normally invests substantially all of its assets in
common stocks that Alliance believes will appreciate in value, but it may invest
in other types of securities such as convertible securities, high grade
instruments, U.S. Government securities and high quality, short-term obligations
such as repurchase agreements, bankers' acceptances and domestic certificates of
deposit, and may invest without limit in foreign securities. While the
diversification and generally high quality of the Fund's investments cannot
prevent fluctuations in market values, they tend to limit investment risk and
contribute to achieving the Fund's objective. The Fund generally does not effect
portfolio transactions in order to realize short-term trading profits or
exercise control.
The Fund may also: (i) make secured loans of its portfolio securities equal in
value up to 25% of its total assets to brokers, dealers and financial
institutions; (ii) enter into repurchase agreements of up to one week in
duration with commercial banks, but only if those agreements together with any
restricted securities and any securities which do not have readily available
market quotations do not exceed 10% of its net assets; and (iii) write
exchange-traded covered call options with respect to up to 25% of its total
assets. For additional information on the use, risks and costs of these policies
and practices see "Additional Investment Practices."
Alliance Growth Fund
Alliance Growth Fund ("Growth Fund") is a diversified investment company that
seeks long-term growth of capital. Current income is only an incidental
consideration. The Fund seeks to achieve its objective by investing primarily in
equity securities of companies with favorable earnings outlooks and whose
long-term growth rates are expected to exceed that of the U.S. economy over
time. The Fund's investment objective is not fundamental.
The Fund may also invest up to 25% of its total assets in lower-rated
fixed-income and convertible bonds. See "Risk Considerations--Securities
Ratings" and "--Investment in Lower-Rated Fixed-Income Securities." The Fund
generally will not invest in securities rated at the time of purchase below Caa-
by Moody's and CCC- by S&P, Duff & Phelps or Fitch or in securities judged by
Alliance to be of comparable investment quality. However, from time to time, the
Fund may invest in securities rated in the lowest grades (i.e., C by Moody's or
D or equivalent by S&P, Duff & Phelps or Fitch), or securities Alliance judges
to be of comparable investment quality, if there are prospects for an upgrade or
a favorable conversion into equity securities. If the credit rating of a
security held by the Fund falls below its rating at the time of purchase (or
Alliance determines that the quality of such security has so deteriorated), the
Fund may continue to hold the security if such investment is considered
appropriate under the circumstances.
The Fund may also: (i) invest in "zero-coupon" bonds and "payment-in-kind"
bonds; (ii) invest in foreign securities, although the Fund will not generally
invest more than 15% of its total assets in foreign securities; (iii) invest in
securities that are not publicly traded, including Rule 144A securities; (iv)
buy or sell foreign currencies, options on foreign currencies, foreign currency
futures contracts (and related options) and deal in forward foreign exchange
contracts; (v) lend portfolio securities amounting to not more than 25% of its
total assets; (vi) enter into repurchase agreements of up to 25% of its total
assets and purchase and sell securities on a forward commitment basis; (vii) buy
and sell stock index futures contracts and buy and sell options on those
contracts and on stock indices; (viii) purchase and sell futures contracts,
options thereon and options with respect to U.S. Treasury securities; (ix) write
covered call and put options on securities it owns or in which it may invest;
and (x) purchase and sell put and call options. For additional information on
the use, risks and costs of these policies and practices see "Additional
Investment Practices."
Alliance Premier Growth Fund
Alliance Premier Growth Fund, Inc. ("Premier Growth Fund") is a diversified
investment company that seeks long-term growth of capital by investing
predominantly in the equity securities of a limited number of large, carefully
selected, high-quality U.S. companies that are judged likely to achieve superior
earnings growth. Normally, about 40-50 companies will be represented in the
Fund's portfolio, with the 25 most highly regarded of these companies usually
constituting approximately 70% of the Fund's net assets. The Fund is thus
atypical from most equity mutual funds in its focus on a relatively small number
of intensively researched companies and is designed for those seeking to
accumulate capital over time with less volatility than that associated with
investment in smaller companies.
As a matter of fundamental policy, the Fund normally invests at least 85% of its
total assets in the equity securities of U.S. companies. These are companies (i)
organized under U.S. law that have their principal office in the U.S., and (ii)
the equity securities of which are traded principally in the U.S.
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Alliance's investment strategy for the Fund emphasizes stock selection and
investment in the securities of a limited number of issuers. Alliance relies
heavily upon the fundamental analysis and research of its large internal
research staff, which generally follows a primary research universe of more than
600 companies that have strong management, superior industry positions,
excellent balance sheets and superior earnings growth prospects. An emphasis is
placed on identifying companies whose substantially above average prospective
earnings growth is not fully reflected in current market valuations.
In managing the Fund, Alliance seeks to utilize market volatility judiciously
(assuming no change in company fundamentals), striving to capitalize on
apparently unwarranted price fluctuations, both to purchase or increase
positions on weakness and to sell or reduce overpriced holdings. The Fund
normally remains nearly fully invested and does not take significant cash
positions for market timing purposes. During market declines, while adding to
positions in favored stocks, the Fund becomes somewhat more aggressive,
gradually reducing the number of companies represented in its portfolio.
Conversely, in rising markets, while reducing or eliminating fully valued
positions, the Fund becomes somewhat more conservative, gradually increasing the
number of companies represented in its portfolio. Alliance thus seeks to gain
positive returns in good markets while providing some measure of protection in
poor markets.
Alliance expects the average market capitalization of companies represented in
the Fund's portfolio normally to be in the range, or in excess, of the average
market capitalization of companies comprising the "S&P 500" (the Standard &
Poor's 500 Composite Stock Price Index, a widely recognized unmanaged index of
market activity).
The Fund may also: (i) invest up to 20% of its net assets in convertible
securities of companies whose common stocks are eligible for purchase by it;
(ii) invest up to 5% of its net assets in rights or warrants; (iii) invest up to
15% of its total assets in securities of foreign issuers whose common stocks are
eligible for purchase by it; (iv) purchase and sell exchange-traded index
options and stock index futures contracts; and (v) write covered exchange-traded
call options on common stocks, unless as a result, the amount of its securities
subject to call options would exceed 15% of its total assets, and purchase and
sell exchange-traded call and put options on common stocks written by others,
but the total cost of all options held by the Fund (including exchange-traded
index options) may not exceed 10% of its total assets. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices." The Fund will not write put options.
Alliance Technology Fund
Alliance Technology Fund, Inc. ("Technology Fund") is a diversified investment
company that emphasizes growth of capital and invests for capital appreciation,
and only incidentally for current income. The Fund may seek income by writing
listed call options. The Fund invests primarily in securities of companies
expected to benefit from technological advances and improvements (i.e.,
companies that use technology extensively in the development of new or improved
products or processes). The Fund will normally have at least 80% of its assets
invested in the securities of these companies. The Fund normally will have
substantially all its assets invested in equity securities, but it also invests
in debt securities offering an opportunity for price appreciation. The Fund will
invest in listed and unlisted securities and U.S. and foreign securities, but it
will not purchase a foreign security if as a result 10% or more of the Fund's
total assets would be invested in foreign securities.
The Fund's policy is to invest in any company and industry and in any type of
security with potential for capital appreciation. It invests in well-known and
established companies and in new and unseasoned companies.
The Fund may also: (i) write and purchase exchange-listed call options and
purchase listed put options, including exchange-traded index put options; (ii)
invest up to 10% of its total assets in warrants; (iii) invest in restricted
securities and in other assets having no ready market if as a result no more
than 10% of the Fund's net assets are invested in such securities and assets;
(iv) lend portfolio securities equal in value to not more than 30% of the Fund's
total assets; and (v) invest up to 10% of its total assets in foreign
securities. For additional information on the use, risks and costs of the
policies and practices see "Additional Investment Practices."
Alliance Quasar Fund
Alliance Quasar Fund, Inc. ("Quasar Fund") is a diversified investment company
that seeks growth of capital by pursuing aggressive investment policies. It
invests for capital appreciation and only incidentally for current income. The
selection of securities based on the possibility of appreciation cannot prevent
loss in value. Moreover, because the Fund's investment policies are aggressive,
an investment in the Fund is risky and investors who want assured income or
preservation of capital should not invest in the Fund.
The Fund invests in any company and industry and in any type of security with
potential for capital appreciation. It invests in well-known and established
companies and in new and unseasoned companies. When selecting securities for the
Fund, Alliance considers the economic and political outlook, the values of
specific securities relative to other investments, trends in the determinants of
corporate profits and management capability and practices.
The Fund invests principally in equity securities, but it also invests to a
limited degree in non-convertible bonds and preferred stocks. The Fund invests
in listed and unlisted U.S. and foreign securities. The Fund periodically
invests in special situations, which occur when the securities of a company are
expected to appreciate due to a development particularly or uniquely applicable
to that company and regardless of general business conditions or movements of
the market as a whole.
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The Fund may also: (i) invest in restricted securities and in other assets
having no ready market, but not more than 10% of its total assets may be
invested in such securities or assets; (ii) make short sales of securities
"against the box," but not more than 15% of its net assets may be deposited on
short sales; and (iii) write call options and purchase and sell put and call
options written by others. For additional information on the use, risks and
costs of these policies and practices see "Additional Investment Practices."
Global Stock Funds
The Global Stock Funds have been designed to enable investors to participate in
the potential for long-term capital appreciation available from investment in
foreign securities.
Alliance International Fund
Alliance International Fund ("International Fund") is a diversified investment
company that seeks a total return on its assets from long-term growth of capital
and from income primarily through a broad portfolio of marketable securities of
established non-U.S. companies, companies participating in foreign economies
with prospects for growth, including U.S. companies having their principal
activities and interests outside the U.S. and foreign government securities.
Normally, more than 80% of the Fund's assets will be invested in such issuers.
The Fund expects to invest primarily in common stocks of established non-U.S.
companies that Alliance believes have potential for capital appreciation or
income or both, but the Fund is not required to invest exclusively in common
stocks or other equity securities, and it may invest in any other type of
investment grade security, including convertible securities, as well as in
warrants, or obligations of the U.S. or foreign governments and their political
subdivisions.
The Fund intends to diversify its investments broadly among countries and
normally invests in at least three foreign countries, although it may invest a
substantial portion of its assets in one or more of such countries. In this
regard, at June 30, 1998, approximately 15% of the Fund's assets were invested
in securities of Japanese issuers. The Fund may invest in companies, wherever
organized, that Alliance judges have their principal activities and interests
outside the U.S. These companies may be located in developing countries, which
involves exposure to economic structures that are generally less diverse and
mature, and to political systems which can be expected to have less stability,
than those of developed countries. The Fund currently does not intend to invest
more than 10% of its total assets in companies in, or governments of, developing
countries.
The Fund may also: (i) purchase or sell forward foreign currency exchange
contracts; (ii) write, sell and purchase U.S. or foreign exchange-listed put and
call options, including exchange-traded index options; (iii) enter into
financial futures contracts, including contracts for the purchase or sale for
future delivery of foreign currencies and stock index futures, and purchase and
write put and call options on futures contracts traded on U.S. or foreign
exchanges or over-the-counter; (iv) purchase and write put options on foreign
currencies traded on securities exchanges or boards of trade or over-the-
counter; (v) lend portfolio securities equal in value to not more than 30% of
its total assets; and (vi) enter into repurchase agreements of up to seven days'
duration, provided that not more than 10% of the Fund's total assets would be so
invested. For additional information on the use, risks and costs of these
policies and practices see "Additional Investment Practices."
Alliance International Premier Growth Fund
Alliance International Premier Growth Fund, Inc. ("International Premier Growth
Fund") is a diversified investment company that seeks long term capital
appreciation by investing predominately in the equity securities of a limited
number of carefully selected non-U.S. companies that are judged likely to
achieve superior earnings growth. Investments will be made based upon their
potential for capital appreciation. Current income is incidental to that
objective.
In the main, the Fund's investments will be in comparatively large, high-quality
companies. Normally, about 60 companies will be represented in the Fund's
portfolio, and the 30 most highly regarded of these companies usually will
constitute approximately 70% of the Fund's net assets. The Fund thus differs
from more typical international equity mutual funds by focusing on a relatively
small number of intensively researched companies. The Fund is designed for
investors seeking to accumulate capital over time. Because of the market risks
inherent in any investment, the selection of securities on the basis of their
appreciation possibilities cannot ensure against possible loss in value, and
there is, of course, no assurance that the Fund's investment objective will be
met.
Alliance expects the average weighted market capitalization of the companies
represented in the Fund's portfolio (i.e., the number of a company's outstanding
shares multiplied by the price per share) normally will be in the range of, or
in excess of, that of the companies comprising the Morgan Stanley Capital
International Europe, Australasia and Far East ("EAFE") Index. As of December
31, 1997, the average weighted market capitalization of those companies was
approximately $2.6 billion.
Within the investment framework described herein, Alliance's Large Cap Growth
Group, headed by Alfred Harrison, Alliance's Vice Chairman, has responsibility
for managing the Fund's portfolio. As discussed below, in selecting the Fund's
portfolio investments Alliance's Large Cap Growth Group will follow a
structured, disciplined research and investment process which is essentially
similar to that which it employs in managing Premier Growth Fund.
In managing the Fund's assets, Alliance's investment strategy will emphasize
stock selection and investment in the securities of a limited number of issuers.
Alliance depends heavily upon the fundamental analysis and research of its large
global equity research team situated in numerous locations around the world. Its
global equity analysts follow a research universe of approximately 900
companies. As one of the largest multinational investment management firms,
Alliance has
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access to considerable information concerning the companies in its research
universe, an in-depth understanding of the products, services, markets and
competition of these companies and a good knowledge of their managements.
Research emphasis is placed on the identification of companies whose superior
prospective earnings growth is not fully reflected in current market valuations.
Companies are constantly added to and deleted from this universe as fundamentals
and valuations change. Alliance's global equity analysts rate companies in three
categories. The performance of each analyst's ratings is an important
determinant of his or her incentive compensation. The equity securities of "one-
rated" companies are expected to significantly outperform the local market in
local currency terms. All equity securities purchased for the Fund's portfolio
will be selected from the universe of approximately 100 "one-rated" companies.
As noted above, approximately 70% of the Fund's net assets will usually be
invested in the approximately 30 most highly regarded such companies. The Fund
will not concentrate more than 25% of its total assets in any one industry.
Within this limit, portfolio emphasis upon particular industries or sectors will
be a by-product of the stock selection process rather than the result of
assigned targets or ranges.
The Fund's investments will be diversified among at least four, and usually
considerably more, countries. No more than 15% of the Fund's total assets will
be invested in issuers in any one foreign country, except that the Fund may
invest up to 25% of its total assets in issuers in each of Canada, France,
Germany, Italy, Japan, The Netherlands, Switzerland and the United Kingdom.
Within these limits, geographic distribution of the Fund's investments among
countries or regions will also be a product of the stock selection process
rather than predetermined allocation. To the extent that the Fund's assets will
be concentrated within any one region, the Fund may be subject to any special
risks that may be associated with that region. While the Fund may engage in
currency hedging programs in periods in which Alliance perceives extreme
exchange rate risk, the Fund will not normally make significant use of currency
hedging strategies.
In the management of the Fund's investment portfolio, Alliance will seek to
utilize market volatility judiciously (assuming no change in company
fundamentals) to adjust the Fund's portfolio positions. To the extent consistent
with local market liquidity considerations, the Fund will strive to capitalize
on apparently unwarranted price fluctuations, both to purchase or increase
positions on weakness and to sell or reduce overpriced holdings. Under normal
circumstances, the Fund will remain substantially fully invested in equity
securities and will not take significant cash positions for market timing
purposes. Rather, through "buying into declines" and "selling into strength,"
Alliance seeks superior relative returns over time.
As a matter of fundamental policy, which may not be changed without shareholder
approval, the Fund will invest under normal circumstances at least 85% of the
value of its total assets in equity securities. The Fund's other investment
policies are not fundamental and, therefore, may be changed by the Board of
Directors of the Fund without shareholder approval. For temporary defensive
purposes, the Fund may vary from its investment policies during periods in which
Alliance believes that business or financial conditions warrant, and may then
invest in high-grade short-term fixed-income securities, including U.S.
Government securities, or hold its assets in cash.
The Fund may invest up to 20% of its total assets in convertible securities of
issuers whose common stocks are eligible for purchase by the Fund. The Fund may
also: (i) invest up to 20% of its total assets in rights or warrants; (ii) write
covered put and call options and purchase put and call options on securities of
the types in which it is permitted to invest and on exchange-traded index
options and may also write uncovered options for cross hedging purposes; (iii)
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 common stock and may purchase and write options on such future
contracts; (iv) purchase and write put and call options on foreign currencies
for hedging purposes; (v) purchase or sell forward contracts; (vi) enter into
forward commitments for the purchase or sale of securities; (vii) enter into
currency swaps for hedging purposes; (ix) enter into repurchase agreements
pertaining to U.S. Government securities with member banks of the Federal
Reserve System or primary dealers in such securities; (x) make short sales of
securities or maintain short positions, provided that the Fund may not make a
short sale if as a result more than 5% of its net assets would be held as
collateral for short sales; and (xi) make secured loans of its portfolio
securities not in excess of 30% of its total assets to entities with which it is
permitted to enter into repurchase agreements. For additional information on the
use, risks and costs of these policies and practices see "Additional Investment
Practices".
Alliance Worldwide Privatization Fund
Alliance Worldwide Privatization Fund, Inc. ("Worldwide Privatization Fund") is
a non-diversified investment company that seeks long-term capital appreciation.
As a fundamental policy, the Fund invests at least 65% of its total assets in
equity securities issued by enterprises that are undergoing, or have undergone,
privatization (as described below), although normally significantly more of its
assets will be invested in such securities. The balance of its investments will
include securities of companies believed by Alliance to be beneficiaries of
privatizations. The Fund is designed for investors desiring to take advantage of
investment opportunities, historically inaccessible to U.S. individual
investors, that are created by privatizations of state enterprises in both
established and developing economies, including those in Western Europe and
Scandinavia, Australia, New Zealand, Latin America, Asia and Eastern and Central
Europe and, to a lesser degree, Canada and the United States.
The Fund's investments in enterprises undergoing privatization may comprise
three distinct situations. First, the Fund may invest in the initial offering of
publicly traded equity securities
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(an "initial equity offering") of a government-or state-owned or controlled
company or enterprise (a "state enterprise"). Secondly, the Fund may purchase
securities of a current or former state enterprise following its initial equity
offering. Finally, the Fund may make privately negotiated purchases of stock or
other equity interests in a state enterprise that has not yet conducted an
initial equity offering. Alliance believes that substantial potential for
capital appreciation exists as privatizing enterprises rationalize their
management structures, operations and business strategies in order to compete
efficiently in a market economy, and the Fund will thus emphasize investments in
such enterprises.
The Fund diversifies its investments among a number of countries and normally
invests in issuers based in at least four, and usually considerably more,
countries. No more than 15% of the Fund's total assets, however, will be
invested in issuers in any one foreign country, except that the Fund may invest
up to 30% of its total assets in issuers in any one of France, Germany, Great
Britain, Italy and Japan. The Fund may invest all of its assets within a single
region of the world. To the extent that the Fund's assets are invested within
any one region, the Fund may be subject to any special risks that may be
associated with that region.
Privatization is a process through which the ownership and control of companies
or assets changes in whole or in part from the public sector to the private
sector. Through privatization a government or state divests or transfers all or
a portion of its interest in a state enterprise to some form of private
ownership. Governments and states with established economies, including France,
Great Britain, Germany and Italy, and those with developing economies, including
Argentina, Mexico, Chile, Indonesia, Malaysia, Poland and Hungary, are engaged
in privatizations. The Fund will invest in any country believed to present
attractive investment opportunities.
A major premise of the Fund's approach is that the equity securities of
privatized companies offer opportunities for significant capital appreciation.
In particular, because privatizations are integral to a country's economic
restructuring, securities sold in initial equity offerings often are priced
attractively so as to secure the issuer's successful transition to private
sector ownership. Additionally, these enterprises often dominate their local
markets and typically have the potential for significant managerial and
operational efficiency gains.
Although the Fund anticipates that it will not concentrate its
investments in any industry, it is permitted to invest more than 25% of its
total assets in issuers whose primary business activity is that of national
commercial banking. Prior to so concentrating, however, the Fund's Directors
must determine that its ability to achieve its investment objective would be
adversely affected if it were not permitted to concentrate. The staff of the
Commission is of the view that registered investment companies may not, absent
shareholder approval, change between concentration and non-concentration in a
single industry. The Fund disagrees with the staff's position but has undertaken
that it will not concentrate in the securities of national commercial banks
until, if ever, the issue is resolved. If the Fund were to invest more than 25%
of its total assets in national commercial banks, the Fund's performance could
be significantly influenced by events or conditions affecting this industry,
which is subject to, among other things, increases in interest rates and
deteriorations in general economic conditions, and the Fund's investments may be
subject to greater risk and market fluctuation than if its portfolio represented
a broader range of investments.
The Fund may invest up to 35% of its total assets in debt securities and
convertible debt securities of issuers whose common stocks are eligible for
purchase by the Fund. The Fund may maintain not more than 5% of its net assets
in lower-rated securities. See "Risk Considerations--Securities Ratings" and
"--Investment in Lower-Rated Fixed-Income Securities." The Fund will not retain
a non-convertible security that is downgraded below C or determined by Alliance
to have undergone similar credit quality deterioration following purchase.
The Fund may also: (i) invest up to 20% of its total assets in rights or
warrants; (ii) write covered put and call options and purchase put and call
options on securities of the types in which it is permitted to invest and on
exchange-traded index options; (iii) 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 common stock and may purchase and
write options on future contracts; (iv) purchase and write put and call options
on foreign currencies for hedging purposes; (v) purchase or sell forward
contracts; (vi) enter into forward commitments for the purchase or sale of
securities; (vii) enter into standby commitment agreements; (viii) enter into
currency swaps for hedging purposes; (ix) enter into repurchase agreements
pertaining to U.S. Government securities with member banks of the Federal
Reserve System or primary dealers in such securities; (x) make short sales of
securities or maintain a short position; and (xi) make secured loans of its
portfolio securities not in excess of 30% of its total assets to entities with
which it can enter into repurchase agreements. For additional information on the
use, risks and costs of these policies and practices see "Additional Investment
Practices."
Alliance New Europe Fund
Alliance New Europe Fund, Inc. ("New Europe Fund") is a non-diversified
investment company that seeks long-term capital appreciation through investment
primarily in the equity securities of companies based in Europe. The Fund
intends to invest substantially all of its assets in the equity securities of
European companies and has a fundamental policy of normally investing at least
65% of its total assets in such securities. Up to 35% of its total assets may be
invested in high quality U.S. dollar or foreign currency denominated
fixed-income securities issued or guaranteed by European governmental entities,
or by European or multinational companies or supranational organizations.
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Alliance believes that the quickening pace of economic integration and political
change in Europe creates the potential for many European companies to experience
rapid growth and that the emergence of new market economies in Europe and the
broadening and strengthening of other European economies may significantly
accelerate economic development. The Fund will invest in companies that Alliance
believes possess rapid growth potential. Thus, the Fund will emphasize
investments in larger, established companies, but will also invest in smaller,
emerging companies.
In recent years, economic ties between the former "east bloc" countries of
Eastern Europe and certain other European countries have been strengthened.
Alliance believes that as this strengthening continues, some Western European
financial institutions and other companies will have special opportunities to
facilitate East-West transactions. The Fund will seek investment opportunities
among such companies and, as such become available, within the former "east
bloc," although the Fund will not invest more than 20% of its total assets in
issuers based therein, or more than 10% of its total assets in issuers based in
any one such country.
The Fund diversifies its investments among a number of European countries and,
under normal circumstances, will invest in companies based in at least three
such countries. Subject to the foregoing and to the limitation on investment in
any one former "east bloc" country, the Fund may invest without limit in a
single European country. While the Fund does not intend to concentrate its
investments in a single country, at times 25% or more of its assets may be
invested in issuers located in a single country. During such times, the Fund
would be subject to a correspondingly greater risk of loss due to adverse
political or regulatory developments, or an economic downturn, within that
country. In this regard, at July 31, 1998, approximately 20% of the Fund's
assets were invested in securities of issuers in the United Kingdom.
The Fund may also: (i) invest up to 10% of its total assets in securities for
which there is no ready market; (ii) invest up to 20% of its total assets in
warrants and rights to purchase equity securities of European companies; (iii)
invest in depositary receipts or other securities convertible into securities of
companies based in European countries, debt securities of supranational entities
denominated in the currency of any European country, debt securities denominated
in European Currency Units of an issuer in a European country (including
supranational issuers) and "semi-governmental securities"; (iv) purchase and
sell forward contracts; (v) write, sell and purchase exchange-traded put and
call options, including exchange-traded index options; (vi) enter into financial
futures contracts, including contracts for the purchase or sale for future
delivery of foreign currencies and futures contracts based on stock indices, and
purchase and write options on futures contracts; (vii) purchase and write put
options on foreign currencies traded on securities exchanges or boards of trade
or over-the-counter; (viii) make secured loans of portfolio securities not in
excess of 30% of its total assets to brokers, dealers and financial
institutions; (ix) enter into forward commitments for the purchase or sale of
securities; and (x) enter into standby commitment agreements. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices."
Alliance All-Asia Investment Fund
Alliance All-Asia Investment Fund, Inc. ("All-Asia Investment Fund") is a
non-diversified investment company whose investment objective is to seek
long-term capital appreciation. In seeking to achieve its investment objective,
the Fund will invest at least 65% of its total assets in equity securities (for
the purposes of this investment policy, rights, warrants and options to purchase
common stocks are not deemed to be equity securities), preferred stocks and
equity-linked debt securities issued by Asian companies. The Fund may invest up
to 35% of its total assets in debt securities issued or guaranteed by Asian
companies or by Asian governments, their agencies or instrumentalities. The Fund
may also invest in securities issued by non-Asian issuers, provided that the
Fund will invest at least 80% of its total assets in securities issued by Asian
companies and the Asian debt securities referred to above. The Fund expects to
invest, from time to time, a significant portion, which may be in excess of 50%,
of its assets in equity securities of Japanese companies.
In the past decade, Asian countries generally have experienced a high level of
real economic growth due to political and economic changes, including foreign
investment and reduced government intervention in the economy. Alliance believes
that certain conditions exist in Asian countries which create the potential for
continued rapid economic growth. These conditions include favorable demographics
and competitive wage rates, increasing levels of foreign direct investment,
rising per capita incomes and consumer demand, a high savings rate and numerous
privatization programs. Asian countries are also becoming more industrialized
and are increasing their intra-Asian exports while reducing their dependence on
Western export demand. Alliance believes that these conditions are important to
the long-term economic growth of Asian countries.
As the economies of many Asian countries move through the "emerging market"
stage, thus increasing the supply of goods, services and capital available to
less developed Asian markets and helping to spur economic growth in those
markets, the potential is created for many Asian companies to experience rapid
growth. In addition, many Asian companies the securities of which are listed on
exchanges in more developed Asian countries will be participants in the rapid
economic growth of the lesser developed countries. These companies generally
offer the advantages of more experienced management and more developed market
regulation.
As their economies have grown, the securities markets in Asian countries have
also expanded. New exchanges have been created and the number of listed
companies, annual trading volume and overall market capitalization have
increased significantly. Additionally, new markets continue to open to foreign
investments. For example, South Korea and
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India have recently relaxed investment restrictions and Vietnamese direct
investments have recently become available to U.S. investors. The Fund also
offers investors the opportunity to access relatively restricted markets.
Alliance believes that investment opportunities in Asian countries will continue
to expand.
The Fund will invest in companies believed to possess rapid growth potential.
Thus, the Fund will invest in smaller, emerging companies, but will also invest
in larger, more established companies in such growing economic sectors as
capital goods, telecommunications and consumer services.
The Fund will invest in investment grade debt securities, except that the Fund
may maintain not more than 5% of its net assets in lower-rated securities and
lower-rated loans and other lower-rated direct debt instruments. See "Risk
Considerations--Securities Ratings," "--Investment in Lower-Rated Fixed-Income
Securities" and Appendix C in the Fund's Statement of Additional Information for
a description of such ratings. The Fund will not retain a security that is
downgraded below C or determined by Alliance to have undergone similar credit
quality deterioration following purchase.
The Fund may also: (i) invest up to 25% of its net assets in the convertible
securities of companies whose common stocks are eligible for purchase by the
Fund; (ii) invest up to 20% of its net assets in rights or warrants; (iii)
invest in depositary receipts, instruments of supranational entities denominated
in the currency of any country, securities of multinational companies and "semi-
governmental securities;" (iv) invest up to 25% of its net assets in equity-
linked debt securities with the objective of realizing capital appreciation; (v)
invest up to 25% of its net assets in loans and other direct debt instruments;
(vi) write covered put and call options on securities of the types in which it
is permitted to invest and on exchange-traded index options; (vii) 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, securities issued by foreign
government entities, or common stock and may purchase and write options on
future contracts; (viii) purchase and write put and call options on foreign
currencies for hedging purposes; (ix) purchase or sell forward contracts; (x)
enter into interest rate swaps and purchase or sell interest rate caps and
floors; (xi) enter into forward commitments for the purchase or sale of
securities; (xii) enter into standby commitment agreements; (xiii) enter into
currency swaps for hedging purposes; (xiv) enter into repurchase agreements
pertaining to U.S. Government securities with member banks of the Federal
Reserve System or primary dealers in such securities; (xv) make short sales of
securities or maintain a short position, in each case only if "against the box;"
and (xvi) make secured loans of its portfolio securities not in excess of 30% of
its total assets to entities with which it can enter into repurchase agreements.
For additional information on the use, risks and costs of these policies and
practices see "Additional Investment Practices."
Alliance Greater China '97 Fund, Inc.
Alliance Greater China '97 Fund, Inc. ("Greater China '97 Fund") is a non-
diversified investment company that seeks long-term capital appreciation through
investment of at least 80% of its total assets in equity securities issued by
Greater China companies. In furtherance of its investment objective, the Fund
expects to invest a significant portion, which may be greater than 50%, of its
assets in equity securities of Hong Kong companies and may invest, from time to
time, all of its assets in Hong Kong companies or companies of either of the
other Greater China countries.
In recent years, China, Hong Kong and Taiwan have each experienced a high level
of real economic growth, although growth is expected to slow in 1998. This
growth has resulted from advantageous economic conditions, including favorable
demographics, competitive wage rates, and rising per capita income and consumer
demand. Significantly, the growth has also been fueled by an easing by both
China and Taiwan of government restrictions and an increased receptivity to
foreign investment. This expanded, if not yet complete, openness to foreign
investment extends as well to the securities markets of both countries. Hong
Kong's free-market economy has historically included securities markets
completely open to foreign investments. All three countries have regulated stock
exchanges upon which shares of an increasing number of Greater China companies
are traded.
With its population estimated at more than 1.2 billion as a driving force, and
notwithstanding its continuing political rigidity, China's economic growth has
been coupled with significantly reduced government economic intervention and
basic economic structural change. Recent years have seen large increases in
industrial production with a significant decline in the state sector share of
industrial output, and increased involvement of local governmental units and the
private sector in establishing new business enterprises.
With China's growth has come an increasing direct and indirect economic
involvement of all three Greater China countries. For some time, Hong Kong, a
world financial and trade center in its own right, with a large stock exchange
and offices of many of the world's multinational companies, has been the gateway
to trade with and foreign investment in China. With the long-awaited transfer on
July 1, 1997 of the sovereignty of Hong Kong from Great Britain to China, not
only the political but the economic ties between China and Hong Kong are
expected to continue to intensify, albeit with the continuation of Hong Kong's
economic system as provided for in the law governing its sovereignty.
Notwithstanding the, at times considerable, political tension between the two
countries, it is generally recognized that substantially increased trade and
investment with China has been generated from Taiwan, in many cases through Hong
Kong. Along with this increased interaction with China, Taiwan is becoming a
regional technological and telecommunication center, while continuing the
process of opening its economy up to foreign investment. Although geographically
limited, Taiwan
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boasts an economy among the world's twenty largest and its foreign exchange
reserves are third largest in the world measured in U.S. dollars. As
China's economy continues to expand, it is expected that Taiwan's economic
interaction with China will likewise increase.
Alliance believes that over the long term conditions are favorable for
continuing and expanding economic growth in all three Greater China countries.
It is this potential which the Fund hopes to take advantage of by investing both
in established and new and emerging companies.
Set forth below under "Certain Considerations and Risks" and in Appendix A to
the Fund's Statement of Additional Information is additional information
concerning the Greater China countries.
In addition to investing in equity securities of Greater China companies, the
Fund may invest up to 20% of its total assets in (i) debt securities issued or
guaranteed by Greater China companies or by Greater China governments, their
agencies or instrumentalities, and (ii) equity or debt securities issued by
issuers other than Greater China companies. The Fund will not invest in debt
securities other than investment grade securities. Should a debt security in
which the Fund is invested be downgraded below investment grade or be determined
by Alliance to have undergone a similar credit quality deterioration, the Fund
will dispose of that security.
The Fund may also: (i) invest up to 25% of its net assets in the convertible
securities of companies whose common stocks are eligible for purchase by the
Fund; (ii) invest up to 20% of its net assets in rights or warrants; (iii)
invest in depositary receipts, instruments of supranational entities denominated
in the currency of any country, securities of multinational companies and "semi-
governmental securities;" (iv) invest up to 25% of its net assets in equity-
linked debt securities with the objective of realizing capital appreciation; (v)
invest up to 20% of its net assets in loans and other direct debt securities;
(vi) write covered put and call options on securities of the types in which it
is permitted to invest and on exchange-traded index options; (vii) 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, securities issued by foreign
government entities, or common stock, and may purchase and write options on
future contracts; (viii) purchase and write put and call options on foreign
currencies for hedging purposes; (ix) purchase or sell forward contracts; (x)
enter into interest rate swaps and purchase or sell interest rate caps and
floors; (xi) enter into forward commitments for the purchase or sale of
securities; (xii) enter into standby commitment agreements; (xiii) enter into
currency swaps for hedging purposes; (xiv) enter into repurchase agreements
pertaining to U.S. Government securities with member banks of the Federal
Reserve System or primary dealers in such securities; (xv) make short sales of
securities or maintain a short position, in each case only if "against the box;"
and (xvi) make secured loans of its portfolio securities not in excess of 30% of
its total assets to entities with which it can enter into repurchase agreements.
All or some of the policies and practices listed above may not be available to
the Fund in the Greater China countries, and the Fund will utilize these
policies only to the extent permissible. For additional information on the use,
risks and costs of these policies and practices see "Additional Investment
Practices."
Alliance Global Small Cap Fund
Alliance Global Small Cap Fund, Inc. ("Global Small Cap Fund") is a diversified
investment company that seeks long-term growth of capital through investment in
a global portfolio of the equity securities of selected companies with
relatively small market capitalization. The Fund's portfolio emphasizes
companies with market capitalizations that would have placed them (when
purchased) in about the smallest 20% by market capitalization of actively traded
U.S. companies, or market capitalizations of up to about $1.5 billion. Because
the Fund applies the U.S. size standard on a global basis, its foreign
investments might rank above the lowest 20%, and, in fact, might in some
countries rank among the largest, by market capitalization in local markets.
Normally, the Fund invests at least 65% of its assets in equity securities of
these smaller capitalization issuers, and these issuers are located in at least
three countries, one of which may be the U.S. Up to 35% of the Fund's total
assets may be invested in securities of companies whose market capitalizations
exceed the Fund's size standard. The Fund's portfolio securities may be listed
on a U.S. or foreign exchange or traded over-the-counter.
Alliance believes that smaller capitalization issuers often have sales and
earnings growth rates exceeding those of larger companies, and that these growth
rates tend to cause more rapid share price appreciation. Investing in smaller
capitalization stocks, however, involves greater risk than is associated with
larger, more established companies. For example, smaller capitalization
companies often have limited product lines, markets, or financial resources.
They may be dependent for management on one or a few key persons, and can be
more susceptible to losses and risks of bankruptcy. Their securities may be
thinly traded (and therefore have to be sold at a discount from current market
prices or sold in small lots over an extended period of time), may be followed
by fewer investment research analysts and may be subject to wider price swings
and thus may create a greater chance of loss than when investing in securities
of larger capitalization companies. Transaction costs in small capitalization
stocks may be higher than in those of larger capitalization companies.
The Fund may also: (i) invest up to 10% of its total assets in securities for
which there is no ready market; (ii) invest up to 20% of its total assets in
warrants to purchase equity securities; (iii) invest in depositary receipts or
other securities representing securities of companies based in countries other
than the U.S.; (iv) purchase or sell forward foreign currency contracts; (v)
write and purchase exchange-traded call options and purchase exchange-traded put
options, including put options on market indices; and (vi) make secured loans of
portfolio securities not in excess of 30% of its total assets to
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brokers, dealers and financial institutions. For additional information on the
use, risks and costs of these policies and practices see "Additional Investment
Practices."
Alliance Global Environment Fund
Alliance Global Environment Fund, Inc. ("Global Environment Fund") is a
non-diversified investment company that seeks long-term capital appreciation
through investment in equity securities of Eligible Companies. For purposes of
the Fund's investment objective and investment policies, "equity securities" are
common stocks (but not preferred stocks), rights or warrants to subscribe for or
purchase common stocks, and preferred stocks or debt securities that are
convertible into common stocks without the payment of any further consideration.
Until October 3, 1997, the Fund operated as a closed-end investment company, and
its common stock (which then comprised a single class) was listed on the
Exchange.
The Fund invests in two categories of Eligible Companies--"Environmental
Companies" and "Beneficiary Companies." Environmental Companies are those that
have a principal business involving the sale of systems or services intended to
foster environmental protection, such as waste treatment and disposal,
remediation, air pollution control and recyclying. Under normal circumstances,
the Fund invests at least 65% of its total assets in equity securities of
Environmental Companies. Beneficiary Companies are those whose principal
businesses lie outside the environmental sector but nevertheless anticipate
environmental regulations or consumer preferences through the development of new
products, processes or services that are intended to contribute to a cleaner and
healthier environment. Examples of such companies could be companies that
anticipate the demand for plastic substitutes, aerosol substitutes, alternative
fuels and processes that generate less hazardous waste. In this regard, the Fund
may invest in an issuer with a broadly diversified business only a part of which
provides such products, processes or services, when Alliance believes that these
products, processes or services will yield a competitive advantage that
significantly enhances the issuer's growth prospects. As a matter of fundamental
policy, the Fund will, under normal circumstances, invest substantially all of
its total assets in equity securities of Eligible Companies.
A major premise of the Fund's investment approach is that environmental concerns
will be a significant source of future growth opportunities, and that
Environmental Companies will see an increased demand for their systems and
services. Environmental Companies operate in the areas of pollution control,
clean energy, solid waste management, hazardous waste treatment and disposal,
pulp and paper recycling, waste-to-energy alternatives, biodegradable cartons,
packages, plastics and other products, remedial projects and emergency cleanup
efforts, manufacture of environmental supplies and equipment, the achievement of
purer air, groundwater and foods and the detection, evaluation and treatment of
both existing and potential environmental problems including, among others, air
pollution and acid rain.
The environmental services industry is generally positively affected by
increasing governmental action intended to foster environmental protection. As
environmental regulations are developed and enforced, Environmental Companies
providing the means of compliance with such regulations are afforded substantial
opportunities for growth. Beneficiary Companies may also derive an advantage to
the extent that they have anticipated environmental regulation and are therefore
at a competitive advantage.
In the view of Alliance, increasing public and political awareness of
environmental concerns and resultant environmental regulations are long-term
phenomena that are driven by an emerging global consensus that environmental
protection is a vital and increasingly immediate priority. Alliance believes
that Eligible Companies based in the United States and other economically
developed countries will have increasing opportunities for earnings growth
resulting not only from an increased demand for their existing products or
services but also from innovative responses to changing regulations and
priorities and enforcement policies. Such opportunities will arise, in the
opinion of Alliance, not only within developed countries but also within many
economically developing countries, such as those of Eastern Europe and the
Pacific Rim. These countries lag well behind developed countries in the
conservation and efficient use of natural resources and in their implementation
of policies which protect the environment.
Alliance believes that global investing offers opportunities for superior
investment returns. The Fund spreads investment risk among the capital markets
of a number of countries and invests in equity securities of companies based in
at least three, and normally considerably more, such countries. The percentage
of the Fund's assets invested in securities of companies in a particular country
or denominated in a particular currency will vary in accordance with Alliance's
assessment of the appreciation potential of such securities and the strength of
that currency. As of August 31, 1998, approximately 82% of the Fund's net
assets were invested in equity securities of U.S. companies.
The Fund may also: (i) invest up to 20% of its total assets in warrants to
purchase equity securities to the extent consistent with its investment
objective: (ii) invest in depositary receipts; (iii) purchase and write put and
call options on foreign currencies for hedging purposes; (iv) enter into forward
foreign currency transactions for hedging purposes; (v) invest in currency
futures and options on such futures for hedging purposes; and (vi) make secured
loans of its portfolio securities not in excess of 30% of its total assets. For
additional information on the use, risks and costs of these policies and
practices see "Additional Investment Practices."
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TOTAL RETURN FUNDS
The Total Return Funds have been designed to provide a range of investment
alternatives to investors seeking both growth of capital and current
income.
Alliance Balanced Shares
Alliance Balanced Shares, Inc. ("Balanced Shares") is a diversified investment
company that seeks a high return through a combination of current income and
capital appreciation. Although the Fund's investment objective is not
fundamental, the Fund is a "balanced fund" as a matter of fundamental policy.
The Fund will not purchase a security if as a result less than 25% of its total
assets will be in fixed-income senior securities (including short- and long-term
debt securities, preferred stocks, and convertible debt securities and
convertible preferred stocks to the extent that their values are attributable to
their fixed-income characteristics). Subject to these restrictions, the
percentage of the Fund's assets invested in each type of security will vary. The
Fund's assets are invested in U.S. Government securities, bonds, senior debt
securities and preferred and common stocks in such proportions and of such type
as are deemed best adapted to the current economic and market outlooks. The Fund
may invest up to 15% of the value of its total assets in foreign equity and
fixed-income securities eligible for purchase by the Fund under its investment
policies described above. See "Risk Considerations--Foreign Investment."
The Fund may also: (i) enter into contracts for the purchase or sale for future
delivery of foreign currencies; and (ii) purchase and write put and call options
on foreign currencies and enter into forward foreign currency exchange contracts
for hedging purposes. Subject to market conditions, the Fund may also seek to
realize income by writing covered call options listed on a domestic exchange.
For additional information on the use, risks and costs of these policies and
practices see "Additional Investment Practices."
Alliance Utility Income Fund
Alliance Utility Income Fund, Inc. ("Utility Income Fund") is a diversified
investment company that seeks current income and capital appreciation by
investing primarily in equity and fixed-income securities of companies in the
utilities industry. The Fund may invest in securities of both U.S. and foreign
issuers, although no more than 15% of the Fund's total assets will be invested
in issuers in any one foreign country. The utilities industry consists of
companies engaged in (i) the manufacture, production, generation, provision,
transmission, sale and distribution of gas and electric energy, and
communications equipment and services, including telephone, telegraph,
satellite, microwave and other companies providing communication facilities for
the public, or (ii) the provision of other utility or utility-related goods and
services, including, but not limited to, entities engaged in water provision,
cogeneration, waste disposal system provision, solid waste electric generation,
independent power producers and non-utility generators. The Fund is designed to
take advantage of the characteristics and historical performance of securities
of utility companies, many of which pay regular dividends and increase their
common stock dividends over time. As a fundamental policy, the Fund normally
invests at least 65% of its total assets in securities of companies in the
utilities industry. The Fund considers a company to be in the utilities industry
if, during the most recent twelve-month period, at least 50% of the company's
gross revenues, on a consolidated basis, were derived from its utilities
activities.
At least 65% of the Fund's total assets are invested in income-producing
securities, but there is otherwise no limit on the allocation of the Fund's
investments between equity securities and fixed-income securities. The Fund may
maintain up to 35% of its net assets in lower-rated securities. See "Risk
Considerations--Securities Ratings" and "--Investment in Lower-Rated
Fixed-Income Securities." The Fund will not retain a security that is downgraded
below B or determined by Alliance to have undergone similar credit quality
deterioration following purchase.
The United States utilities industry has experienced significant changes in
recent years. Electric utility companies in general have been favorably affected
by lower fuel costs, the full or near completion of major construction programs
and lower financing costs. In addition, many utility companies have generated
cash flows in excess of current operating expenses and construction
expenditures, permitting some degree of diversification into unregulated
businesses. Regulatory changes with respect to nuclear and conventionally fueled
generating facilities, however, could increase costs or impair the ability of
such electric utilities to operate such facilities, thus reducing their ability
to service dividend payments with respect to the securities they issue.
Furthermore, rates of return of utility companies generally are subject to
review and limitation by state public utilities commissions and tend to
fluctuate with marginal financing costs. Rate changes, however, ordinarily lag
behind the changes in financing costs, and thus can favorably or unfavorably
affect the earnings or dividend pay-outs on utilities stocks depending upon
whether such rates and costs are declining or rising.
Gas transmission companies, gas distribution companies and telecommunications
companies are also undergoing significant changes. Gas utilities have been
adversely affected by declines in the prices of alternative fuels, and have also
been affected by oversupply conditions and competition. Telephone utilities are
still experiencing the effects of the break-up of American Telephone & Telegraph
Company, including increased competition and rapidly developing technologies
with which traditional telephone companies now compete. Although there can be no
assurance that increased competition and other structural changes will not
adversely affect the profitability of such utilities, or that other negative
factors will not develop in the future, in Alliance's opinion, increased
competition and change may provide better positioned utility companies with
opportunities for enhanced profitability.
Utility companies historically have been subject to the risks of increases in
fuel and other operating costs, high interest costs,
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costs associated with compliance with environmental and nuclear safety
regulations, service interruptions, economic slowdowns, surplus capacity,
competition and regulatory changes. There can also be no assurance that
regulatory policies or accounting standards changes will not negatively affect
utility companies' earnings or dividends. Utility companies are subject to
regulation by various authorities and may be affected by the imposition of
special tariffs and changes in tax laws. To the extent that rates are
established or reviewed by governmental authorities, utility companies are
subject to the risk that such authorities will not authorize increased rates.
Because of the Fund's policy of concentrating its investments in utility
companies, the Fund is more susceptible than most other mutual funds to
economic, political or regulatory occurrences affecting the utilities industry.
Foreign utility companies, like those in the U.S., are generally subject to
regulation, although such regulations may or may not be comparable to domestic
regulations. Foreign utility companies in certain countries may be more heavily
regulated by their respective governments than utility companies located in the
U.S. and, as in the U.S., generally are required to seek government approval for
rate increases. In addition, because many foreign utility companies use fuels
that cause more pollution than those used in the U.S., such utilities may yet be
required to invest in pollution control equipment. Foreign utility regulatory
systems vary from country to country and may evolve in ways different from
regulation in the U.S. The percentage of the Fund's assets invested in issuers
of particular countries will vary. See "Risk Considerations--Foreign
Investment."
The Fund may invest up to 35% of its total assets in equity and fixed-income
securities of domestic and foreign corporate and governmental issuers other than
utility companies, including U.S. Government securities and repurchase
agreements pertaining thereto, foreign government securities, corporate
fixed-income securities of domestic issuers, corporate fixed-income securities
of foreign issuers denominated in foreign currencies or in U.S. dollars (in each
case including fixed-income securities of an issuer in one country denominated
in the currency of another country), qualifying bank deposits and prime
commercial paper.
The Fund may also: (i) invest up to 30% of its net assets in the convertible
securities of companies whose common stocks are eligible for purchase by the
Fund; (ii) invest up to 5% of its net assets in rights or warrants; (iii) invest
in depositary receipts, securities of supranational entities denominated in the
currency of any country, securities denominated in European Currency Units and
"semi-governmental securities;" (iv) write covered put and call options and
purchase put and call options on securities of the types in which it is
permitted to invest that are exchange-traded and over-the-counter; (v) purchase
and sell exchange-traded options on any securities index composed of the types
of securities in which it may invest; (vi) 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 an index of U.S. Government
securities, foreign government securities, corporate fixed-income securities, or
common stock, and may purchase and write options on futures contracts; (vii)
purchase and write put and call options on foreign currencies traded on U.S. and
foreign exchanges or over-the-counter for hedging purposes; (viii) purchase or
sell forward contracts; (ix) enter into interest rate swaps and purchase or sell
interest rate caps and floors; (x) enter into forward commitments for the
purchase or sale of securities; (xi) enter into standby commitment agreements;
(xii) enter into repurchase agreements pertaining to U.S. Government securities
with member banks of the Federal Reserve System or primary dealers in such
securities; (xiii) make short sales of securities or maintain a short position
as described below under "Additional Investment Practices--Short Sales;" and
(xiv) make secured loans of its portfolio securities not in excess of 20% of its
total assets to brokers, dealers and financial institutions. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices."
Alliance Growth and Income Fund
Alliance Growth and Income Fund, Inc. ("Growth and Income Fund") is a
diversified investment company that seeks appreciation through investments
primarily in dividend-paying common stocks of good quality, although it is
permitted to invest in fixed-income securities and convertible securities.
The Fund may also try to realize income by writing covered call options listed
on domestic securities exchanges. The Fund also invests in foreign securities.
Since the purchase of foreign securities entails certain political and economic
risks, the Fund has restricted its investments in securities in this category to
issues of high quality. The Fund may also purchase and sell financial forward
and futures contracts and options thereon for hedging purposes. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices."
Alliance Real Estate Investment Fund
Alliance Real Estate Investment Fund, Inc. ("Real Estate Investment Fund") is a
diversified investment company that seeks a total return on its assets from
long-term growth of capital and from income principally through investing in a
portfolio of equity securities of issuers that are primarily engaged in or
related to the real estate industry.
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in equity securities of real estate investment trusts ("REITs") and
other real estate industry companies. A "real estate industry company" is a
company that derives at least 50% of its gross revenues or net profits from the
ownership, development, construction, financing, management or sale of
commercial, industrial or residential real estate or interests therein. The
equity securities in which the Fund will invest for this purpose consist of
common stock, shares of beneficial interest of REITs and securities with common
stock characteristics, such as preferred stock or convertible securities ("Real
Estate Equity Securities").
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The Fund may invest up to 35% of its total assets in (a) securities that
directly or indirectly represent participations in, or are collateralized by and
payable from, mortgage loans secured by real property ("Mortgage-Backed
Securities"), such as mortgage pass-through certificates, real estate mortgage
investment conduit ("REMIC") certificates and collateralized mortgage
obligations ("CMOs") and (b) short-term investments. These instruments are
described below. The risks associated with the Fund's transactions in REMICs,
CMOs and other types of mortgage-backed securities, which are considered to be
derivative securities, may include some or all of the following: market risk,
leverage and volatility risk, correlation risk, credit risk and liquidity and
valuation risk. See "Risk Considerations" for a description of these and other
risks.
As to any investment in Real Estate Equity Securities, Alliance's analysis will
focus on determining the degree to which the company involved can achieve
sustainable growth in cash flow and dividend paying capability. Alliance
believes that the primary determinant of this capability is the economic
viability of property markets in which the company operates and that the
secondary determinant of this capability is the ability of management to add
value through strategic focus and operating expertise. The Fund will purchase
Real Estate Equity Securities when, in the judgment of Alliance, their market
price does not adequately reflect this potential. In making this determination,
Alliance will take into account fundamental trends in underlying property
markets as determined by proprietary models, site visits conducted by
individuals knowledgeable in local real estate markets, price-earnings ratios
(as defined for real estate companies), cash flow growth and stability, the
relationship between asset value and market price of the securities, dividend
payment history, and such other factors which Alliance may determine from time
to time to be relevant. Alliance will attempt to purchase for the Fund Real
Estate Equity Securities of companies whose underlying portfolios are
diversified geographically and by property type.
The Fund may invest without limitation in shares of REITs. REITs are pooled
investment vehicles which invest primarily in income producing real estate or
real estate related loans or interests. REITs are generally classified as equity
REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity
REITs invest the majority of their assets directly in real property and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. Similar to investment companies
such as the Fund, REITs are not taxed on income distributed to shareholders
provided they comply with several requirements of the Code. The Fund will
indirectly bear its proportionate share of expenses incurred by REITs in which
the Fund invests in addition to the expenses incurred directly by the Fund.
Investment Process for Real Estate Equity Securities. The Fund's investment
strategy with respect to Real Estate Equity Securities is based on the premise
that property market fundamentals are the primary determinant of growth
underlying the performance of Real Estate Equity Securities. Value added
management further distinguishes the most attractive Real Estate Equity
Securities. The Fund's research and investment process is designed to identify
those companies with strong property fundamentals and strong management teams.
This process is comprised of real estate market research, specific property
inspection and securities analysis. Alliance believes that this process will
result in a portfolio that will consist of Real Estate Equity Securities of
companies that own assets in the most desirable markets across the country,
diversified geographically and by property type.
In implementing the Fund's research and investment process, Alliance will avail
itself of the consulting services of CB Richard Ellis, Inc. ("CBRE"), a publicly
held company and the largest real estate services company in the United States,
comprised of real estate brokerage, property and facilities management, and real
estate finance and investment advisory activities. In 1997, CBRE completed
22,100 sale and lease transactions, managed over 6,600 client properties,
created over $5 billion in mortgage originations, and completed over 3,600
appraisal and consulting assignments. In addition, it advised and managed for
institutions over $4 billion in real estate investments. As consultant to
Alliance, CBRE provides access to its proprietary model, REIT o Score, that
analyzes the approximately 18,000 properties owned by these 142 companies. Using
proprietary databases and algorithms, CBRE analyzes local market rent, expense,
and occupancy trends, market specific transaction pricing, demographic and
economic trends, and leading indicators of real estate supply such as building
permits. Over 1,000 asset-type specific geographic markets are analyzed and
ranked on a relative scale by CBRE in compiling its REIT o Score database. The
relative attractiveness of these real estate industry companies is similarly
ranked based on the composite rankings of the properties they own. See
"Management of the Funds--Consultant to Alliance with Respect to Investments in
Real Estate Securities" for more information about CBRE.
The universe of property-owning real estate industry firms consists of
approximately 142 companies of sufficient size and quality to merit
consideration for investment by the Fund. Once the universe of real estate
industry companies has been distilled through the market research process,
CBRE's local market presence provides the capability to perform site specific
inspections of key properties. This analysis examines specific location,
condition, and sub-market trends. CBRE's use of locally based real estate
professionals provides Alliance with a window on the operations of the portfolio
companies as information can immediately be put in the context of local market
events. Only those companies whose specific property portfolios reflect the
promise of their general markets will be considered for initial and continued
investment by the Fund.
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Alliance further screens the universe of real estate industry companies by using
rigorous financial models and by engaging in regular contact with management of
targeted companies. Each management's strategic plan and ability to execute the
plan are determined and analyzed. Alliance will make extensive use of CBRE's
network of industry analysts in order to assess trends in tenant industries.
This information is then used to further interpret management's strategic plans.
Financial ratio analysis is used to isolate those companies with the ability to
make value-added acquisitions. This information is combined with property market
trends and used to project future earnings potential.
The short-term investments in which Real Estate Investment Fund may invest are:
corporate commercial paper and other short-term commercial obligations, in each
case rated or issued by companies with similar securities outstanding that are
rated Prime-1, Aa or better by Moody's or A-1, AA or better by S&P; obligations
(including certificates of deposit, time deposits, demand deposits and bankers'
acceptances) of banks with securities outstanding that are rated Prime-1, Aa or
better by Moody's or A-1, AA or better by S&P; and obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities with
remaining maturities not exceeding 18 months.
The Fund may invest in debt securities rated BBB or higher by S&P or Baa or
higher by Moody's or, if not so rated, of equivalent credit quality as
determined by Alliance. The Fund expects that it will not retain a debt security
which is downgraded below BBB or Baa or, if unrated, determined by Alliance to
have undergone similar credit quality deterioration, subsequent to purchase by
the Fund.
The Fund may also engage in the following investment practices to the extent
indicated: (i) invest up to 10% of its net assets in rights or warrants; (ii)
invest up to 15% of its net assets in the convertible securities of companies
whose common stocks are eligible for purchase by the Fund; (iii) lend portfolio
securities equal in value to not more than 25% of total assets; (iv) enter into
repurchase agreements of up to seven days' duration; (v) enter into forward
commitment transactions as long as the Fund's aggregate commitments under such
transactions are not more than 30% of the Fund's total assets; (vi) enter into
standby commitment agreements; (vii) make short sales of securities or maintain
a short position but only if at all times when a short position is open not more
than 25% of the Fund's net assets (taken at market value) is held as collateral
for such sales; and (viii) invest in illiquid securities unless, as a result,
more than 15% of its net assets would be so invested.
ADDITIONAL INVESTMENT PRACTICES
Some or all of the Funds may engage in the following investment practices to the
extent described above.
Convertible Securities. Prior to conversion, convertible securities have the
same general characteristics as non-convertible debt securities, which generally
provide a stable stream of income with yields that are generally higher than
those of equity securities of the same or similar issuers. The price of a
convertible security will normally vary with changes in the price of the
underlying equity security, although the higher yield tends to make the
convertible security less volatile than the underlying equity security. As with
debt securities, the market value of convertible securities tends to decrease as
interest rates rise and increase as interest rates decline. While convertible
securities generally offer lower interest or dividend yields than non-
convertible debt securities of similar quality, they offer investors the
potential to benefit from increases in the market price of the underlying common
stock. Convertible debt securities that are rated Baa or lower by Moody's or BBB
or lower by S&P, Duff & Phelps or Fitch and comparable unrated securities as
determined by Alliance may share some or all of the risks of non-convertible
debt securities with those ratings. For a description of these risks, see "Risk
Considerations--Securities Ratings" and "--Investment in Lower-Rated Fixed-
Income Securities."
Rights and Warrants. A Fund will invest in rights or warrants only if the
underlying equity securities themselves are deemed appropriate by Alliance for
inclusion in the Fund's portfolio. Rights and warrants entitle the holder to buy
equity securities at a specific price for a specific period of time. Rights are
similar to warrants except that they have a substantially shorter duration.
Rights and warrants may be considered more speculative than certain other types
of investments in that they do not entitle a holder to dividends or voting
rights with respect to the underlying securities nor do they represent any
rights in the assets of the issuing company. The value of a right or warrant
does not necessarily change with the value of the underlying security, although
the value of a right or warrant may decline because of a decrease in the value
of the underlying security, the passage of time or a change in perception as to
the potential of the underlying security, or any combination thereof. If the
market price of the underlying security is below the exercise price set forth in
the warrant on the expiration date, the warrant will expire worthless. Moreover,
a right or warrant ceases to have value if it is not exercised prior to the
expiration date.
Depositary Receipts and Securities of Supranational Entities. Depositary
receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. In addition, the issuers
of the stock of unsponsored depositary receipts are not obligated to disclose
material information in the United States and, therefore, there may not be a
correlation between such information and the market value of the depositary
receipts. ADRs are depositary receipts typically issued by a U.S. bank or trust
company that evidence ownership of underlying securities issued by a foreign
corporation. GDRs and other types of depositary receipts are typically issued by
foreign banks or trust companies and evidence ownership of underlying securities
issued by either a foreign or a U.S. company. Generally, depositary receipts in
registered form are designed for use in the U.S. securities markets, and
depositary receipts in bearer form are designed
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for use in foreign securities markets. For purposes of determining the country
of issuance, investments in depositary receipts of either type are deemed to be
investments in the underlying securities except with respect to Growth Fund,
where investments in ADRs are deemed to be investments in securities issued by
U.S. issuers and those in GDRs and other types of depositary receipts are deemed
to be investments in the underlying securities.
A supranational entity is an entity designated or supported by the national
government of one or more countries to promote economic reconstruction or
development. Examples of supranational entities include, among others, the World
Bank (International Bank for Reconstruction and Development) and the European
Investment Bank. A European Currency Unit is a basket of specified amounts of
the currencies of the member states of the European Economic Community.
"Semi-governmental securities" are securities issued by entities owned by either
a national, state or equivalent government or are obligations of one of such
government jurisdictions which are not backed by its full faith and credit and
general taxing powers.
Mortgage-Backed Securities. Interest and principal payments (including
prepayments) on the mortgages underlying mortgage-backed securities are passed
through to the holders of the securities. As a result of the pass-through of
prepayments of principal on the underlying securities, mortgage-backed
securities are often subject to more rapid prepayment of principal than their
stated maturity would indicate. Prepayments occur when the mortgagor on a
mortgage prepays the remaining principal before the mortgage's scheduled
maturity date. Because the prepayment characteristics of the underlying
mortgages vary, it is impossible to predict accurately the realized yield or
average life of a particular issue of pass-through certificates. Prepayments are
important because of their effect on the yield and price of the mortgage-backed
securities. During periods of declining interest rates, prepayments can be
expected to accelerate and a Fund investing in such securities would be required
to reinvest the proceeds at the lower interest rates then available. Conversely,
during periods of rising interest rates, a reduction in prepayments may increase
the effective maturity of the securities, subjecting them to a greater risk of
decline in market value in response to rising interest rates. In addition,
prepayments of mortgages underlying securities purchased at a premium could
result in capital losses.
Adjustable Rate Securities. Adjustable rate securities have interest rates that
are reset at periodic intervals, usually by reference to some interest rate
index or market interest rate. Some adjustable rate securities are backed by
pools of mortgage loans. Although the rate-adjustment feature may reduce sharp
changes in the value of adjustable rate securities, these securities can change
in value based on changes in market interest rates or the issuer's
creditworthiness. Changes in the interest rate on adjustable rate securities may
lag behind changes in prevailing market interest rates. Also, some adjustable
rate securities (or the underlying mortgages) are subject to caps or floors that
limit the maximum change in interest rate.
Asset-Backed Securities. Asset-backed securities (unrelated to first mortgage
loans) represent fractional interests in pools of leases, retail installment
loans, revolving credit receivables and other payment obligations, both secured
and unsecured. These assets are generally held by a trust and payments of
principal and interest or interest only are passed through monthly or quarterly
to certificate holders and may be guaranteed up to certain amounts by letters of
credit issued by a financial institution affiliated or unaffiliated with the
trustee or originator of the trust.
Like mortgages underlying mortgage-backed securities, underlying automobile
sales contracts or credit card receivables are subject to prepayment, which may
reduce the overall return to certificate holders. Certificate holders may also
experience delays in payment on the certificates if the full amounts due on
underlying sales contracts or receivables are not realized by the trust because
of unanticipated legal or administrative costs of enforcing the contracts or
because of depreciation or damage to the collateral (usually automobiles)
securing certain contracts, or other factors.
Zero-Coupon and Payment-in-Kind Bonds. Zero-coupon bonds are issued at a
significant discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer to make current interest
payments on the bonds in additional bonds. Because zero-coupon bonds and
payment-in-kind bonds do not pay current interest in cash, their value is
generally subject to greater fluctuation in response to changes in market
interest rates than bonds that pay interest in cash currently. Both zero-coupon
and payment-in-kind bonds allow an issuer to avoid the need to generate cash to
meet current interest payments. Accordingly, such bonds may involve greater
credit risks than bonds paying interest currently. Even though such bonds do not
pay current interest in cash, a Fund is nonetheless required to accrue interest
income on such investments and to distribute such amounts at least annually to
shareholders. Thus, a Fund could be required at times to liquidate other
investments in order to satisfy its dividend requirements.
Equity-Linked Debt Securities. Equity-linked debt securities are securities with
respect to which the amount of interest and/or principal that the issuer thereof
is obligated to pay is linked to the performance of a specified index of equity
securities. Such amount may be significantly greater or less than payment
obligations in respect of other types of debt securities. Adverse changes in
equity securities indices and other adverse changes in the securities markets
may reduce payments made under, and/or the principal of, equity-linked debt
securities held by a Fund. Furthermore, as with any debt securities, the values
of equity-linked debt securities will generally vary inversely with changes in
interest rates. A Fund's ability to dispose of equity-linked debt securities
will depend on the availability of liquid markets for such securities.
Investment in equity-linked debt securities may be considered to be speculative.
As with other securities, a Fund could lose its entire investment in equity-
linked debt securities.
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Loans and Other Direct Debt Instruments. Loans and other direct debt instruments
are interests in amounts owed by a corporate, governmental or other borrower to
another party. They may represent amounts owed to lenders or lending syndicates
(loans and loan participations), to suppliers of goods or services (trade claims
or other receivables), or to other creditors. Direct debt instruments involve
the risk of loss in case of default or insolvency of the borrower and may offer
less legal protection to a Fund in the event of fraud or misrepresentation
than debt securities. In addition, loan participations involve a risk of
insolvency of the lending bank or other financial intermediary. Direct debt
instruments may also include standby financing commitments that obligate a
Fund to supply additional cash to the borrower on demand. Loans and other direct
debt instruments are generally illiquid and may be transferred only through
individually negotiated private transactions.
Purchasers of loans and other forms of direct indebtedness depend primarily upon
the creditworthiness of the borrower for payment of principal and interest.
Direct debt instruments may not be rated by any nationally recognized rating
service. If a Fund does not receive scheduled interest or principal payments
on such indebtedness, the Fund's share price and yield could be adversely
affected. Loans that are fully secured offer a Fund more protection than
unsecured loans in the event of non-payment of scheduled interest or principal.
However, there is no assurance that the liquidation of collateral from a secured
loan would satisfy the borrower's obligation, or that the collateral can be
liquidated. Maturing loans to borrowers whose creditworthiness is poor may
involve substantial risks, and may be highly speculative.
Borrowers that are in bankruptcy or restructuring may never pay off their
indebtedness, or may pay only a small fraction of the amount owed. Direct
indebtedness of Asian countries and Greater China countries will also involve a
risk that the governmental entities responsible for the repayment of the debt
may be unable, or unwilling, to pay interest and repay principal when due.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to a Fund. For
example, if a loan is foreclosed, a Fund could become part owner of any
collateral, and would bear the costs and liabilities associated with owning and
disposing of the collateral. Direct debt instruments may also involve a risk of
insolvency of the lending bank or other intermediary.
A loan is often administered by a bank or other financial institution that acts
as agent for all holders. The agent administers the terms of the loan, as
specified on the loan agreement. Unless, under the terms of the loan or other
indebtedness, a Fund has direct recourse against the borrower, it may have to
rely on the agent to apply appropriate credit remedies against a borrower. If
assets held by the agent for the benefit of a Fund were determined to be
subject to the claims of the agent's general creditors, the Fund might incur
certain costs and delays in realizing payment on the loan or loan participation
and could suffer a loss of principal or interest.
Direct indebtedness purchased by a Fund may include letters of credit,
revolving credit facilities, or other standby financing commitments obligating
a Fund to pay additional cash on demand. These commitments may have the effect
of requiring a Fund to increase its investment in a borrower at a time when it
would not otherwise have done so, even if the borrower's condition makes it
unlikely that the amount will ever be repaid. Greater China '97 Fund will not
invest in lower-rated loans and other lower-rated direct debt instruments.
Mortgage-Backed Securities and Associated Risks. Mortgage-Backed Securities
include mortgage pass-through certificates and multiple-class pass-through
securities, such as REMIC pass-through certificates, CMOs and stripped
mortgage-backed securities ("SMBS"), and other types of Mortgage-Backed
Securities that may be available in the future.
Guaranteed Mortgage Pass-Through Securities. Real Estate Investment Fund may
invest in guaranteed mortgage pass-through securities which represent
participation interests in pools of residential mortgage loans and are issued by
U.S. governmental or private lenders and guaranteed by the U.S. Government or
one of its agencies or instrumentalities, including but not limited to the
Government National Mortgage Association ("Ginnie Mae"), the Federal National
Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage
Corporation ("Freddie Mac"). Ginnie Mae certificates are guaranteed by the full
faith and credit of the United States Government for timely payment of principal
and interest on the certificates. Fannie Mae certificates are guaranteed by
Fannie Mae, a federally chartered and privately-owned corporation for full and
timely payment of principal and interest on the certificates. Freddie Mac
certificates are guaranteed by Freddie Mac, a corporate instrumentality of the
United States Government, for timely payment of interest and the ultimate
collection of all principal of the related mortgage loans.
Multiple-Class Pass-Through Securities and Collateralized Mortgage Obligations.
Mortgage-Backed Securities also include CMOs and REMIC pass-through or
participation certificates, which may be issued by, among others, U.S.
Government agencies and instrumentalities as well as private lenders. CMOs and
REMIC certificates are issued in multiple classes and the principal of and
interest on the mortgage assets may be allocated among the several classes of
CMOs or REMIC certificates in various ways. Each class of CMOs or REMIC
certificates, often referred to as a "tranche," is issued at a specific
adjustable or fixed interest rate and must be fully retired no later than its
final distribution date. Generally, interest is paid or accrues on all classes
of CMOs or REMIC certificates on a monthly basis. Real Estate Investment Fund
will not invest in the lowest tranche of CMOs and REMIC certificates.
Typically, CMOs are collateralized by Ginnie Mae or Freddie Mac certificates but
also may be collateralized by other
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mortgage assets such as whole loans or private mortgage pass-through securities.
Debt service on CMOs is provided from payments of principal and interest on
collateral of mortgaged assets and any reinvestment income thereon.
A REMIC is a CMO that qualifies for special tax treatment under the Code and
invests in certain mortgages primarily secured by interests in real property and
other permitted investments. Investors may purchase "regular" and "residual"
interest shares of beneficial interest in REMIC trusts although Real Estate
investment fund does not intend to invest in residual interests.
Risks. Investing in Mortgage-Backed Securities involves certain unique risks in
addition to those generally associated with investing in the real estate
industry in general. These unique risks include the failure of a counterparty to
meet its commitments, adverse interest rate changes and the effects of
prepayments on mortgage cash flows. See "Risk Considerations--Mortgage-Backed
Securities" for a more complete description of the characteristics of
Mortgage-Backed Securities and associated risks.
Illiquid Securities. Subject to any more restrictive applicable fundamental
investment policy, none of the Funds will maintain more than 15% of its net
assets in illiquid securities. Illiquid securities generally include (i) direct
placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
when trading in the security is suspended or, in the case of unlisted
securities, when market makers do not exist or will not entertain bids or
offers), including many individually negotiated currency swaps and any assets
used to cover currency swaps and most privately negotiated investments in state
enterprises that have not yet conducted an initial equity offering, (ii) over-
the-counter options and assets used to cover over-the-counter options, and (iii)
repurchase agreements not terminable within seven days.
Because of the absence of a trading market for illiquid securities, a Fund may
not be able to realize their full value upon sale. With respect to each Fund
that may invest in such securities, Alliance will monitor their illiquidity
under the supervision of the Directors of the Fund. To the extent permitted by
applicable law, Rule 144A securities will not be treated as "illiquid" for
purposes of the foregoing restriction so long as such securities meet liquidity
guidelines established by a Fund's Directors. Investment in non-publicly traded
securities by Growth Fund is restricted to 5% of its total assets (not including
for these purposes Rule 144A securities, to the extent permitted by applicable
law) and is also subject to the 15% restriction on investment in illiquid
securities described above.
A Fund that invests in securities for which there is no ready market may
therefore not be able to readily sell such securities. Such securities are
unlike securities which are traded on in the open market and which can be
expected to be sold immediately if the market is adequate. The sale price of
illiquid securities may be lower or higher than Alliance's most recent estimate
of their fair value. Generally, less public information is available with
respect to the issuers of such securities than with respect to companies whose
securities are traded on an exchange. To the extent that these securities are
foreign securities, there is no law in many of the countries in which a Fund may
invest similar to the Securities Act requiring an issuer to register the sale of
securities with a governmental agency or imposing legal restrictions on resales
of securities, either as to length of time the securities may be held or manner
of resale. However, there may be contractual restrictions on resales of
securities.
Options on Securities. An option gives the purchaser of the option, upon payment
of a premium, the right to deliver to (in the case of a put) or receive from (in
the case of a call) the writer a specified amount of a security on or before a
fixed date at a predetermined price. A call option written by a Fund is
"covered" if the Fund owns the underlying security, has an absolute and
immediate right to acquire that security upon conversion or exchange of another
security it holds, or holds a call option on the underlying security with an
exercise price equal to or less than that of the call option it has written. A
put option written by a Fund is covered if the Fund holds a put option on the
underlying securities with an exercise price equal to or greater than that of
the put option it has written.
A call option is for cross-hedging purposes if a Fund does not own the
underlying security, and is designed to provide a hedge against a decline in
value in another security which the Fund owns or has the right to acquire.
Worldwide Privatization Fund, All-Asia Investment Fund, Greater China '97 Fund,
International Premier Growth Fund and Utility Income Fund each may write call
options for cross-hedging purposes. A Fund would write a call option for cross-
hedging purposes, instead of writing a covered call option, when the premium to
be received from the cross-hedge transaction would exceed that which would be
received from writing a covered call option, while at the same time achieving
the desired hedge.
In purchasing an option, a Fund would be in a position to realize a gain if,
during the option period, the price of the underlying security increased (in the
case of a call) or decreased (in the case of a put) by an amount in excess of
the premium paid; otherwise the Fund would experience a loss equal to the
premium paid for the option.
If an option written by a Fund were exercised, the Fund would be obligated to
purchase (in the case of a put) or sell (in the case of a call) the underlying
security at the exercise price. The risk involved in writing an option is that,
if the option were exercised, the underlying security would then be purchased or
sold by the Fund at a disadvantageous price. These risks could be reduced by
entering into a closing transaction (i.e., by disposing of the option prior to
its exercise). A Fund retains the premium received from writing a put or call
option whether or not the option is exercised. The writing of covered call
options could result in increases in a Fund's portfolio turnover rate,
especially during periods when market prices of the underlying securities
appreciate.
Technology Fund, Quasar Fund, International Fund, New Europe Fund and Global
Small Cap Fund will not write
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uncovered call options. Technology Fund and Global Small Cap Fund will not write
a call option if the premium to be received by the Fund in doing so would not
produce an annualized return of at least 15% of the then current market value of
the securities subject to the option (without giving effect to commissions,
stock transfer taxes and other expenses that are deducted from premium
receipts). Technology Fund, Quasar Fund and Global Small Cap Fund will not write
a call option if, as a result, the aggregate of the Fund's portfolio securities
subject to outstanding call options (valued at the lower of the option price or
market value of such securities) would exceed 15% of the Fund's total assets or
more than 10% of the Fund's assets would be committed to call options that at
the time of sale have a remaining term of more than 100 days. The aggregate cost
of all outstanding options purchased and held by each of Premier Growth Fund,
Technology Fund, Quasar Fund and Global Small Cap Fund will at no time exceed
10% of the Fund's total assets. Neither International Fund nor New Europe Fund
will write uncovered put options.
A Fund that purchases or writes options on securities in privately negotiated
(i.e., over-the-counter) transactions will effect such transactions only with
investment dealers and other financial institutions (such as commercial banks or
savings and loan institutions) deemed creditworthy by Alliance, and Alliance has
adopted procedures for monitoring the creditworthiness of such entities. Options
purchased or written by a Fund in negotiated transactions are illiquid and it
may not be possible for the Fund to effect a closing transaction at an
advantageous time. See "Illiquid Securities."
Options on Securities Indices. An option on a securities index is similar to an
option on a security except that, rather than the right to take or make delivery
of a security at a specified price, an option on a securities index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing level of the chosen index is greater than (in the case of a call) or
less than (in the case of a put) the exercise price of the option.
Futures Contracts and Options on Futures Contracts. A "sale" of a futures
contract means the acquisition of a contractual obligation to deliver the
securities or foreign currencies or other commodity called for by the contract
at a specified price on a specified date. A "purchase" of a futures contract
means the incurring of an obligation to acquire the securities, foreign
currencies or other commodity called for by the contract at a specified price on
a specified date. The purchaser of a futures contract on an index agrees to take
or make delivery of an amount of cash equal to the difference between a
specified dollar multiple of the value of the index on the expiration date of
the contract ("current contract value") and the price at which the contract was
originally struck. No physical delivery of the securities underlying the index
is made.
Options on futures contracts written or purchased by a Fund will be traded on
U.S. or foreign exchanges or over-the-counter. These investment techniques will
be used only to hedge against anticipated future changes in market conditions
and interest or exchange rates which otherwise might either adversely affect the
value of the Fund's portfolio securities or adversely affect the prices of
securities which the Fund intends to purchase at a later date.
No Fund will enter into any futures contracts or options on futures contracts if
immediately thereafter the market values of the outstanding futures contracts of
the Fund and the currencies and futures contracts subject to outstanding options
written by the Fund would exceed 50% of its total assets, or in the case of
International Premier Growth Fund 100% of its total assets. Premier Growth
Fund and Growth and Income Fund may not purchase or sell a stock index future if
immediately thereafter more than 30% of its total assets would be hedged by
stock index futures. Premier Growth Fund and Growth and Income Fund may not
purchase or sell a stock index future if, immediately thereafter, the sum of the
amount of margin deposits on the Fund's existing futures positions would exceed
5% of the market value of the Fund's total assets.
Options on Foreign Currencies. As in the case of other kinds of options, the
writing of an option on a foreign currency constitutes only a partial hedge, up
to the amount of the premium received, and a Fund could be required to purchase
or sell foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates although, in the event of
rate movements adverse to a Fund's position, it may forfeit the entire amount of
the premium plus related transaction costs. See the Statement of Additional
Information of each Fund that may invest in options on foreign currencies for
further discussion of the use, risks and costs of options on foreign currencies.
Forward Foreign Currency Exchange Contracts. A Fund purchases or sells forward
foreign currency exchange contracts to minimize the risk to it from adverse
changes in the relationship between the U.S. dollar and other currencies. A
forward contract is an obligation to purchase or sell a specific currency for an
agreed price at a future date, and is individually negotiated and privately
traded.
A Fund may enter into a forward contract, for example, when it enters into a
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security
("transaction hedge"). A Fund will not engage in transaction hedges with respect
to the currency of a particular country to an extent greater than the aggregate
amount of the Fund's transactions in that currency. When a Fund believes that a
foreign currency may suffer a substantial decline against the U.S. dollar, it
may enter into a forward sale contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency, or when the Fund believes that
the U.S. dollar may suffer a substantial decline against a foreign currency, it
may enter into a forward purchase contract to buy that foreign currency for a
fixed dollar amount ("position hedge"). A Fund will not position hedge with
respect to a particular currency to an extent greater than the
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aggregate market value (at the time of making such sale) of the securities held
in its portfolio denominated or quoted in that currency. Instead of entering
into a position hedge, a Fund may, in the alternative, enter into a forward
contract to sell a different foreign currency for a fixed U.S. dollar amount
where the Fund believes that the U.S. dollar value of the currency to be sold
pursuant to the forward contract will fall whenever there is a decline in the
U.S. dollar value of the currency in which portfolio securities of the Fund are
denominated ("cross-hedge"). Unanticipated changes in currency prices may result
in poorer overall performance for the Fund than if it had not entered into such
forward contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for a Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. International Fund, New
Europe Fund and Global Small Cap Fund will not enter into a forward contract
with a term of more than one year or if, as a result, more than 50% of its total
assets would be committed to such contracts. The dealings of International Fund,
New Europe Fund and Global Small Cap Fund in forward contracts will be limited
to hedging involving either specific transactions or portfolio positions.
Growth Fund may also purchase and sell foreign currency on a spot basis.
Forward Commitments. Forward commitments for the purchase or sale of securities
may include purchases on a "when-issued" basis or purchases or sales on a
"delayed delivery" basis. In some cases, a forward commitment may be conditioned
upon the occurrence of a subsequent event, such as approval and consummation of
a merger, corporate reorganization or debt restructuring (i.e., a "when, as and
if issued" trade).
When forward commitment transactions are negotiated, the price is fixed at the
time the commitment is made, but delivery and payment for the securities take
place at a later date. Normally, the settlement date occurs within two months
after the transaction, but settlements beyond two months may be negotiated.
Securities purchased or sold under a forward commitment are subject to market
fluctuation, and no interest or dividends accrue to the purchaser prior to the
settlement date. At the time a Fund intends to enter into a forward commitment,
it records the transaction and thereafter reflects the value of the security
purchased or, if a sale, the proceeds to be received, in determining its net
asset value. Any unrealized appreciation or depreciation reflected in such
valuation of a "when, as and if issued" security would be canceled in the event
that the required conditions did not occur and the trade was canceled.
The use of forward commitments enables a Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling prices.
In periods of falling interest rates and rising bond prices, a Fund might sell a
security in its portfolio and purchase the same or a similar security on a when-
issued or forward commitment basis, thereby obtaining the benefit of currently
higher cash yields. However, if Alliance were to forecast incorrectly the
direction of interest rate movements, a Fund might be required to complete such
when-issued or forward transactions at prices inferior to the then current
market values. When-issued securities and forward commitments may be sold prior
to the settlement date, but a Fund enters into when-issued and forward
commitments only with the intention of actually receiving securities or
delivering them, as the case may be. If a Fund chooses to dispose of the right
to acquire a when-issued security prior to its acquisition or dispose of its
right to deliver or receive against a forward commitment, it may incur a gain or
loss. Any significant commitment of Fund assets to the purchase of securities on
a "when, as and if issued" basis may increase the volatility of the Fund's net
asset value. No forward commitments will be made by New Europe Fund,
International Premier Growth Fund, All-Asia Investment Fund, Greater China '97
Fund, Worldwide Privatization Fund, Real Estate Investment Fund or Utility
Income Fund if, as a result, the Fund's aggregate commitments under such
transactions would be more than 30% of the Fund's total assets. In the event the
other party to a forward commitment transaction were to default, a Fund might
lose the opportunity to invest money at favorable rates or to dispose of
securities at favorable prices.
Standby Commitment Agreements. Standby commitment agreements commit a Fund, for
a stated period of time, to purchase a stated amount of a security that may be
issued and sold to the Fund at the option of the issuer. The price and coupon of
the security are fixed at the time of the commitment. At the time of entering
into the agreement the Fund is paid a commitment fee, regardless of whether the
security ultimately is issued, typically equal to approximately 0.5% of the
aggregate purchase price of the security the Fund has committed to purchase. A
Fund will enter into such agreements only for the purpose of investing in the
security underlying the commitment at a yield and price considered advantageous
to the Fund and unavailable on a firm commitment basis. No Fund, other than
Internation Premier Growth Fund, will enter into a standby commitment with a
remaining term in excess of 45 days. Investments in standby commitments will be
limited so that the aggregate purchase price of the securities subject to the
commitments will not exceed 25% with respect to New Europe Fund and Real Estate
Investment Fund, 50% with respect to International Premier Growth Fund,
Worldwide Privatization Fund, All-Asia Investment Fund and Greater China '97
Fund and 20% with respect to Utility Income Fund, of the Fund's assets taken at
the time of making the commitment.
There is no guarantee that a security subject to a standby commitment will be
issued and the value of the security, if
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issued, on the delivery date may be more or less than its purchase price. Since
the issuance of the security underlying the commitment is at the option of the
issuer, a Fund will bear the risk of capital loss in the event the value of the
security declines and may not benefit from an appreciation in the value of the
security during the commitment period if the issuer decides not to issue and
sell the security to the Fund.
Currency Swaps. Currency swaps involve the individually negotiated exchange by a
Fund with another party of a series of payments in specified currencies. A
currency swap may involve the delivery at the end of the exchange period of a
substantial amount of one designated currency in exchange for the other
designated currency. Therefore the entire principal value of a currency swap is
subject to the risk that the other party to the swap will default on its
contractual delivery obligations. The net amount of the excess, if any, of a
Fund's obligations over its entitlements with respect to each currency swap will
be accrued on a daily basis. A Fund will not enter into any currency swap unless
the credit quality of the unsecured senior debt or the claims-paying ability of
the other party thereto is rated in the highest rating category of at least one
nationally recognized rating organization at the time of entering into the
transaction. If there is a default by the other party to such a transaction,
such Fund will have contractual remedies pursuant to the agreements related to
the transactions.
Interest Rate Transactions. Each Fund that may enter into interest rate
transactions expects to do so primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Funds do not intend to use these transactions in a speculative manner.
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest (e.g., an exchange of floating
rate payments for fixed rate payments). Interest rate swaps are entered on a net
basis (i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments). With
respect to All-Asia Investment Fund, Greater China '97 Fund and Utility Income
Fund, the exchange commitments can involve payments in the same currency or in
different currencies. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a contractually-based principal amount
from the party selling such interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on an agreed
principal amount from the party selling the interest rate floor.
A Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or liabilities. The net amount of the excess, if any, of a Fund's
obligations over its entitlements with respect to each interest rate swap, cap
and floor is accrued daily. A Fund will not enter into an interest rate swap,
cap or floor transaction unless the unsecured senior debt or the claims-paying
ability of the other party thereto is then rated in the highest rating category
of at least one nationally recognized rating organization. Alliance will monitor
the creditworthiness of counterparties on an ongoing basis. The swap market has
grown substantially in recent years, with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid.
Caps and floors are more recent innovations for which standardized documentation
has not yet been developed and, accordingly, they are less liquid than swaps.
The use of interest rate transactions is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If Alliance were to incorrectly
forecast market values, interest rates and other applicable factors, the
investment performance of a Fund would be adversely affected by the use of these
investment techniques. Moreover, even if Alliance is correct in its forecasts,
there is a risk that the transaction position may correlate imperfectly with the
price of the asset or liability being hedged. There is no limit on the amount of
interest rate transactions that may be entered into by a Fund that is permitted
to enter into such transactions. These transactions do not involve the delivery
of securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to interest rate transactions is limited to the net amount of
interest payments that a Fund is contractually obligated to make. If the other
party to an interest rate transaction defaults, a Fund's risk of loss consists
of the net amount of interest payments that the Fund contractually is entitled
to receive.
Repurchase Agreements. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an agreed-upon
future date, normally a day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed-upon interest rate for the period
the buyer's money is invested in the security. Such agreements permit a Fund to
keep all of its assets at work while retaining "overnight" flexibility in
pursuit of investments of a longer-term nature. If a vendor defaults on its
repurchase obligation, a Fund would suffer a loss to the extent that the
proceeds from the sale of the collateral were less than the repurchase price. If
a vendor goes bankrupt, a Fund might be delayed in, or prevented from, selling
the collateral for its benefit. Alliance monitors the creditworthiness of the
vendors with which the Fund enters into repurchase agreements. There is no
percentage restriction on a Fund's ability to enter into repurchase agreements,
other than as indicated under "Investment Objectives and Policies."
Short Sales. A short sale is effected by selling a security that a Fund does not
own, or if the Fund does own such security, it is not to be delivered upon
consummation of the sale. A short sale is "against the box" to the extent that a
Fund contemporaneously owns or has the right to obtain securities
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identical to those sold short without payment. Worldwide Privatization Fund,
All-Asia Investment Fund, Greater China '97 Fund and Utility Income Fund each
may make short sales of securities or maintain short positions only for the
purpose of deferring realization of gain or loss for U.S. federal income tax
purposes, provided that at all times when a short position is open the Fund owns
an equal amount of securities of the same issue as, and equal in amount to, the
securities sold short. In addition, each of those Funds may not make a short
sale if as a result more than 10% of the Fund's net assets would be held as
collateral for short sales, except that All-Asia Investment Fund, Greater China
'97 Fund and Real Estate Investment Fund may not make a short sale if as a
result more than 25% of the Fund's net assets would be held as collateral for
short sales. If the price of the security sold short increases between the time
of the short sale and the time a Fund replaces the borrowed security, the Fund
will incur a loss; conversely, if the price declines, the Fund will realize a
capital gain. See "Certain Fundamental Investment Policies." Certain special
federal income tax considerations may apply to short sales entered into by a
Fund. See "Dividends, Distributions and Taxes" in the relevant Fund's Statement
of Additional Information.
Loans of Portfolio Securities. The risk in lending portfolio securities, as with
other extensions of credit, consists of the possible loss of rights in the
collateral should the borrower fail financially. In determining whether to lend
securities to a particular borrower, Alliance will consider all relevant facts
and circumstances, including the creditworthiness of the borrower. While
securities are on loan, the borrower will pay the Fund any income earned thereon
and the Fund may invest any cash collateral in portfolio securities, thereby
earning additional income, or receive an agreed upon amount of income from a
borrower who has delivered equivalent collateral. Each Fund will have the right
to regain record ownership of loaned securities or equivalent securities in
order to exercise ownership rights such as voting rights, subscription rights
and rights to dividends, interest or distributions. A Fund may pay reasonable
finders', administrative and custodial fees in connection with a loan. A Fund
will not lend its portfolio securities to any officer, director, employee or
affiliate of the Fund or Alliance.
General. The successful use of the foregoing investment practices draws upon
Alliance's special skills and experience with respect to such instruments and
usually depends on Alliance's ability to forecast price movements, interest
rates or currency exchange rate movements correctly. Should interest rates,
prices or exchange rates move unexpectedly, a Fund may not achieve the
anticipated benefits of the transactions or may realize losses and thus be in a
worse position than if such strategies had not been used. Unlike many
exchange-traded futures contracts and options on futures contracts, there are no
daily price fluctuation limits with respect to certain options and forward
contracts, and adverse market movements could therefore continue to an unlimited
extent over a period of time. In addition, the correlation between movements in
the prices of futures contracts, options and forward contracts and movements in
the prices of the securities and currencies hedged or used for cover will not be
perfect and could produce unanticipated losses.
A Fund's ability to dispose of its position in futures contracts, options and
forward contracts depends on the availability of liquid markets in such
instruments. Markets in options and futures with respect to a number of types of
securities and currencies are relatively new and still developing, and there is
no public market for forward contracts. It is impossible to predict the amount
of trading interest that may exist in various types of futures contracts,
options and forward contracts. If a secondary market does not exist with respect
to an option purchased or written by a Fund, it might not be possible to effect
a closing transaction in the option (i.e., dispose of the option), with the
result that (i) an option purchased by the Fund would have to be exercised in
order for the Fund to realize any profit and (ii) the Fund may not be able to
sell currencies or portfolio securities covering an option written by the Fund
until the option expires or it delivers the underlying security, futures
contract or currency upon exercise. Therefore, no assurance can be given that
the Funds will be able to utilize these instruments effectively for the purposes
set forth above. Furthermore, a Fund's ability to engage in options and futures
transactions may be limited by tax considerations and the use of certain hedging
techniques may adversely impact the characterization of income to a Fund for
U.S. federal income tax purposes. See "Dividends, Distributions and Taxes" in
the Statement of Additional Information of each Fund that invests in options and
futures.
Future Developments. A Fund may, following written notice to its shareholders,
take advantage of other investment practices that are not currently contemplated
for use by the Fund or are not available but may yet be developed, to the extent
such investment practices are consistent with the Fund's investment objective
and legally permissible for the Fund. Such investment practices, if they arise,
may involve risks that exceed those involved in the activities described above.
Defensive Position. For temporary defensive purposes, each Fund may reduce its
position in equity securities and invest in without limit certain types of
short-term, liquid, high grade or high quality (depending on the Fund) debt
securities. These securities may include U.S. Government securities, qualifying
bank deposits, money market instruments, prime commercial paper and other types
of short-term debt securities including notes and bonds. For Funds that may
invest in foreign countries, such securities may also include short-term,
foreign-currency denominated securities of the type mentioned above issued by
foreign governmental entities, companies and supranational organizations. For a
complete description of the types of securities each Fund may invest in while in
a temporary defensive position, please see such Fund's Statement of Additional
Information.
Portfolio Turnover. Portfolio turnover rates are set forth under "Financial
Highlights." These portfolio turnover rates are greater than those of most other
investment companies, including those which emphasize capital appreciation as a
basic policy. A high rate of portfolio turnover involves
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correspondingly greater brokerage and other expenses than a lower rate, which
must be borne by the Fund and its shareholders. High portfolio turnover also may
result in the realization of substantial net short-term capital gains. See
"Dividends, Distributions and Taxes" in each Fund's Statement of Additional
Information.
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
Each Fund has adopted certain fundamental investment policies listed below,
which may not be changed without the approval of its shareholders. Additional
investment restrictions with respect to a Fund are set forth in its Statement of
Additional Information.
Alliance Fund may not: (i) invest more than 5% of its total assets in the
securities of any one issuer (other than the U.S. Government); (ii) acquire more
than 10% of the voting or other securities of any one issuer; or (iii) buy
securities of any company that (including its predecessors) has not been in
business at least three continuous years. Pursuant to investment policies which
are not fundamental, the Fund does not invest (i) in puts or calls (except as
discussed above); (ii) in straddles, spreads, or any combination thereof; (iii)
in oil, gas or other mineral exploration or development programs; or (iv) more
than 5% of its gross assets in securities the disposition of which would be
subject to restrictions under the federal securities laws.
Growth Fund may not: (i) invest more than 5% of its total assets in the
securities of any one issuer (other than U.S. Government securities and
repurchase agreements relating thereto), although up to 25% of each Fund's total
assets may be invested without regard to this restriction; or (ii) invest 25% or
more of its total assets in the securities of any one industry.
Premier Growth Fund may not: (i) purchase more than 10% of the outstanding
voting securities of any one issuer; (ii) invest 25% or more of the value of its
total assets in the same industry; (iii) borrow money or issue senior securities
except for temporary or emergency purposes in an amount not exceeding 5% of the
value of its total assets at the time the borrowing is made; (iv) pledge,
mortgage, hypothecate or otherwise encumber any of its assets except in
connection with the writing of call options and except to secure permitted
borrowings; or (v) invest in the securities of any issuer that has a record of
less than three years of continuous operation (including the operation of any
predecessor) if as a result more than 10% of the value of the total assets of
the Fund would be invested in the securities of such issuer or issuers.
Technology Fund may not: (i) with respect to 75% of its total assets, have such
assets represented by other than:(a) cash and cash items, (b) U.S. Government
securities, or (c) securities of any one issuer (other than the U.S. Government
and its agencies or instrumentalities) not greater in value than 5% of the
Fund's total assets, and not more than 10% of the outstanding voting securities
of such issuer; (ii) purchase the securities of any one issuer, other than the
U.S. Government and its agencies or instrumentalities, if as a result (a) the
value of the holdings of the Fund in the securities of such issuer exceeds 25%
of its total assets, or (b) the Fund owns more than 25% of the outstanding
securities of any one class of securities of such issuer; (iii) concentrate its
investments in any one industry, but the Fund has reserved the right to invest
up to 25% of its total assets in a particular industry; and (iv) invest in the
securities of any issuer which has a record of less than three years of
continuous operation (including the operation of any predecessor) if such
purchase would cause 10% or more of its total assets to be invested in the
securities of such issuers.
Quasar Fund may not: (i) purchase the securities of any one issuer, other than
the U.S. Government or any of its agencies or instrumentalities, if as a result
more than 5% of its total assets would be invested in such issuer or the Fund
would own more than 10% of the outstanding voting securities of such issuer,
except that up to 25% of its total assets may be invested without regard to
these 5% and 10% limitations; (ii) invest more than 25% of its total assets in
any particular industry; (iii) borrow money except for temporary or emergency
purposes in an amount not exceeding 5% of its total assets at the time the
borrowing is made; or (iv) invest more than 10% of its assets in restricted
securities.
International Fund may not: (i) invest more than 5% of the value of its total
assets in securities of a single issuer (including repurchase agreements with
any one entity), except U.S. Government securities or foreign government
securities; provided, however, that the Fund may not, with respect to 75% of its
total assets, invest more than 5% of its total assets in securities of any one
foreign government issuer; (ii) own more than 10% of the outstanding securities
of any class of any issuer (for this purpose, all preferred stocks of an issuer
shall be deemed a single class, and all indebtedness of an issuer shall be
deemed a single class), except U.S. Government securities; (iii) invest more
than 25% of the value of its total assets in securities of issuers having their
principal business activities in the same industry; provided, that this
limitation does not apply to U.S. Government securities or foreign government
securities; (iv) invest more than 5% of the value of its total assets in the
securities of any issuer that has a record of less than three years of
continuous operation (including the operation of any predecessor or
unconditional guarantor), except U.S. Government securities or foreign
government securities; (v) invest more than 5% of the value of its total assets
in securities with legal or contractual restrictions on resale, other than
repurchase agreements, or more than 10% of the value of its total assets in
securities that are not readily marketable (including restricted securities and
repurchase agreements not terminable within seven business days); and (vi)
borrow money, except as a temporary measure for extraordinary or emergency
purposes, and then only from banks in amounts not exceeding 5% of its total
assets.
International Premier Growth Fund may not: (i) invest 25% or more of its total
assets in securities of issuers conducting their principal business activities
in the same industry, except
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that this restriction does not apply to U.S. Government Securities; (ii) borrow
money or issue senior securities, except that the Fund may borrow (a) from a
bank if immediately after such borrowing there is asset coverage of at least
300% as defined in the 1940 Act and (b) for temporary purposes in an amount not
exceeding 5% of the value of the total assets of the Fund; or (iii) pledge,
hypothecate, mortgage or otherwise encumber its assets, except to secure
permitted borrowings.
Worldwide Privatization Fund may not: (i) invest 25% or more of its total assets
in securities of issuers conducting their principal business activities in the
same industry, except that this restriction does not apply to (a) U.S.
Government securities, or (b) the purchase of securities of issuers whose
primary business activity is in the national commercial banking industry, so
long as the Fund's Directors determine, on the basis of factors such as
liquidity, availability of investments and anticipated returns, that the Fund's
ability to achieve its investment objective would be adversely affected if the
Fund were not permitted to invest more than 25% of its total assets in those
securities, and so long as the Fund notifies its shareholders of any decision by
the Directors to permit or cease to permit the Fund to invest more than 25% of
its total assets in those securities, such notice to include a discussion of any
increased investment risks to which the Fund may be subjected as a result of the
Directors' determination; (ii) borrow money except from banks for temporary or
emergency purposes, including the meeting of redemption requests that might
require the untimely disposition of securities; borrowing in the aggregate may
not exceed 15%, and borrowing for purposes other than meeting redemptions may
not exceed 5%, of the Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the borrowing is
made; outstanding borrowings in excess of 5% of the value of the Fund's total
assets will be repaid before any investments are made; or (iii) pledge,
hypothecate, mortgage or otherwise encumber its assets, except to secure
permitted borrowings. The exception contained in clause (i)(b) above is subject
to the operating policy regarding concentration described in this Prospectus.
New Europe Fund may not: (i) purchase more than 10% of the outstanding voting
securities of any one issuer; (ii) invest more than 15% of its total assets in
the securities of any one issuer or 25% or more of its total assets in the same
industry, provided, however, that the foregoing restriction shall not be deemed
to prohibit the Fund from purchasing the securities of any issuer pursuant to
the exercise of rights distributed to the Fund by the issuer, except that no
such purchase may be made if as a result the Fund will fail to meet the
diversification requirements of the Code and any such acquisition in excess of
the foregoing 15% or 25% limits will be sold by the Fund as soon as reasonably
practicable (this restriction does not apply to U.S. Government securities, but
will apply to foreign government securities unless the Commission permits their
exclusion); (iii) borrow money except from banks for temporary or emergency
purposes, including the meeting of redemption requests that might require the
untimely disposition of securities; borrowing in the aggregate may not exceed
15%, and borrowing for purposes other than meeting redemptions may not exceed
5%, of the Fund's total assets (including the amount borrowed) less liabilities
(not including the amount borrowed) at the time the borrowing is made;
outstanding borrowings in excess of 5% of the Fund's total assets will be repaid
before any subsequent investments are made; or (iv) purchase a security (unless
the security is acquired pursuant to a plan of reorganization or an offer of
exchange) if, as a result, the Fund would own any securities of an open-end
investment company or more than 3% of the total outstanding voting stock of any
closed-end investment company, or more than 5% of the value of the Fund's total
assets would be invested in securities of any closed-end investment company, or
more than 10% of such value in closed-end investment companies in general.
All-Asia Investment Fund may not: (i) invest 25% or more of its total assets in
securities of issuers conducting their principal business activities in the same
industry; (ii) borrow money except from banks for temporary or emergency
purposes, including the meeting of redemption requests that might require the
untimely disposition of securities; borrowing in the aggregate may not exceed
15%, and borrowing for purposes other than meeting redemptions may not exceed
5%, of the Fund's total assets (including the amount borrowed) less liabilities
(not including the amount borrowed) at the time the borrowing is made;
outstanding borrowings in excess of 5% of the value of the Fund's total assets
will be repaid before any investments are made; or (iii) pledge, hypothecate,
mortgage or otherwise encumber its assets, except to secure permitted
borrowings.
Greater China '97 Fund may not: (i) invest 25% or more of its total assets on
securities of issuers conducting their principal business activities in the same
industry; (ii) borrow money except from banks for temporary or emergency
purposes, including the meeting of redemption requests that might require the
untimely disposition of securities; borrowing in the aggregate may not exceed
15%, and borrowing for purposes other than meeting redemption may not exceed 5%,
of the Fund's total assets (including the amount borrowed) less liabilities (not
including the amount borrowed) at the time the borrowing is made; outstanding
borrowings in excess of 5% of the value of the Fund's total assets will be
repaid before any investments are made; or (iii) pledge, hypothecate, mortgage
or otherwise encumber its assets, except to secure permitted borrowings.
Global Small Cap Fund may not: (i) purchase the securities of any one issuer,
other than the U.S. Government or any of its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of its total assets
would be invested in such issuer or the Fund would own more than 10% of the
outstanding voting securities of such issuer, except that up to 25% of the
Fund's total assets may be invested without regard to these 5% and 10%
limitations; (ii) invest 25% or more of its total assets in the same industry;
this restriction does not apply to U.S. Government securities, but will apply to
foreign government securities unless the Commission permits their exclusion;
(iii) borrow money except from banks for emergency or temporary purposes in an
amount not exceeding
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5% of the total assets of the Fund; or (iv) make short sales of securities or
maintain a short position, unless at all times when a short position is open it
owns an equal amount of such securities or securities convertible into or
exchangeable for, without payment of any further consideration, securities of
the same issue as, and equal in amount to, the securities sold short and unless
not more than 5% of the Fund's net assets is held as collateral for such sales
at any one time.
Global Environment Fund may not: (i) purchase more than 10% of the outstanding
voting securities of any one issuer; (ii) invest more than 15% of the value of
its total assets in the securities of any one issuer or 25% or more of the value
of its total assets in the same industry, except that the Fund will invest more
than 25% of its total assets in Environmental Companies, provided that this
restriction does not apply to U.S. Government securities, but will apply to
foreign government obligations unless the Commission permits their exclusion;
(iii) borrow money or issue senior securities, except that the Fund may borrow
(a) from a bank if immediately after such borrowing there is asset coverage of
at least 300% as defined in the 1940 Act and (b) for temporary purposes in an
amount not exceeding 5% of the value of the total assets of the Fund; (iv)
pledge, hypothecate, mortgage or otherwise encumber its assets, except (a) to
secure permitted borrowings and (b) in connection with initial and variation
margin deposits relating to futures contracts; (v) purchase a security (unless
the security is acquired pursuant to a plan of reorganization or an offer of
exchange) if, as result, the Fund would own any securities of an open-end
investment company or more than 3% of the total outstanding voting stock of any
closed-end investment company, or more than 5% of the value of the Fund's total
assets would be invested in securities of any closed-end investment company or
more than 10% of such value in closed-end investment companies in the aggregate;
(vi) make short sales of securities or maintain a short position, unless at all
times when a short position is open it owns an equal amount of such securities
or securities convertible into or exchangeable for, without payment of any
further consideration, securities of the same issue as, and equal in amount to,
the securities sold short ("short sales against the box"), and unless not more
than 5% of the Fund's net assets (taken at market value) is held as collateral
for such sales at any one time; or (vii) buy or write (i.e., sell) put or call
options, except (a) the Fund may buy foreign currency options or write covered
foreign currency options and options on foreign currency futures and (b) the
Fund may purchase warrants.
Balanced Shares may not: (i) invest more than 5% of its total assets in the
securities of any one issuer, except U.S. Government securities; or (ii) own
more than 10% of the outstanding voting securities of any one issuer.
Utility Income Fund may not: (i) invest more than 5% of its total assets in the
securities of any one issuer except the U.S. Government, although with respect
to 25% of its total assets it may invest in any number of issuers; (ii) invest
25% or more of its total assets in the securities of issuers conducting their
principal business activities in any one industry, other than the utilities
industry, except that this restriction does not apply to U.S. Government
securities; (iii) purchase more than 10% of any class of the voting securities
of any one issuer; (iv) borrow money except from banks for temporary or
emergency purposes, including the meeting of redemption requests that might
require the untimely disposition of securities; borrowing in the aggregate may
not exceed 15%, and borrowing for purposes other than meeting redemptions may
not exceed 5%, of the Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the borrowing is
made; outstanding borrowings in excess of 5% of the Fund's total assets will be
repaid before any subsequent investments are made; or (v) purchase a security
if, as a result (unless the security is acquired pursuant to a plan of
reorganization or an offer of exchange), the Fund would own any securities of an
open-end investment company or more than 3% of the total outstanding voting
stock of any closed-end investment company or more than 5% of the value of the
Fund's net assets would be invested in securities of any one or more closed-end
investment companies.
Growth and Income Fund may not (i) invest more than 5% of its net assets in the
security of any one issuer, except U.S. Government obligations or (ii) own more
than 10% of the outstanding voting securities of any issuer.
Real Estate Investment Fund may not: (i) with respect to 75% of its total
assets, have such assets represented by other than: (a) cash and cash items, (b)
U.S. Government securities, or (c) securities of any one issuer (other than the
U.S. Government and its agencies or instrumentalities) not greater in value than
5% of the Fund's total assets, and not more than 10% of the outstanding voting
securities of such issuer; (ii) purchase the securities of any one issuer, other
than the U.S. Government and its agencies or instrumentalities, if as a result
(a) the value of the holdings of the Fund in the securities of such issuer
exceeds 25% of its total assets, or (b) the Fund owns more than 25% of the
outstanding securities of any one class of securities of such issuer; (iii)
invest 25% or more of its total assets in the securities of issuers conducting
their principal business activities in any one industry, other than the real
estate industry in which the Fund will invest at least 25% or more of its total
assets, except that this restriction does not apply to U.S. Government
securities; (iv) purchase or sell real estate, except that it may purchase and
sell securities of companies which deal in real estate or interests therein,
including Real Estate Equity Securities; or (v) borrow money except for
temporary or emergency purposes or to meet redemption requests, in an amount not
exceeding 5% of the value of its total assets at the time the borrowing is made.
RISK CONSIDERATIONS
Investment in certain of the Funds involves the special risk considerations
described below. These risks may be heightened when investing in emerging
markets.
Investment in Privatized Enterprises by Worldwide Privatization Fund. In certain
jurisdictions, the ability of foreign entities, such as the Fund, to participate
in privatizations may be limited by local law, or the price or terms on which
the Fund
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may be able to participate may be less advantageous than for local investors.
Moreover, there can be no assurance that governments that have embarked on
privatization programs will continue to divest their ownership of state
enterprises, that proposed privatizations will be successful or that governments
will not re-nationalize enterprises that have been privatized. Furthermore, in
the case of certain of the enterprises in which the Fund may invest, large
blocks of the stock of those enterprises may be held by a small group of
stockholders, even after the initial equity offerings by those enterprises. The
sale of some portion or all of those blocks could have an adverse effect on the
price of the stock of any such enterprise.
Most state enterprises or former state enterprises go through an internal
reorganization of management prior to conducting an initial equity offering in
an attempt to better enable these enterprises to compete in the private sector.
However, certain reorganizations could result in a management team that does not
function as well as the enterprise's prior management and may have a negative
effect on such enterprise. After making an initial equity offering, enterprises
that may have enjoyed preferential treatment from the respective state or
government that owned or controlled them may no longer receive such preferential
treatment and may become subject to market competition from which they were
previously protected. Some of these enterprises may not be able to effectively
operate in a competitive market and may suffer losses or experience bankruptcy
due to such competition. In addition, the privatization of an enterprise by its
government may occur over a number of years, with the government continuing to
hold a controlling position in the enterprise even after the initial equity
offering for the enterprise.
Currency Considerations. Substantially all of the assets of International Fund,
International Premier Growth Fund, New Europe Fund, All-Asia Investment Fund,
Greater China '97 Fund and Worldwide Privatization Fund and a substantial
portion of the assets of Global Small Cap Fund and Global Environment Fund will
be invested in securities denominated in foreign currencies, and a corresponding
portion of these Funds' revenues will be received in such currencies. Therefore,
the dollar equivalent of their net assets, distributions and income will be
adversely affected by reductions in the value of certain foreign currencies
relative to the U.S. dollar. If the value of the foreign currencies in which a
Fund receives its income falls relative to the U.S. dollar between receipt of
the income and the making of Fund distributions, the Fund may be required to
liquidate securities in order to make distributions if it has insufficient cash
in U.S. dollars to meet distribution requirements that the Fund must satisfy to
qualify as a regulated investment company for federal income tax purposes.
Similarly, if an exchange rate declines between the time a Fund incurs expenses
in U.S. dollars and the time cash expenses are paid, the amount of the currency
required to be converted into U.S. dollars in order to pay expenses in U.S.
dollars could be greater than the equivalent amount of such expenses in the
currency at the time they were incurred. In light of these risks, a Fund may
engage in certain currency hedging transactions, which themselves involve
certain special risks. See "Additional Investment Practices" above.
Foreign Investment. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, a Fund whose investment portfolio includes such
securities may experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in equity securities of U.S.
companies. These markets may be subject to greater influence by adverse events
generally affecting the market, and by large investors trading significant
blocks of securities, than is usual in the United States. Securities settlements
may in some instances be subject to delays and related administrative
uncertainties. These problems are particularly severe in India, where settlement
is through physical delivery, and, where, currently, a severe shortage of vault
capacity exists among custodial banks, although efforts are being undertaken to
alleviate the shortage. Certain foreign countries require governmental approval
prior to investments by foreign persons or limit investment by foreign persons
to only a specified percentage of an issuer's outstanding securities or a
specific class of securities which may have less advantageous terms (including
price) than securities of the company available for purchase by nationals. These
restrictions or controls may at times limit or preclude investment in certain
securities and may increase the costs and expenses of a Fund. In addition, the
repatriation of investment income, capital or the proceeds of sales of
securities from certain countries is controlled under regulations, including in
some cases the need for certain advance government notification or authority,
and if a deterioration occurs in a country's balance of payments, the country
could impose temporary restrictions on foreign capital remittances.
A Fund could also be adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation, as well as by the application
to it of other restrictions on investment. Investing in local markets may
require a Fund to adopt special procedures, which may involve additional costs
to a Fund. The liquidity of a Fund's investments in any country in which any of
these factors exists could be affected and Alliance will monitor the effect of
any such factor or factors on a Fund's investments. Furthermore, transaction
costs including brokerage commissions for transactions both on and off the
securities exchanges in many foreign countries are generally higher than in the
United States.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements and timely disclosure of information. The reporting, accounting and
auditing standards of foreign countries may differ, in some cases significantly,
from U.S. standards in important respects and less information may be available
to investors in foreign securities than to investors in U.S. securities.
Substantially less information is publicly
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available about certain non-U.S. issuers than is available about U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability or diplomatic
developments could affect adversely the economy of a foreign country or the
Fund's investments in such country. In the event of expropriation,
nationalization or other confiscation, a Fund could lose its entire investment
in the country involved. In addition, laws in foreign countries governing
business organizations, bankruptcy and insolvency may provide less protection to
security holders such as the Fund than that provided by U.S. laws.
Investment in United Kingdom Issuers. Investment in securities of United Kingdom
issuers involves certain considerations not present with investment in
securities of U.S. issuers. As with any investment not denominated in the U.S.
dollar, the U.S. dollar value of the Fund's investment denominated in the
British pound sterling will fluctuate with pound sterling--dollar exchange rate
movements. Between 1972, when the pound sterling was allowed to float against
other currencies, and the end of 1992, the pound sterling generally depreciated
against most major currencies, including the U.S. dollar. Between September and
December 1992, after the United Kingdom's exit from the Exchange Rate Mechanism
of the European Monetary System, the value of the pound sterling fell by almost
20% against the U.S. dollar. The pound sterling has since recovered due to
interest rate cuts throughout Europe and an upturn in the economy of the United
Kingdom. The average exchange rate of the U.S. dollar to the pound sterling was
1.50 in 1993 and 1.64 in 1997. On October 13, 1998 the U.S. dollar-pound
sterling exchange rate was 1.71.
The United Kingdom's largest stock exchange is the London Stock Exchange, which
is the third largest exchange in the world. As measured by the FT-SE 100 index,
the performance of the 100 largest companies in the United Kingdom reached
5,135.5 at the end of 1997, up approximately 25% from the end of 1996. On
October 5, 1998 the FT-SE 100 index closed at 4648.7, the lowest close in the
12-month period prior to that date, after reaching a high of 6179.0 on July 20,
1998. The FT-SE 100 index closed at 4990.1 on October 14, 1998.
In January 1999, the Economic and Monetary Union ("EMU") is scheduled to take
effect. The EMU will establish a common currency for European countries that
meet the eligibility criteria and choose to participate. Although the United
Kingdom meets the eligibility criteria, the government has not taken any action
to join the EMU.
From 1979 until 1997 the Conservative Party controlled Parliament. In the May 1,
1997 general elections, however, the Labour Party, led by Tony Blair, won a
majority in Parliament, holding 418 of 658 seats in the House of Commons. Mr.
Blair, who was appointed Prime Minister, has launched a number of reform
initiatives, including an overhaul of the monetary policy framework intended to
protect monetary policy from political forces by vesting responsibility for
setting interest rates in a new Monetary Policy Committee headed by the Governor
of the Bank of England, as opposed to the Treasury. Prime Minister Blair has
also undertaken a comprehensive restructuring of the regulation of the financial
services industry. For further information regarding the United Kingdom, see the
Statement of Additional Information of New Europe Fund.
Investment in Japanese Issuers. Investment in securities of Japanese issuers
involves certain considerations not present with investment in securities of
U.S. issuers. As with any investment not denominated in the U.S. dollar, the
U.S. dollar value of each Fund's investments denominated in the Japanese yen
will fluctuate with yen-dollar exchange rate movements. Between 1985 and 1995,
the Japanese yen generally appreciated against the U.S. dollar, but has since
fallen from its post-World War II high (in 1995) against the U.S. dollar.
Japan's largest stock exchange is the Tokyo Stock Exchange, the First Section of
which is reserved for larger, established companies. As measured by the TOPIX, a
capitalization-weighted composite index of all common stocks listed in the First
Section, the performance of the First Section reached a peak in 1989.
Thereafter, the TOPIX declined approximately 50% through the end of 1997. On
October 13, 1998 the TOPIX closed at 998.98, down approximately 15% from the end
of 1997. Certain valuation measures, such as price-to-book value and price-to-
cash flow ratios, indicate that the Japanese stock market is near its lowest
level in the last twenty years relative to other world markets.
In recent years, Japan has consistently recorded large current account trade
surpluses with the U.S. that have caused difficulties in the relations between
the two countries. On October 1, 1994, the U.S. and Japan reached an agreement
that may lead to more open Japanese markets with respect to trade in certain
goods and services. In June 1995, the two countries agreed in principle to
increase Japanese imports of American automobiles and automotive parts.
Nevertheless it is expected that the continuing friction between the U.S. and
Japan with respect to trade issues will continue for the foreseeable future.
Each Fund's investments in Japanese issuers will be subject to uncertainty
resulting from the instability of recent Japanese ruling coalitions. From 1955
to 1993, Japan's government was controlled by a single political party. Between
August 1993 and October 1996 Japan was ruled by a series of four coalition
governments. As the result of a general election on October 20, 1996, however,
Japan returned to a single-party government led by Ryutaro Hashimoto, a member
of the Liberal Democratic Party ("LDP"). While the LDP does not control a
majority of the seats in the parliament, it is only three seats short of the 251
seats required to attain a majority in the House of Representatives (down from a
12-seat shortfall just after the
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October 1996 election). The popularity of the LDP declined, however, due to the
dissatisfaction with Mr. Hashimoto's leadership. In the July 1998 House of
Councillors election, the LDP's representation fell to 103 seats from 120 seats.
As a result of the LDP's defeat, Mr. Hashimoto resigned as prime minister and
leader of the LDP. Mr. Hashimoto was replaced by Keizo Obuchi. For the past
several years, Japan's banking industry has been weakened by a significant
amount of problem loans. Japan's banks also have significant exposure to the
current financial turmoil in other Asian markets. Following the insolvency of
one of Japan's largest banks in November 1997, the government proposed several
plans designed to strengthen the weakened banking sector. In October 1998, the
Japanese parliament approved several new laws that will make $508 billion in
public funds available to increase the capital of Japanese banks, to guarantee
depositors' accounts and to nationalize the weakest banks. It is unclear whether
these new laws will achieve their intended effect. For further information
regarding Japan, see the Statements of Additional Information of All-Asia
Investment Fund and International Fund.
Investment in Greater China Issuers. China, in particular, but Hong Kong and
Taiwan, as well, in significant measure because of their existing and increasing
economic, and now in the case of Hong Kong, direct political ties with China,
may be subject to a greater degree of economic, political and social instability
than is the case in the United States.
China's economy is very much in transition. While the government still controls
production and pricing in major economic sectors, significant steps have been
taken toward capitalism and China's economy has become increasingly market
oriented. China's strong economic growth and ability to attract significant
foreign investment in recent years stem from the economic liberalization
initiated by Deng Xiaoping who assumed power in the late 1970s. The economic
growth, however, has not been smooth and has been marked by extremes in many
respects of inordinate growth, which has not been tightly controlled, followed
by rigid measures of austerity.
The rapidity and erratic nature of the growth have resulted in inefficiencies
and dislocations, including at times high rates of inflation.
China's economic development has occurred notwithstanding the continuation of
the power of China's Communist Party and China's authoritarian government
control, not only of centrally planned economic decisions, but of many aspects
of the social structure. While a significant portion of China's population has
benefited from China's economic growth, the conditions of many leave much room
for improvement. Notwithstanding restrictions on freedom of expression and the
absence of a free press, and notwithstanding the extreme manner in which past
unrest has been dealt with, the 1989 Tianamen Square uprising being a recent
reminder, the potential for renewed popular unrest associated with demands for
improved social, political and economic conditions cannot be dismissed.
Following the death of Deng Xiaoping in February 1997, Jiang Zemin became the
leader of China's Communist Party. The transfer of political power has
progressed smoothly and Jiang's popularity and credibility have gradually
increased. Jiang continues to consolidate his power, but as of yet does not
appear to have the same degree of control as did Deng Xiaoping. Jiang has
continued the market-oriented policies of Deng. Currently, China's major
economic challenge centers on reforming or eliminating inefficient state-owned
enterprises without creating an unacceptable level of unemployment. Recent
capitalistic policies have in many respects effectively outdated the Communist
Party and the governmental structure, but both remain entrenched. The Communist
Party still controls access to governmental positions and closely monitors
governmental action. Essentially there exists an inefficient set of parallel
bureaucracies and attendant opportunities for corruption.
In addition to the economic impact of China's internal political uncertainties,
the potential effect of China's actions, not only on China itself, but on Hong
Kong and Taiwan as well, could also be significant.
China is heavily dependent on foreign trade, particularly with Japan, the United
States, South Korea and Germany. Political developments adverse to its trading
partners, as well as political and social repression, could cause the United
States and others to alter their trading policy towards China. For example, in
the United States, the continued extension of most favored nation trading status
to China which is reviewed regularly and was reviewed in 1998 is an issue of
significant controversy. Loss of that status would clearly hurt China's economy
by reducing its exports. With much of China's trading activity being funneled
through Hong Kong and with trade through Taiwan becoming increasingly
significant, any sizable reduction in demand for goods from China would have
negative implications for both countries. China is believed to be the largest
investor in Hong Kong and its markets and an economic downturn in China would be
expected to reverberate through Hong Kong's markets as well.
Although China has committed by treaty to preserve Hong Kong's autonomy and its
economic, political and social freedoms for fifty years from the July 1, 1997
transfer of sovereignty from Great Britain to China. Hong Kong is headed by a
chief executive, appointed by the central government of China, whose power is
checked by both the government of China and a Legislative Council. Although
Hong Kong voters voted overwhelmingly for pro-democracy candidates in the recent
election, it remains possible that China could exert its authority so as to
alter the economic structure, political structure or existing social policy of
Hong Kong. Investor and business confidence in Hong Kong can be significantly
affected by such developments, which in turn can affect markets and business
performance. In this connection, it is noted that a substantial portion of the
companies listed on the Hong Kong Stock Exchange are involved in real estate-
related activities.
The securities markets of China and to a lesser extent Taiwan, are relatively
small, with the majority of market capitalization and
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trading volume concentrated in a limited number of companies representing a
small number of industries. Consequently, Greater China '97 Fund may experience
greater price volatility and significantly lower liquidity than a portfolio
invested solely in equity securities of U.S. companies. These markets may be
subject to greater influence by adverse events generally affecting the market,
and by large investors trading significant blocks of securities, than is usual
in the U.S. Securities settlements may in some instances be subject to delays
and related administrative uncertainties.
Foreign investment in the securities markets of China and Taiwan is restricted
or controlled to varying degrees. These restrictions or controls, which apply to
the Greater China '97 Fund may at times limit or preclude investment in certain
securities and may increase the cost and expenses of the Fund. China and Taiwan
require governmental approval prior to investments by foreign persons or limit
investment by foreign persons to only a specified percentage of an issuer's
outstanding securities or a specific class of securities which may have less
advantageous terms (including price) than securities of the company available
for purchase by nationals. In addition, the repatriation of investment income,
capital or the proceeds of sales of securities from China and Taiwan is
controlled under regulations, including in some cases the need for certain
advance government notification or authority, and if a deterioration occurs in a
country's balance of payments, the country could impose restrictions on foreign
capital remittances.
Greater China '97 Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investment. The liquidity of the
Fund's investments in any country in which any of these factors exists could be
affected by any such factor or factors on the Fund's investments. The limited
liquidity in certain Greater China markets is a factor to be taken into account
in the Fund's valuation of portfolio securities in this category and may affect
the Fund's ability to dispose of securities in order to meet redemption requests
at the price and time it wishes to do so. It is also anticipated that
transaction costs, including brokerage commissions for transactions both on and
off the securities exchanges in Greater China countries, will be higher than in
the U.S.
Issuers of securities in Greater China countries are generally not subject to
the same degree of regulation as are U.S. issuers with respect to such matters
as timely disclosure of information, insider trading rules, restrictions on
market manipulation and shareholder proxy requirements. Reporting, accounting
and auditing standards of Greater China countries may differ, in some cases
significantly, from U.S. standards in important respects, and less information
may be available to investors in securities of Greater China country issuers
than to investors in securities of U.S. issuers.
Investment in Greater China companies which are in the initial stages of their
development involves greater risk than is customarily associated with securities
of more established companies. The securities of such companies may have
relatively limited marketability and may be subject to more abrupt or erratic
market movements than securities of established companies or broad market
indices.
Investment in Smaller, Emerging Companies. The Funds may invest in smaller,
emerging companies. Global Small Cap Fund and New Europe Fund will emphasize
investment in, and All-Asia Investment Fund, Greater China '97 Fund and Global
Environment Fund may emphasize investment in, smaller, emerging companies.
Investment in such companies involves greater risks than is customarily
associated with securities of more established companies. Companies in the
earlier stages of their development often have products and management personnel
which have not been thoroughly tested by time or the marketplace; their
financial resources may not be as substantial as those of more established
companies. The securities of smaller companies may have relatively limited
marketability and may be subject to more abrupt or erratic market movements than
securities of larger companies or broad market indices. The revenue flow of such
companies may be erratic and their results of operations may fluctuate widely
and may also contribute to stock price volatility.
Extreme Governmental Action; Less Protective Laws. In contrast with investing in
the United States, foreign investment may involve in certain situations greater
risk of nationalization, expropriation, confiscatory taxation, currency blockage
or other extreme governmental action which could adversely impact a Fund's
investments. In the event of certain such actions, a Fund could lose its entire
investment in the country involved. In addition, laws in various foreign
countries, including in certain respects each of the Greater China countries,
governing, among other subjects, business organization and practices, securities
and securities trading, bankruptcy and insolvency may provide less protection to
investors such as the Fund than provided under United States laws.
Investing in Environmental Companies by Global Environment Fund. Governmental
regulations or other action can inhibit an Environmental Company's performance,
and it may take years to translate environmental legislation into sales and
profits. Environmental Companies generally face competition in fields often
characterized by relatively short product cycles and competitive pricing
policies. Losses may result from large product development or expansion costs,
unprotected marketing or distribution systems, erratic revenue flows and low
profit margins. Additional risks that Environmental Companies may face include
difficulty in financing the high cost of technological development,
uncertainties due to changing governmental regulation or rapid technological
advances, potential liabilities associated with hazardous components and
operations, and difficulty in finding experienced employees.
The Real Estate Industry. Although Real Estate Investment Fund does not invest
directly in real estate, it invests primarily in Real Estate Equity Securities
and has a policy of concentration of its investments in the real estate
industry. Therefore, an investment in the Fund is subject to certain risks
associated with the direct ownership of real estate and with the real estate
industry in
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general. These risks include, among others: possible declines in the value of
real estate; risks related to general and local economic conditions; possible
lack of availability of mortgage funds; overbuilding; extended vacancies of
properties; increases in competition, property taxes and operating expenses;
changes in zoning laws; costs resulting from the clean-up of, and liability to
third parties for damages resulting from, environmental problems; casualty or
condemnation losses; uninsured damages from floods, earthquakes or other natural
disasters; limitations on and variations in rents; and changes in interest
rates. To the extent that assets underlying the Fund's investments are
concentrated geographically, by property type or in certain other respects, the
Fund may be subject to certain of the foregoing risks to a greater extent.
In addition, if Real Estate Investment Fund receives rental income or income
from the disposition of real property acquired as a result of a default on
securities the Fund owns, the receipt of such income may adversely affect the
Fund's ability to retain its tax status as a regulated investment company. See
"Dividends, Distributions and Taxes" in the Fund's Statement of Additional
Information. Investments by the Fund in securities of companies providing
mortgage servicing will be subject to the risks associated with refinancings and
their impact on servicing rights.
REITs. Investing in REITs involves certain unique risks in addition to those
risks associated with investing in the real estate industry in general. Equity
REITs may be affected by changes in the value of the underlying property owned
by the REITs, while mortgage REITs may be affected by the quality of any credit
extended. REITs are dependent upon management skills, are not diversified, are
subject to heavy cash flow dependency, default by borrowers and
self-liquidation. REITs are also subject to the possibilities of failing to
qualify for tax free pass-through of income under the Code and failing to
maintain their exemptions from registration under the 1940 Act.
REITs (especially mortgage REITs) are also subject to interest rate risks. When
interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT's investments in such loans will gradually
align themselves to reflect changes in market interest rates, causing the value
of such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
Investing in REITs involves risks similar to those associated with investing in
small capitalization companies. REITs may have limited financial resources, may
trade less frequently and in a limited volume and may be subject to more abrupt
or erratic price movements than larger company securities. Historically, small
capitalization stocks, such as REITs, have been more volatile in price than the
larger capitalization stocks included in the S&P Index of 500 Common Stocks.
Mortgage-Backed Securities. As discussed above, investing in Mortgage-Backed
Securities involves certain unique risks in addition to those risks associated
with investment in the real estate industry in general. These risks include the
failure of a counterparty to meet its commitments, adverse interest rate changes
and the effects of prepayments on mortgage cash flows. When interest rates
decline, the value of an investment in fixed rate obligations can be expected to
rise. Conversely, when interest rates rise, the value of an investment in fixed
rate obligations can be expected to decline. In contrast, as interest rates on
adjustable rate mortgage loans are reset periodically, yields on investments in
such loans will gradually align themselves to reflect changes in market interest
rates, causing the value of such investments to fluctuate less dramatically in
response to interest rate fluctuations than would investments in fixed rate
obligations.
Further, the yield characteristics of Mortgage-Backed Securities, such as those
in which Real Estate Investment Fund may invest, differ from those of
traditional fixed-income securities. The major differences typically include
more frequent interest and principal payments (usually monthly), the
adjustability of interest rates, and the possibility that prepayments of
principal may be made substantially earlier than their final distribution dates.
Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors, and cannot be
predicted with certainty. Both adjustable rate mortgage loans and fixed rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal
prepayments in an increasing interest rate environment. Early payment associated
with Mortgage-Backed Securities causes these securities to experience
significantly greater price and yield volatility than that experienced by
traditional fixed-income securities. Under certain interest rate and prepayment
rate scenarios, the Fund may fail to recoup fully its investment in
Mortgage-Backed Securities notwithstanding any direct or indirect governmental
or agency guarantee. When the Fund reinvests amounts representing payments and
unscheduled prepayments of principal, it may receive a rate of interest that is
lower than the rate on existing adjustable rate mortgage pass-through
securities. Thus, Mortgage-Backed Securities, and adjustable rate mortgage pass-
through securities in particular, may be less effective than other types of U.S.
Government securities as a means of "locking in" interest rates.
U.S. and Foreign Taxes. A Fund's investment in foreign securities may be subject
to taxes withheld at the source on dividend or interest payments. Foreign taxes
paid by a Fund may be creditable or deductible by U.S. shareholders for U.S.
income tax purposes. No assurance can be given that applicable tax laws and
interpretations will not change in the future. Moreover, non-U.S. investors may
not be able to credit or deduct such foreign taxes. Investors should review
carefully the information discussed under the heading "Dividends, Distributions
and Taxes" and should discuss with their tax advisers the specific tax
consequences of investing in a Fund.
Fixed-Income Securities. The value of each Fund's shares will fluctuate with the
value of its investments. The value of each
47
<PAGE>
Fund's investments in fixed-income securities will change as the general level
of interest rates fluctuates. During periods of falling interest rates, the
values of fixed-income securities generally rise. Conversely, during periods of
rising interest rates, the values of fixed-income securities generally decline.
Under normal market conditions, the average dollar-weighted maturity of a Fund's
portfolio of debt or other fixed-income securities is expected to vary between
five and 30 years in the case of All-Asia Investment Fund, between five and 25
years in the case of Utility Income Fund and between one year or less and 30
years in the case of all other Funds that invest in such securities. In periods
of increasing interest rates, each of the Funds may, to the extent it holds
mortgage-backed securities, be subject to the risk that the average dollar-
weighted maturity of the Fund's portfolio of debt or other fixed-income
securities may be extended as a result of lower than anticipated prepayment
rates. See "Additional Investment Practices--Mortgage-Backed Securities."
Securities Ratings. The ratings of securities by S&P, Moody's, Duff & Phelps and
Fitch are a generally accepted barometer of credit risk. They are, however,
subject to certain limitations from an investor's standpoint. The rating of an
issuer is heavily weighted by past developments and does not necessarily reflect
probable future conditions. There is frequently a lag between the time a rating
is assigned and the time it is updated. In addition, there may be varying
degrees of difference in credit risk of securities within each rating category.
Securities rated Aaa by Moody's and AAA by S&P, Duff & Phelps and Fitch are
considered to be of the highest quality; capacity to pay interest and repay
principal is extremely strong. Securities rated Aa by Moody's and AA by S&P,
Duff & Phelps and Fitch are considered to be high quality; capacity to repay
principal is considered very strong, although elements may exist that make risks
appear somewhat larger than exist with securities rated Aaa or AAA. Securities
rated A are considered by Moody's to possess adequate factors giving security to
principal and interest. S&P, Duff & Phelps and Fitch consider such securities to
have a strong capacity to pay interest and repay principal. Such securities are
more susceptible to adverse changes in economic conditions and circumstances
than higher-rated securities.
Securities rated Baa by Moody's and BBB by S&P, Duff & Phelps and Fitch are
considered to have an adequate capacity to pay interest and repay principal.
Such securities are considered to have speculative characteristics and share
some of the same characteristics as lower-rated securities. Sustained periods of
deteriorating economic conditions or of rising interest rates are more likely to
lead to a weakening in the issuer's capacity to pay interest and repay principal
than in the case of higher-rated securities. Securities rated Ba by Moody's and
BB by S&P, Duff & Phelps and Fitch are considered to have speculative
characteristics with respect to capacity to pay interest and repay principal
over time; their future cannot be considered as well-assured. Securities rated B
by Moody's, S&P, Duff & Phelps and Fitch are considered to have highly
speculative characteristics with respect to capacity to pay interest and repay
principal. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Securities rated Caa by Moody's and CCC by S&P, Duff & Phelps and Fitch are of
poor standing and there is a present danger with respect to payment of principal
or interest. Securities rated Ca by Moody's and CC by S&P and Fitch are
minimally protected, and default in payment of principal or interest is
probable. Securities rated C by Moody's, S&P and Fitch are in imminent default
in payment of principal or interest and have extremely poor prospects of ever
attaining any real investment standing. Securities rated D by S&P and Fitch are
in default. The issuer of securities rated DD by Duff & Phelps is under an order
of liquidation.
Investment in Lower-Rated Fixed-Income Securities. Lower-rated securities, i.e.,
those rated Ba and lower by Moody's or BB and lower by S&P, Duff & Phelps or
Fitch, are subject to greater risk of loss of principal and interest than
higher-rated securities. They are also generally considered to be subject to
greater market risk than higher-rated securities, and the capacity of issuers of
lower-rated securities to pay interest and repay principal is more likely to
weaken than is that of issuers of higher-rated securities in times of
deteriorating economic conditions or rising interest rates. In addition,
lower-rated securities may be more susceptible to real or perceived adverse
economic conditions than investment grade securities.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, a Fund may experience difficulty in
valuing such securities and, in turn, the Fund's assets. In addition, adverse
publicity and investor perceptions about lower-rated securities, whether or not
factual, may tend to impair their market value and liquidity.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political conditions.
However, there can be no assurance that losses will not occur. Since the risk of
default is higher for lower-rated securities, Alliance's research and credit
analysis are a correspondingly more important aspect of its program for managing
a Fund's securities than would be the case if a Fund did not invest in lower-
rated securities.
In seeking to achieve a Fund's investment objective, there will be times, such
as during periods of rising interest rates, when depreciation and realization of
capital losses on securities in a Fund's portfolio will be unavoidable.
Moreover, medium- and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market conditions. Such
fluctuations after a security is acquired do not affect the cash income received
from that security but are reflected in the net asset value of a Fund. See the
Statement of
48
<PAGE>
Additional Information for each Fund that invests in lower-rated securities for
a description of the bond ratings of Moody's, S&P, Duff & Phelps and Fitch.
Certain lower-rated securities in which Growth Fund, and Utility Income Fund may
invest may contain call or buy-back features that permit the issuers thereof to
call or repurchase such securities. Such securities may present risks based on
prepayment expectations. If an issuer exercises such a provision, a Fund may
have to replace the called security with a lower yielding security, resulting in
a decreased rate of return to the Fund.
Non-Diversified Status. Each of Worldwide Privatization Fund, New Europe Fund,
All-Asia Investment Fund, Greater China '97 Fund and Global Environment Fund is
a "non-diversified" investment company, which means the Fund is not limited in
the proportion of its assets that may be invested in the securities of a single
issuer. However, each Fund intends to conduct its operations so as to qualify to
be taxed as a "regulated investment company" for purposes of the Code, which
will relieve the Fund of any liability for federal income tax to the extent its
earnings are distributed to shareholders. See "Dividends, Distributions and
Taxes" in each Fund's Statement of Additional Information. To so qualify, among
other requirements, the Fund will limit its investments so that, at the close of
each quarter of the taxable year, (i) not more than 25% of the Fund's total
assets will be invested in the securities of a single issuer, and (ii) with
respect to 50% of its total assets, not more than 5% of its total assets will be
invested in the securities of a single issuer and the Fund will not own more
than 10% of the outstanding voting securities of a single issuer. A Fund's
investments in U.S. Government securities and other regulated investment
companies are not subject to these limitations. Because each of Worldwide
Privatization Fund, New Europe Fund, Greater China '97 Fund and Global
Environment Fund and All-Asia Investment Fund is a non-diversified investment
company, it may invest in a smaller number of individual issuers than a
diversified investment company, and an investment in such Fund may, under
certain circumstances, present greater risk to an investor than an investment in
a diversified investment company.
Foreign government securities are not treated like U.S. Government securities
for purposes of the diversification tests described in the preceding paragraph,
but instead are subject to these tests in the same manner as the securities of
non-governmental issuers.
Year 2000 and Euro. Many computer systems and applications in use today process
transactions using two-digit date fields for the year of the transaction, rather
than the full four digits. If these systems are not modified or replaced,
transactions occurring after 1999 could be processed as year "1900", which could
result in processing inaccuracies and computer system failures. This is commonly
known as the Year 2000 problem. In addition to the Year 2000 problem, the
European Economic and Monetary Union has established a single currency, the Euro
Currency ("Euro") that will replace the national currency of certain European
countries effective January 1, 1999. Computer systems and applications must be
adapted in order to be able to process Euro sensitive information accurately
beginning in 1999. Should any of the computer systems employed by the Funds'
major service providers fail to process Year 2000 or Euro related information
properly, that could have a significant negative impact on the Funds' operations
and the services that are provided to the Funds' shareholders. In addition, to
the extent that the operations of issuers of securities held by the Funds are
impaired by the Year 2000 problem or the Euro, or prices of securities held by
the Funds decline as a result of real or perceived problems relating to the Year
2000 or the Euro, the value of the Funds' shares may be materially
affected.
With respect to the Year 2000, the Funds have been advised that Alliance, each
Fund's investment adviser, Alliance Fund Distributors, Inc. ("AFD"), each Fund's
principal underwriter, and Alliance Fund Services, Inc. ("AFS"), each Fund's
registrar, transfer agent and dividend disbursing agent (collectively,
"Alliance") began to address the Year 2000 issue several years ago in connection
with the replacement or upgrading of certain computer systems and applications.
During 1997, Alliance began a formal Year 2000 initiative, which established a
structured and coordinated process to deal with the Year 2000 issue. Alliance
reports that it has completed its assessment of the Year 2000 issues on its
domestic and international computer systems and applications. Currently,
management of Alliance expects that the required modifications for the majority
of its significant systems and applications that will be in use on January 1,
2000, will be completed and tested by the end of 1998. Full integration testing
of these systems and testing of interfaces with third-party suppliers will
continue through 1999. At this time, management of Alliance believes that the
costs associated with resolving this issue will not have a material adverse
effect on its operations or on its ability to provide the level of services it
currently provides to the Funds.
With respect to the Euro, the Funds have been advised that Alliance has
established a project team to assess changes that will be required in connection
with the introduction of the Euro. Alliance reports that its project team has
assessed all systems, including those developed or managed internally, as well
as those provided by vendors, in order to determine the modifications that will
be required to process accurately transactions denominated in Euro after 1998.
At this time, management of Alliance expects that the required modifications for
the introduction of the Euro will be completed and tested before the end of
1998. Management of Alliance believes that the costs associated with resolving
this issue will not have a material adverse effect on its operations or on its
ability to provide the level of services it currently provides to the
Funds.
The Funds and Alliance have been advised by the Funds' Custodians that they are
also in the process of reviewing their systems with the same goals. As of the
date of this prospectus, the Funds and Alliance have no reason to believe that
the Custodians will be unable to achieve these goals.
49
<PAGE>
- --------------------------------------------------------------------------------
PURCHASE AND SALE
- --------------------------------------------------------------------------------
OF SHARES
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
You can purchase shares of any of the Funds at a price based on the next
calculation of their net asset value after receipt of a proper purchase order
either through broker-dealers, banks or other financial intermediaries, or
directly through AFD. The minimum initial investment in each Fund is $250. The
minimum for subsequent investments in each Fund is $50. Investments of $25 or
more are allowed under the automatic investment program of each Fund. Share
certificates are issued only upon request. See the Subscription Application and
Statements of Additional Information for more information.
Existing shareholders may make subsequent purchases by electronic funds transfer
if they have completed the appropriate section of the Subscription Application
or the Shareholder Options form obtained from AFS. Telephone purchase orders can
be made by calling 800-221-5672 and may not exceed $500,000.
Each Fund offers three classes of shares through this prospectus, Class A, Class
B and Class C. The Funds may refuse any order to purchase shares. In this
regard, the Funds reserve the right to restrict purchases of shares (including
through exchanges) when they appear to evidence a pattern of frequent purchases
and sales made in response to short-term considerations.
Class A Shares--Initial Sales Charge Alternative
You can purchase Class A shares at net asset value plus an initial sales charge,
as follows:
<TABLE>
<CAPTION>
Initial Sales Charge
as % of Commission to
Net Amount as % of Dealer/Agent as %
Amount Purchased Invested Offering Price of Offering Price
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.44% 4.25% 4.00%
- --------------------------------------------------------------------------------------
$100,000 to
less than $250,000 3.36 3.25 3.00
- --------------------------------------------------------------------------------------
$250,000 to
less than $500,000 2.30 2.25 2.00
- --------------------------------------------------------------------------------------
$500,000 to
less than $1,000,000 1.78 1.75 1.50
- --------------------------------------------------------------------------------------
</TABLE>
On purchases of $1,000,000 or more, you pay no initial sales charge but may pay
a contingent deferred sales charge ("CDSC") equal to 1% of the lesser of net
asset value at the time of redemption or original cost if you redeem within one
year; Alliance may pay the dealer or agent a fee of up to 1% of the dollar
amount purchased. Certain purchases of Class A shares may qualify for reduced or
eliminated sales charges in accordance with a Fund's Combined Purchase
Privilege, Cumulative Quantity Discount, Statement of Intention, Privilege for
Certain Retirement Plans, Reinstatement Privilege and Sales at Net Asset Value
programs. Consult the Subscription Application and Statements of Additional
Information.
Class B Shares--Deferred Sales Charge Alternative
You can purchase Class B shares at net asset value without an initial sales
charge. A Fund will thus receive the full amount of your purchase. However, you
may pay a CDSC if you redeem shares within four years after purchase. The amount
of the CDSC (expressed as a percentage of the lesser of the current net asset
value or original cost) will vary according to the number of years from the
purchase of Class B shares until the redemption of those shares.
The amount of the CDSC for Class B shares for each Fund is as set forth below.
Class B shares of a Fund purchased prior to the date of this Prospectus may be
subject to a different CDSC schedule, which was disclosed in the Fund's
prospectus in use at the time of purchase and is set forth in the Fund's current
Statement of Additional Information.
<TABLE>
<CAPTION>
Year Since Purchase CDSC
--------------------------------------------
<S> <C>
First ................................ 4.0%
Second ............................... 3.0%
Third ................................ 2.0%
Fourth ............................... 1.0%
Fifth ................................ None
</TABLE>
Class B shares are subject to higher distribution fees than Class A shares for a
period (after which they convert to Class A shares) of eight years. The higher
fees mean a higher expense ratio, so Class B shares pay correspondingly lower
dividends and may have a lower net asset value than Class A shares.
Class C Shares--Asset-Based Sales Charge Alternative
You can purchase Class C shares at net asset value without any initial sales
charge. A Fund will thus receive the full amount of your purchase, and, if you
hold your shares for one year or more, you will receive the entire net asset
value of your shares upon redemption. Class C shares incur higher distribution
fees than Class A shares and do not convert to any other class of shares of the
Fund. The higher fees mean a higher expense ratio, so Class C shares pay
correspondingly lower dividends and may have a lower net asset value than Class
A shares.
Class C shares redeemed within one year of purchase will be subject to a CDSC
equal to 1% of the lesser of their original cost or net asset value at the time
of redemption.
Application of the CDSC
Shares obtained from dividend or distribution reinvestment are not subject to
the CDSC. The CDSC is deducted from the amount of the redemption and is paid to
AFD. The CDSC will be waived on redemptions of shares following the death or
disability of a shareholder, to meet the requirements of certain qualified
retirement plans or pursuant to a monthly, bimonthly or quarterly systematic
withdrawal plan. See the Statements of Additional Information.
How the Funds Value Their Shares
The net asset value of each Class of shares of a Fund is calculated by dividing
the value of the Fund's net assets allocable to that Class by the outstanding
shares of that Class. Shares are valued each day the Exchange is open as of the
close of regular trading (currently 4:00 p.m. Eastern time). The securities in a
Fund are valued at their current market value determined on the basis of market
quotations or, if such quotations are not readily
50
<PAGE>
available, such other methods as the Fund's Directors believe accurately
reflects fair market value.
Employee Benefit Plans
Certain employee benefit plans, including employer-sponsored tax-qualified
401(k) plans and other defined contribution retirement plans ("Employee Benefit
Plans"), may establish requirements as to the purchase, sale or exchange of
shares, including maximum and minimum initial investment requirements, that are
different from those described in this Prospectus. Employee Benefit Plans may
also not offer all classes of shares of the Funds. In order to enable
participants investing through Employee Benefit Plans to purchase shares of the
Funds, the maximum and minimum investment amounts may be different for shares
purchased through Employee Benefit Plans from those described in this
Prospectus. In addition, the Class A, Class B and Class C CDSC may be waived for
investments made through Employee Benefit Plans.
General
The decision as to which class of shares is more beneficial to you depends on
the amount and intended length of your investment. If you are making a large
investment, thus qualifying for a reduced sales charge, you might consider Class
A shares. If you are making a smaller investment, you might consider Class B
shares because 100% of your purchase is invested immediately. If you are unsure
of the length of your investment, you might consider Class C shares because
there is no initial sales charge and no CDSC as long as the shares are held for
one year or more. Consult your financial agent. Dealers and agents may receive
differing compensation for selling Class A, Class B or Class C shares. There is
no size limit on purchases of Class A shares. The maximum purchase of Class B
shares is $250,000. The maximum purchase of Class C shares is $1,000,000.
Each Fund offers a fourth class of shares, Advisor Class shares, by means of
separate prospectus. Advisor Class shares may be purchased and held solely by
(i) accounts established under a fee-based program sponsored and maintained by a
registered broker-dealer or other financial intermediary and approved by AFD,
(ii) a self-directed defined contribution employee benefit plan (e.g., a 401(k)
plan) that has at least 1,000 participants or $25 million in assets and (iii)
certain other categories of investors described in the prospectus for the
Advisor Class, including investment advisory clients of, and certain other
persons associated with, Alliance and its affiliates or the Funds. Advisor Class
shares are offered without any initial sales charge or CDSC and without an
ongoing distribution fee and are expected, therefore, to have different
performance than Class A, Class B or Class C shares. You can obtain more
information about Advisor Class shares by contacting AFS at 800-221-5672 or by
contacting your financial representative.
A transaction, service, administrative or other similar fee may be charged by
your broker-dealer, agent, financial intermediary or other financial
representative with respect to the purchase, sale or exchange of Class A, Class
B or Class C shares made through such financial representative. Such financial
intermediaries may also impose requirements with respect to the purchase, sale
or exchange of shares that are different from, or in addition to, those imposed
by a Fund, including requirements as to the minimum initial and subsequent
investment amounts.
In addition to the discount or commission paid to dealers or agents, AFD from
time to time pays additional cash or other incentives to dealers or agents in
connection with the sale of shares of the Funds. Such additional amounts may be
utilized, in whole or in part, in some cases together with other revenues of
such dealers or agents, to provide additional compensation to registered
representatives who sell shares of the Funds. On some occasions, such cash or
other incentives will be conditioned upon the sale of a specified minimum dollar
amount of the shares of a Fund and/or other Alliance Mutual Funds during a
specific period of time. Such incentives may take the form of payment for
attendance at seminars, meals, sporting events or theater performances, or
payment for travel, lodging and entertainment incurred in connection with travel
by persons associated with a dealer or agent to urban or resort locations within
or outside the United States. Such dealer or agent may elect to receive cash
incentives of equivalent amount in lieu of such payments.
HOW TO SELL SHARES
You may "redeem"(i.e., sell your shares in a Fund to the Fund) on any day the
Exchange is open, either directly or through your financial intermediary. The
price you will receive is the net asset value (less any applicable CDSC) next
calculated after the Fund receives your request in proper form. Proceeds
generally will be sent to you within seven days. However, for shares recently
purchased by check or electronic funds transfer, a Fund will not send proceeds
until it is reasonably satisfied that the check or electronic funds transfer has
been collected (which may take up to 15 days).
Selling Shares Through Your Broker
Your broker must receive your request before 4:00 p.m. Eastern time, and your
broker must transmit your request to the Fund by 5:00 p.m. Eastern time, for you
to receive that day's net asset value (less any applicable CDSC). Your broker is
responsible for furnishing all necessary documentation to a Fund and may charge
you for this service.
Selling Shares Directly To A Fund
Send a signed letter of instruction or stock power form to AFS along with
certificates, if any, that represent the shares you want to sell. For your
protection, signatures must be guaranteed by a bank, a member firm of a national
stock exchange or other eligible guarantor institution. Stock power forms are
available from your financial intermediary, AFS, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
intermediaries, fiduciaries and surviving joint owners. For details contact:
Alliance Fund Services
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
51
<PAGE>
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672.
Telephone redemption requests must be made by 4:00 p.m. Eastern time on a Fund
business day in order to receive that day's net asset value. A shareholder who
has completed the appropriate section of the Subscription Application, or the
Shareholder Options form obtained from AFS, can elect to have the proceeds of
his or her redemption sent to his or her bank via an electronic funds transfer.
Proceeds of telephone redemptions also may be sent by check to a shareholder's
address of record. Redemption requests by electronic funds transfer may not
exceed $100,000 and redemption requests by check may not exceed $50,000 per day.
Telephone redemption is not available for shares held in nominee or "street
name" accounts or retirement plan accounts or shares held by a shareholder who
has changed his or her address of record within the previous 30 calendar
days.
General
The sale of shares is a taxable transaction for federal tax purposes. Under
unusual circumstances, a Fund may suspend redemptions or postpone payment for up
to seven days or longer, as permitted by federal securities law. The Funds
reserve the right to close an account that through redemption has remained below
$200 for 90 days. Shareholders will receive 60 days' written notice to increase
the account value before the account is closed.
During drastic economic or market developments, you might have difficulty
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it fails to do so. Dealers and
agents may charge a commission for handling telephonic requests. The telephone
service may be suspended or terminated at any time without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS's toll-free number, 800-221-5672. Some
services are described in the attached Subscription Application. A shareholder's
manual explaining all available services will be provided upon request. To
request a shareholder manual, call 800-227-4618.
HOW TO EXCHANGE SHARES
You may exchange your shares of any Fund for shares of the same class of other
Alliance Mutual Funds (including AFD Exchange Reserves, a money market fund
managed by Alliance). Exchanges of shares are made at the net asset values next
determined, without sales or service charges. Exchanges may be made by telephone
or written request. Telephone exchange requests must be received by AFS by 4:00
p.m. Eastern time on a Fund business day in order to receive that day's net
asset value.
Shares will continue to age without regard to exchanges for purposes of
determining the CDSC, if any, upon redemption and, in the case of Class B
shares, for the purposes of conversion to Class A shares. After an exchange,
your Class B shares will automatically convert to Class A shares in accordance
with the conversion schedule applicable to the Class B shares of the Alliance
Mutual Fund you originally purchased for cash ("original shares"). When
redemption occurs, the CDSC applicable to the original shares is applied.
Please read carefully the Prospectus of the mutual fund into which you are
exchanging before submitting the request. Call AFS at 800-221-5672 to exchange
uncertificated shares. An exchange is a taxable capital transaction for federal
tax purposes. The exchange service may be changed, suspended or terminated on
60 days' written notice.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
ADVISER
Alliance, which is a Delaware limited partnership with principal offices at 1345
Avenue of the Americas, New York, New York 10105, has been retained under an
advisory agreement (the "Advisory Agreement") to provide investment advice and,
in general, to conduct the management and investment program of each Fund,
subject to the general supervision and control of the Directors of the Fund.
The following table lists the person or persons who are primarily responsible
for the day-to-day management of each Fund's portfolio, the length of time that
each person has been primarily responsible, and each person's principal
occupation during the past five years.
<TABLE>
<CAPTION>
Principal occupation
during the past
Fund Employee; year; title five years
- -------------------------------------------------------------------------------------
<S> <C> <C>
Alliance Fund Alden M. Stewart since 1997-- Associated with
Executive Vice President of Alliance
Alliance Capital Management
Corporation (ACMC*)
Randall E. Haase since 1997-- Associated with
Senior Vice President of ACMC Alliance
Growth Fund Tyler Smith since inception-- Associated with
Senior Vice President of ACMC Alliance
Premier Growth Alfred Harrison since inception-- Associated with
Fund Vice Chairman of ACMC Alliance
Technology Fund Peter Anastos since 1992-- Associated with
Senior Vice President of ACMC Alliance
Gerald T. Malone since 1992-- Associated with
Senior Vice President of ACMC Alliance
Quasar Fund Alden M. Stewart since 1994-- (see above)
(see above)
Randall E. Haase since 1994-- (see above)
(see above)
International Fund Bruce W. Calvert since 1998-- Associated with
Vice Chairman and Chief Alliance
Investment Officer
of ACMC
International Premier Alfred Harrison since 1998-- (see above)
Growth Fund (see above)
Thomas Kamp since 1998-- Associated with
Senior Vice President of ACMC Alliance
Worldwide Privatization Mark H. Breedon since inception Associated with
Fund Senior Vice President of ACMC Alliance
and Director and Vice President
of Alliance Capital Limited **
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Principal occupation
during the past
Fund Employee; year; title five years
- ----------------------------------------------------------------------------------
<S> <C> <C>
New Europe Fund Steven Beinhacker since 1997-- Associated with
Vice President of ACMC Alliance
All-Asia Investment Hiroshi Motoki since 1998-- Associated with
Fund Senior Vice President of ACMC Alliance since
and director of Japanese/Asian 1994; prior
Equity research thereto,
associated with
Ford Motor
Company
Greater China '97 Matthew W. S. Lee since 1997-- Associated with
Fund Vice President of ACMC Alliance since
1997; prior
thereto,
associated
with National
Mutual Funds
Management
(Asia) since 1994
and James Capel
and Co. since
prior to 1994
Global Small Cap Alden M. Stewart since 1994-- (see above)
Fund (see above)
Randall E. Haase since 1994-- (see above)
(see above)
Ronald L. Simcoe since 1993-- Associated with
Vice President of ACMC Alliance
Global Environment Linda Bolton Weiser since 1998-- Associated with
Fund Vice President of ACMC Alliance
Balanced Shares Paul Rissman since 1997-- Associated with
Senior Vice President of ACMC Alliance
Utility Income Fund Paul Rissman since 1996-- (see above)
(See above)
Growth & Income Paul Rissman since 1994-- (see above)
Fund (see above)
Real Estate Daniel G. Pine since 1996-- Associated with
Investment Fund Senior Vice President of ACMC Alliance since
1996; prior
thereto, Senior
Vice President of
Desai Capital
Management
Real Estate David Kruth since 1997-- Associated with
Investment Fund Vice President of ACMC Alliance since
(cont.) 1997; prior
thereto Senior
Vice President of
the Yarmouth
Group
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The sole general partner of Alliance.
** An indirect wholly-owned subsidiary of Alliance.
Alliance is a leading international investment manager supervising client
accounts with assets as of June 30, 1998 totaling more than $262 billion (of
which approximately $107 billion represented the assets of investment
companies). Alliance's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies, foundations and
endowment funds. The 58 registered investment companies managed by Alliance
comprising 123 separate investment portfolios currently have over two million
shareholders. As of June 30, 1998, Alliance was an investment manager of
employee benefit plan assets for 32 of the Fortune 100 companies.
ACMC, the sole general partner of, and the owner of a 1% general partnership
interest in, Alliance, is an indirect wholly-owned subsidiary of The Equitable
Life Assurance Society of the United States ("Equitable"), one of the largest
life insurance companies in the United States, which is a wholly-owned
subsidiary of The Equitable Companies Incorporated, a holding company controlled
by AXA-UAP, a French insurance holding company. Certain information concerning
the ownership and control of Equitable by AXA-UAP is set forth in each Fund's
Statement of Additional Information under "Management of the Funds."
Performance of Similarly Managed Portfolios. In addition to managing the assets
of Premier Growth Fund, Mr. Harrison has ultimate responsibility for the
management of discretionary tax-exempt accounts of institutional clients managed
as described below without significant client-imposed restrictions "(Historical
Portfolios"). These accounts have substantially the same investment objectives
and policies and are managed in accordance with essentially the same investment
strategies and techniques as those for Premier Growth Fund, except for the
ability of Premier Growth Fund to use futures and options as hedging tools and
to invest in warrants. The Historical Portfolios are also not subject to certain
limitations, diversification requirements and other restrictions imposed under
the 1940 Act and the Code to which Premier Growth Fund, as a registered
investment company, is subject and which, if applicable to the Historical
Portfolios, may have adversely affected the performance results of the
Historical Portfolios. See "Investment Objective and Policies."
Set forth below is performance data provided by Alliance relating to the
Historical Portfolios for each of the nineteen full calendar years during which
Mr. Harrison has managed the Historical Portfolios as an employee of Alliance
and cumulatively through September 30, 1998. As of September 30, 1998, the
assets in the Historical Portfolios totaled approximately $12.3 billion and the
average size of an institutional account in the Historical Portfolio was $412
million. Each Historical Portfolio has a nearly identical composition of
investment holdings and related percentage weightings.
The performance data is net of all fees (including brokerage commissions)
charged to those accounts. The performance data is computed in accordance with
standards formulated by the Association of Investment Management and Research
and has not been adjusted to reflect any fees that will be payable by Premier
Growth Fund, which are higher than the fees imposed on the Historical Portfolio
and will result in a higher expense ratio and lower returns for Premier Growth
Fund. Expenses associated with the distribution of Class A, Class B and Class C
shares of Premier Growth Fund in accordance with the plan adopted by Premier
Growth Fund's Board of Directors pursuant to Rule 12b-1 under the 1940 Act
("distribution fees") are also excluded. See "Expense Information." The
performance data has also not been adjusted for corporate or individual taxes,
if any, payable by the account owners.
53
<PAGE>
Alliance has calculated the investment performance of the Historical Portfolios
on a trade-date basis. Dividends have been accrued at the end of the month and
cash flows weighted daily. Composite investment performance for all portfolios
has been determined on an asset weighted basis. New accounts are included in the
composite investment performance computations at the beginning of the quarter
following the initial contribution. The total returns set forth below are
calculated using a method that links the monthly return amounts for the
disclosed periods, resulting in a time-weighted rate of return.
As reflected below, the Historical Portfolios have over time performed favorably
when compared with the performance of recognized performance indices. The S&P
500 Index is a widely recognized, unmanaged index of market activity based upon
the aggregate performance of a selected portfolio of publicly traded common
stocks, including monthly adjustments to reflect the reinvestment of dividends
and other distributions. The S&P 500 Index reflects the total return of
securities comprising the Index, including changes in market prices as well as
accrued investment income, which is presumed to be reinvested. The Russell 1000
universe of securities is compiled by Frank Russell Company and is segmented
into two style indices, based on the capitalization-weighted median
book-to-price ratio of each of the securities. At each reconstitution, the
Russell 1000 constituents are ranked by their book-to-price ratio. Once so
ranked, the breakpoint for the two styles is determined by the median market
capitalization of the Russell 1000. Thus, those securities falling within the
top fifty percent of the cumulative market capitalization (as ranked by
descending book-to-price) become members of the Russell Price-Driven Indices.
The Russell 1000 Growth Index is, accordingly, designed to include those Russell
1000 securities with a greater-than-average growth orientation. In contrast with
the securities in the Russell Price-Driven Indices, companies in the Growth
Index tend to exhibit higher price-to-book and price-earnings ratios, lower
dividend yield and higher forecasted growth values.
To the extent Premier Growth Fund does not invest in U.S. common stocks or
utilizes investment techniques such as futures or options, the S&P 500 Index and
Russell 1000 Growth Index may not be substantially comparable to Premier Growth
Fund. The S&P 500 Index and Russell 1000 Growth Index are included to illustrate
material economic and market factors that existed during the time period shown.
The S&P 500 Index and Russell 1000 Growth Index do not reflect the deduction of
any fees. If Premier Growth Fund were to purchase a portfolio of securities
substantially identical to the securities comprising the S&P 500 Index or the
Russell 1000 Growth Index, Premier Growth Fund's performance relative to the
index would be reduced by Premier Growth Fund's expenses, including brokerage
commissions, advisory fees, distribution fees, custodial fees, transfer agency
costs and other administrative expenses, as well as by the impact on Premier
Growth Fund's shareholders of sales charges and income taxes.
The Lipper Growth Fund Index is prepared by Lipper Analytical Services, Inc. and
represents a composite index of the investment performance for the 30 largest
growth mutual funds. The composite investment performance of the Lipper Growth
Fund Index reflects investment management and administrative fees and other
operating expenses paid by these mutual funds and reinvested income dividends
and capital gain distributions, but excludes the impact of any income taxes and
sales charges.
The following performance data is provided solely to illustrate Mr. Harrison's
performance in managing the Historical Portfolios and the Premier Growth Fund as
measured against certain broad based market indices and against the composite
performance of other open-end growth mutual funds. Investors should not rely on
the following performance data of the Historical Portfolios as an indication of
future performance of Premier Growth Fund. The composite investment performance
for the periods presented may not be indicative of future rates of return. Other
methods of computing investment performance may produce different results, and
the results for different periods may vary.
Schedule of Composite Investment Performance--Historical Portfolios*
<TABLE>
<CAPTION>
Russell Lipper
Premier Historical S&P 500 1000 Growth
Growth Portfolios Index Growth Index Fund Index
Fund Total Return** Total Return Total Return Total Return
---- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1/1/98-
9/30/98*** 9.09% 15.27% 6.04% 9.44% 2.38%
Year ended December:
1997*** 27.05% 34.64% 33.36% 30.49% 25.30%
1996*** 18.84 22.06 22.96 23.12 17.48
1995*** 40.66 39.83 37.58 37.19 32.65
1994 (9.78) (4.82) 1.32 2.66 (1.57)
1993 5.35 10.54 10.08 2.90 11.98
1992 -- 12.18 7.62 5.00 7.63
1991 -- 38.91 30.47 41.16 35.20
1990 -- (1.57) (3.10) (0.26) (5.00)
1989 -- 38.80 31.69 35.92 28.60
1988 -- 10.88 16.61 11.27 15.80
1987 -- 8.49 5.25 5.31 1.00
1986 -- 27.40 18.67 15.36 15.90
1985 -- 37.41 31.73 32.85 30.30
1984 -- (3.31) 6.27 (.95) (2.80)
1983 -- 20.80 22.56 15.98 22.30
1982 -- 28.02 21.55 20.46 20.20
1981 -- (1.09) (4.92) (11.31) (8.40)
1980 -- 50.73 32.50 39.57 37.30
1979 -- 30.76 18.61 23.91 27.40
Cumulative total
return for the
period
January 1,
1979 to
September 30,
1998 -- 3,542% 2,064% 1,852% 1,613%
- ----------------------------------------------------------------------------------------------
</TABLE>
* Total return is a measure of investment performance that is based upon the
change in value of an investment from the beginning to the end of a
specified period and assumes reinvestment of all dividends and other
distributions. The basis of preparation of this data is described in the
preceding discussion. Total returns for Premier Growth Fund are for Class A
shares, with imposition of the maximum 4.25% sales charge.
** Assumes imposition of the maximum advisory fee charged by Alliance for any
Historical Portfolio for the period involved.
*** During this period, the Historical Portfolios differed from Premier Growth
Fund in that Premier Growth Fund invested a portion of its net assets in
warrants on equity securities in which the Historical Portfolios were
unable, by their investment restrictions, to purchase. In lieu of warrants,
the Historical Portfolios acquired the common stock upon which the warrants
were based.
54
<PAGE>
The average annual total returns presented below are based upon the cumulative
total return as of September 30, 1998 and, for more than one year, assume a
steady compounded rate of return and are not year-by-year results, which
fluctuated over the periods as shown.
<TABLE>
<CAPTION>
Average Annual Total Returns
-----------------------------------------------------------------------
Premier Russell Lipper
Growth Historical S&P 500 1000 Growth
Fund Portfolios** Index Growth Index Fund Index
---- ---------- ----- ------------ ----------
<S> <C> <C> <C> <C> <C>
One year ................ 6.21% 13.19% 6.08% 11.11% 3.07%
Three years ............. 21.82 24.22 22.60 22.50 16.43
Five years .............. 20.23 20.70 19.91 20.80 15.52
Ten years ............... 19.98+ 19.70 17.29 18.07 15.01
Since January 1,
1979 .................. -- 19.97 16.84 16.23 15.47
- ----------------------------------------------------------------------------------------------------
</TABLE>
+ Since inception on 9/28/92
ADMINISTRATOR TO ALL-ASIA INVESTMENT FUND
Alliance has been retained by All-Asia Investment Fund under an administration
agreement (the "Administration Agreement") to perform administrative services
necessary for the operation of the Fund. For a description of such services, see
the Statement of Additional Information of the Fund.
CONSULTANT TO ALLIANCE WITH RESPECT TO GREATER CHINA COUNTRIES
In connection with its provision of advisory services to Greater China '97 Fund.
Alliance has retained at its expense as a consultant New Alliance, a joint
venture company headquartered in Hong Kong which was formed in 1997 by Alliance
and Sun Hung Kai Properties Limited ("SHKP"). New Alliance provides Alliance
with ongoing, current and comprehensive information and analysis of conditions
and developments in Greater China countries consisting of, but not limited to,
statistical and factual research and assistance with respect to economic,
financial, political, technological and social conditions and trends in Greater
China countries, including information on markets and industries. In addition to
its own staff of professionals, New Alliance has access to the expertise and
personnel of SHKP, one of Hong Kong's preeminent property and business groups.
SHKP is one of the largest enterprises in Hong Kong measured by market
capitalization and has considerable expertise in evaluating business and market
conditions in Hong Kong and the other Greater China countries. Its activities
complementary to property development include insurance and estate management,
and SHKP is diversified as well into telecommunications and infrastructure
projects.
CONSULTANT TO ALLIANCE WITH RESPECT TO INVESTMENT IN REAL ESTATE SECURITIES
Alliance, with respect to investment in real estate securities, has retained as
a consultant CB Commercial Richard Ellis, Inc. ("CBRE"), a publicly held company
and the largest real estate services company in the United States, comprised of
real estate brokerage, property and facilities management, and real estate
finance and investment advisory activities. In 1997, CBRE completed 22,100 sale
and lease transactions, managed over 6,600 client properties, created over $5
billion in mortgage originations, and completed over 3,600 appraisal and
consulting assignments. In addition, they advised and managed for institutions
over $4 billion in real estate investments. CBRE will make available to Alliance
the CBRE's National Real Estate Index, which gathers, analyzes and publishes
targeted research data for the 66 largest U.S. markets, based on a variety of
public-sector and private-sector sources as well as CBRE's proprietary database
of approximately 80,000 property transactions representing over $500 billion of
investment property. This information provides a substantial component of the
research and data used to create the REIToScore model. As a consultant, CBRE
provides to Alliance, at Alliance's expense, such in-depth information regarding
the real estate market, the factors influencing regional valuations and analysts
of recent transactions in office, retail, industrial and multi-family properties
as Alliance shall from time to time request. CBRE will not furnish advice or
make recommendations regarding the purchase or sale of securities by the Fund
nor will it be responsible for making investment decisions involving Fund
assets.
CBRE is one of the three largest fee-based property management firms in the
United States, the largest commercial real estate lease brokerage firm in the
country, the largest investment property brokerage firm in the country, as well
as one of the largest publishers of real estate research, with approximately
8,000 employees worldwide. CBRE will provide Alliance with exclusive access to
its REIT o Score model which ranks approximately 142 REITS based on the relative
attractiveness of the property markets in which they own real estate. This model
scores the approximately 18,000 individual properties owned by these companies.
REIT o Score is in turn based on CBRE's National Real Estate Index which
gathers, analyzes and publishes targeted research for the 66 largest U.S. real
estate markets based on a variety of public- and private-sector sources as well
as CBRE's proprietary database of 80,000 commercial property transactions
representing over $500 billion of investment property and over 2,500 tracked
properties which report rent and expense data quarterly. CBRE has previously
provided access to its REIT o Score model results primarily to the institutional
market through subscriptions. The model is no longer provided to any research
publications and Real Estate Investment Fund is currently the only mutual fund
available to retail investors that has access to CBRE's REIT o Score model.
Distribution Services Agreements
Rule 12b-1 adopted by the Commission under the 1940 Act permits an investment
company to pay expenses associated with the distribution of its shares in
accordance with a duly adopted plan. Each Fund has adopted one or more "Rule
12b-1 plans" (for each Fund, a "Plan") and has entered into a Distribution
Services Agreement (the "Agreement") with AFD. Pursuant to its Plan, a Fund pays
to AFD a Rule 12b-1 distribution services fee, which may not exceed an annual
rate of .30% (.50% with respect to Growth Fund and Premier Growth Fund) of the
Fund's aggregate average daily net assets attributable to the Class A shares,
1.00% of the Fund's aggregate average daily net assets attributable to the Class
B shares and 1.00% of the Fund's aggregate average daily net
55
<PAGE>
assets attributable to the Class C shares, for distribution expenses. The
Directors of Growth Fund currently limit payments with respect to Class A shares
under the Plan to .30% of the Fund's aggregate average daily net assets
attributable to Class A shares. The Directors of Premier Growth Fund currently
limit payments under the Plan with respect to sales of Class A shares made after
November 1993 to .30% of the Fund's aggregate average daily net assets. The
Plans provide that a portion of the distribution services fee in an amount not
to exceed .25% of the aggregate average daily net assets of each Fund
attributable to each of the Class A, Class B and Class C shares constitutes a
service fee used for personal service and/or the maintenance of shareholder
accounts.
The Plans provide that AFD will use the distribution services fee received from
a Fund in its entirety for payments (i) to compensate broker-dealers or other
persons for providing distribution assistance, (ii) to otherwise promote the
sale of shares of the Fund, and (iii) to compensate broker-dealers, depository
institutions and other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's shareholders. In this
regard, some payments under the Plans are used to compensate financial
intermediaries with trail or maintenance commissions in an amount equal to .25%,
annualized, with respect to Class A shares and Class B shares, and 1.00%,
annualized, with respect to Class C shares, of the assets maintained in a Fund
by their customers. Distribution services fees received from the Funds, except
Growth Fund, with respect to Class A shares will not be used to pay any interest
expenses, carrying charges or other financing costs or allocation of overhead of
AFD. Distribution services fees received from the Funds, with respect to Class B
and Class C shares, may be used for these purposes. The Plans also provide that
Alliance may use its own resources to finance the distribution of each Fund's
shares.
The Funds are not obligated under the Plans to pay any distribution services fee
in excess of the amounts set forth above. Except as noted below for Growth Fund,
with respect to Class A shares of each Fund, distribution expenses accrued by
AFD in one fiscal year may not be paid from distribution services fees received
from the Fund in subsequent fiscal years. Except as noted below for Growth Fund
AFD's compensation with respect to Class B and Class C shares under the Plans of
the other Funds is directly tied to its expenses incurred. Actual distribution
expenses for such Class B and Class C shares for any given year, however, will
probably exceed the distribution services fees payable under the applicable Plan
with respect to the class involved and, in the case of Class B and Class C
shares, payments received from CDSCs. The excess will be carried forward by AFD
and reimbursed from distribution services fees payable under the Plan with
respect to the class involved and, in the case of Class B and Class C shares,
payments subsequently received through CDSCs, so long as the Plan and the
Agreement are in effect. Since AFD's compensation under the Plans of Growth Fund
is not directly tied to the expenses incurred by AFD, the amount of compensation
received by it under the applicable Plan during any year may be more or less
than its actual expenses.
Unreimbursed distribution expenses incurred as of the end of each Fund's most
recently completed fiscal period, and carried over for reimbursement in future
years in respect of the Class B and Class C shares for all Funds were, as of
that time, as follows:
<TABLE>
<CAPTION>
Amount of Unreimbursed Distribution Expenses
(as % of Net Assets of Class)
--------------------------------------------
Class B Class C
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alliance Fund $ 3,782,063 (5.37%) $1,025,156 (5.43%)
Premier Growth Fund $20,874,319 (2.43%) $1,413,557 (0.79%)
Technology Fund $32,259,341 (3.06%) $1,464,569 (0.80%)
Quasar Fund $15,242,262 (3.03%) $1,262,697 (0.90%)
International Fund $ 2,638,659 (3.70%) $ 838,475 (4.10%)
International Premier Growth
Fund $ 325,310 (4.62%) $ 15,653 (1.54%)
Worldwide Privatization Fund $ 6,609,791 (4.23%) $ 537,949 (2.02%)
New Europe Fund $ 4,377,262 (3.19%) $ 741,808 (1.87%)
All-Asia Investment Fund $ 1,690,408 (14.78%) $ 162,319 (8.73%)
Greater China '97 Fund $ 533,473 (34.39%) $ 18,510 (18.19%)
Global Small Cap Fund $ 2,594,264 (6.68%) $ 676,624 (7.14%)
Balanced Shares $ 2,579,772 (5.41%) $ 608,865 (5.61%)
Utility Income Fund $ 1,400,456 (9.47%) $ 456,135 (13.37%)
Growth and Income Fund $11,066,118 (2.42%) $1,326,535 (1.25%)
Real Estate Investment Fund $12,995,878 (4.83%) $ 699,723 (1.01%)
- ------------------------------------------------------------------------------
</TABLE>
The Plans are in compliance with rules of the National Association of Securities
Dealers, Inc. which effectively limit the annual asset-based sales charges and
service fees that a mutual fund may pay on a class of shares to .75% and .25%,
respectively, of the average annual net assets attributable to that class. The
rules also limit the aggregate of all front-end, deferred and asset-based sales
charges imposed with respect to a class of shares by a mutual fund that also
charges a service fee to 6.25% of cumulative gross sales of shares of that
class, plus interest at the prime rate plus 1% per annum.
The Glass-Steagall Act and other applicable laws may limit the ability of a bank
or other depository institution to become an underwriter or distributor of
securities. However, in the opinion of the Funds' management, based on the
advice of counsel, these laws do not prohibit such depository institutions from
providing services for investment companies such as the administrative,
accounting and other services referred to in the Agreements. In the event that a
change in these laws prevented a bank from providing such services, it is
expected that other services arrangements would be made and that shareholders
would not be adversely affected. The State of Texas requires that shares of a
Fund may be sold in that state only by dealers or other financial institutions
that are registered there as broker-dealers.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS
- --------------------------------------------------------------------------------
AND TAXES
- --------------------------------------------------------------------------------
Dividends and Distributions
If you receive an income dividend or capital gains distribution in cash you may,
within 120 days following the date of its payment, reinvest the dividend or
distribution in additional shares of that Fund without charge by returning to
Alliance,
56
<PAGE>
with appropriate instructions, the check representing such dividend or
distribution. Thereafter, unless you otherwise specify, you will be deemed to
have elected to reinvest all subsequent dividends and distributions in shares of
that Fund. Each income dividend and capital gains distribution, if any, declared
by a Fund on its outstanding shares will, at the election of each shareholder,
be paid in cash or in additional shares of the same class of shares of that Fund
having an aggregate net asset value as of the close of business on the day
following the declaration date of such dividend or distribution equal to the
cash amount of such income dividend or distribution. Election to receive
dividends and distributions in cash or shares is made at the time shares are
initially purchased and may be changed at any time prior to the record date for
a particular dividend or distribution. Cash dividends can be paid by check or,
if the shareholder so elects, electronically via the ACH network. There is no
sales or other charge in connection with the reinvestment of dividends and
capital gains distributions. Dividends paid by a Fund, if any, with respect to
Class A, Class B and Class C shares will be calculated in the same manner at the
same time on the same day and will be in the same amount, except that the higher
distribution services fees applicable to Class B and C shares, and any
incremental transfer agency costs relating to Class B and Class C shares, will
be borne exclusively by the class to which they relate.
While it is the intention of each Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and time of any such dividend or distribution must
necessarily depend upon the realization by such Fund of income and capital gains
from investments. There is no fixed dividend rate, and there can be no assurance
that a Fund will pay any dividends or realize any capital gains. Since REITs pay
distributions based on cash flow, without regard to depreciation and
amortization, it is likely that a portion of the distributions paid to Real
Estate Investment Fund and subsequently distributed to shareholders may be a
nontaxable return of capital. The final determination of the amount of a Fund's
return of capital distributions for the period will be made after the end of
each calendar year.
If you buy shares just before a Fund deducts a distribution from its net asset
value, you will pay the full price for the shares and then receive a portion of
the price back as a taxable distribution.
Foreign Income Taxes
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. To the extent that
any Fund is liable for foreign income taxes withheld at the source, each Fund
intends, if possible, to operate so as to meet the requirements of the Code to
"pass through" to the Fund's shareholders credits for foreign income taxes paid
(or to permit shareholders to claim a deduction for such foreign taxes), but
there can be no assurance that any Fund will be able to do so. Furthermore, a
shareholder's ability to claim a foreign tax credit or deduction in respect of
foreign taxes paid by a Fund may be subject to certain limitations imposed by
the Code, as a result of which a shareholder may not be permitted to claim a
full credit or deduction for the amount of such taxes.
U.S. Federal Income Taxes
Each Fund intends to qualify to be taxed as a "regulated investment company"
under the Code. Qualification as a regulated investment company relieves that
Fund of federal income taxes on that part of its taxable income, including net
capital gain, which it pays out to its shareholders. Dividends out of net
ordinary income and distributions of net short-term capital gains are taxable to
the recipient shareholders as ordinary income. In the case of corporate
shareholders, such dividends may be eligible for the dividends-received
deduction, except that the amount eligible for the deduction is limited to the
amount of qualifying dividends received by the Fund. Distributions received from
REITs or from foreign corporations generally do not constitute qualifying
dividends. A corporation's dividends-received deduction generally will be
disallowed unless the corporation holds shares in the Fund at least 46 days
during the 90-day period beginning 45 days before the date on which the
corporation becomes entitled to receive the dividend. Furthermore, the
dividends-received deduction will be disallowed to the extent a corporation's
investment in shares of a Fund is financed with indebtedness.
Distributions of net capital gain (i.e., the excess of net long-term capital
gain over net short-term capital loss) are taxable as long-term capital gain,
regardless of how long a shareholder has held shares in a Fund. Distributions of
net captial gain are not eligible for the dividends-received deduction referred
to above.
Under current federal tax law, the amount of an income dividend or capital
gains distribution declared by a Fund during October, November or December of a
year to shareholders of record as of a specified date in such a month that is
paid during January of the following year is includable in the prior year's
taxable income of shareholders that are calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of a Fund will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder, although in effect a
return of capital to that particular shareholder, would be taxable to him or her
as described above. If a shareholder held shares six months or less and during
that period received a distribution of net capital gain, any loss realized on
the sale of such shares during such six-month period would be a long-term
capital loss to the extent of such distribution.
A dividend or capital gains distribution with respect to shares of a Fund held
by a tax-deferred or qualified plan, such as an individual retirement account,
403(b)(7) retirement plan or corporate pension or profit-sharing plan, generally
will not be taxable to the plan. Distributions from such plans will be
57
<PAGE>
taxable to individual participants under applicable tax rules without regard to
the character of the income earned by the qualified plan.
A Fund will be required to withhold 31% of any payments made to a shareholder if
the shareholder has not provided a certified taxpayer identification number to
the Fund, or the Secretary of the Treasury notifies a Fund that a shareholder
has not reported all interest and dividend income required to be shown on the
shareholder's Federal income tax return.
Under certain circumstances, if a Fund realizes losses (e.g., from fluctuations
in currency exchange rates) after paying a dividend, all or a portion of the
dividend may subsequently be characterized as a return of capital. Returns of
capital are generally nontaxable, but will reduce a shareholder's basis in
shares of a Fund. If that basis is reduced to zero (which could happen if the
shareholder does not reinvest distributions and returns of capital are
significant) any further returns of capital will be taxable as capital gain. See
"Dividends, Distributions and Taxes" in the Statement of Additional Information.
Shareholders will be advised annually as to the federal tax status of dividends
and capital gains and return of capital distributions made by a Fund for the
preceding year. Shareholders are urged to consult their tax advisers regarding
their own tax situation. Distributions by a Fund may be subject to state and
local taxes.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, a Fund may
consider sales of its shares as a factor in the selection of dealers to enter
into portfolio transactions with the Fund.
ORGANIZATION
Each of the following Funds is a Maryland corporation organized in the year
indicated: The Alliance Fund, Inc. (1938), Alliance Balanced Shares, Inc.
(1932), Alliance Premier Growth Fund, Inc. (1992), Alliance Technology Fund,
Inc. (1980), Alliance Quasar Fund, Inc. (1968), Alliance International Premier
Growth Fund (1997), Alliance Worldwide Privatization Fund, Inc. (1994), Alliance
New Europe Fund, Inc. (1990), Alliance All-Asia Investment Fund, Inc. (1994),
Alliance Greater China '97 Fund (1997), Alliance Global Small Cap Fund, Inc.
(1966), Alliance Global Environment Fund, Inc. (1990), Alliance Utility Income
Fund, Inc. (1993), Alliance Growth and Income Fund, Inc. (1932), and Alliance
Real Estate Investment Fund, Inc. (1996). Each of the following Funds is either
a Massachusetts business trust or a series of a Massachusetts business trust
organized in the year indicated: Alliance Growth Fund (a series of The Alliance
Portfolios) (1987), and Alliance International Fund (1980). Prior to August 2,
1993, The Alliance Portfolios was known as The Equitable Funds and Growth Fund
was known as The Equitable Growth Fund.
It is anticipated that annual shareholder meetings will not be held; shareholder
meetings will be held only when required by federal or state law. Shareholders
have available certain procedures for the removal of Directors.
A shareholder in a Fund will be entitled to share pro rata with other holders of
the same class of shares all dividends and distributions arising from the Fund's
assets and, upon redeeming shares, will receive the then current net asset value
of the Fund represented by the redeemed shares less any applicable CDSC. The
Funds are empowered to establish, without shareholder approval, additional
portfolios, which may have different investment objectives and policies than
those of the Funds, and additional classes of shares within the Funds. If an
additional portfolio or class were established in a Fund, each share of the
portfolio or class would normally be entitled to one vote for all purposes.
Generally, shares of each portfolio and class would vote together as a single
class on matters, such as the election of Directors, that affect each portfolio
and class in substantially the same manner. Class A, B, C and Advisor Class
shares have identical voting, dividend, liquidation and other rights, except
that each class bears its own transfer agency expenses, each of Class A, Class B
and Class C shares of each Fund bears its own distribution expenses and Class B
shares and Advisor Class shares convert to Class A shares under certain
circumstances. Each class of shares of each Fund votes separately with respect
to a Fund's Rule 12b-1 distribution plan and other matters for which separate
class voting is appropriate under applicable law. Shares are freely
transferable, are entitled to dividends as determined by the Directors and, in
liquidation of a Fund, are entitled to receive the net assets of the Fund. Since
this Prospectus sets forth information about all the Funds, it is theoretically
possible that a Fund might be liable for any materially inaccurate or incomplete
disclosure in this Prospectus concerning another Fund. Based on the advice of
counsel, however, the Funds believe that the potential liability of each Fund
with respect to the disclosure in this Prospectus extends only to the disclosure
relating to that Fund. Certain additional matters relating to a Fund's
organization are discussed in its Statement of Additional Information.
REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as each Fund's registrar, transfer agent
and dividend-disbursing agent for a fee based upon the number of shareholder
accounts maintained for the Funds. The transfer agency fee with respect to the
Class B shares will be higher than the transfer agency fee with respect to the
Class A shares or Class C shares.
58
<PAGE>
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue of
the Americas, New York, New York 10105, is the principal underwriter of shares
of the Funds.
PERFORMANCE INFORMATION
From time to time, the Funds advertise their "total return," which is computed
separately for Class A, Class B and Class C shares. Such advertisements disclose
a Fund's average annual compounded total return for the periods prescribed by
the Commission. A Fund's total return for each such period is computed by
finding, through the use of a formula prescribed by the Commission, the average
annual compounded rate of return over the period that would equate an assumed
initial amount invested to the value of the investment at the end of the period.
For purposes of computing total return, income dividends and capital gains
distributions paid on shares of a Fund are assumed to have been reinvested when
paid and the maximum sales charges applicable to purchases and redemptions of a
Fund's shares are assumed to have been paid.
Balanced Shares, Growth and Income Fund, Real Estate Investment Fund and Utility
Income Fund may also advertise their "yield," which is also computed separately
for Class A, Class B and Class C shares. A Fund's yield for any 30-day (or one-
month) period is computed by dividing the net investment income per share earned
during such period by the maximum public offering price per share on the last
day of the period, and then annualizing such 30-day (or one-month) yield in
accordance with a formula prescribed by the Commission which provides for
compounding on a semi-annual basis.
Real Estate Investment Fund, Balanced Shares, Utility Income Fund and Growth and
Income Fund may also state in sales literature an "actual distribution rate" for
each class which is computed in the same manner as yield except that actual
income dividends declared per share during the period in question are
substituted for net investment income per share. The actual distribution rate is
computed separately for Class A, Class B and Class C shares.
A Fund's advertisements may quote performance rankings or ratings of a Fund by
financial publications or independent organizations such as Lipper Analytical
Services, Inc. and Morningstar, Inc. or compare a Fund's performance to various
indices.
ADDITIONAL INFORMATION
This Prospectus and the Statements of Additional Information, which have been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statements filed by the Funds with the Commission under the
Securities Act. Copies of the Registration Statements may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at the
offices of the Commission in Washington, D.C.
This prospectus does not constitute an offering in any state in which such
offering may not lawfully be made.
This prospectus is intended to constitute an offer by each Fund only of the
securities of which it is the issuer and is not intended to constitute an offer
by any Fund of the securities of any other Fund whose securities are also
offered by this prospectus. No Fund intends to make any representation as to the
accuracy or completeness of the disclosure in this prospectus relating to any
other Fund. See "General Information--Organization."
59
<PAGE>
================================================================================
ALLIANCE STOCK FUNDS
SUBSCRIPTION APPLICATION
================================================================================
The Alliance Fund
Growth Fund
Premier Growth Fund
Technology Fund
Quasar Fund
International Fund
International Premier Growth Fund
Worldwide Privatization Fund
New Europe Fund
All-Asia Investment Fund
Alliance Greater China '97 Fund
Global Small Cap Fund
Global Environment Fund
Balanced Shares
Utility Income Fund
Growth & Income Fund
Real Estate Investment Fund
To Open Your New Alliance Account...
Please complete the application and mail it to:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, New Jersey 07096-1520
For certified or overnight deliveries, send to:
Alliance Fund Services, Inc.
500 Plaza Drive
Secaucus, New Jersey 07094
Section 1 Your Account Registration
(Required)
Complete one of the available choices. To ensure proper tax reporting to the
IRS:
-- Individuals, Joint Tenants, Transfer on Death and Gift/Transfer to a
Minor:
o Indicate your name(s) exactly as it appears on your social
security card.
-- Transfer on Death:
o Ensure that your state participates
-- Trust/Other:
o Indicate the name of the entity exactly as it appeared on the
notice you received from the IRS when your Employer
Identification number was assigned.
Section 2 Your Address (Required) Complete in full.
-- Non-Resident Alien:
o Indicate your permanent country of residence.
Section 3 Your Initial Investment (Required)
For each Fund in which you are investing: (1) Write the three digit fund number
in the column titled 'Indicate three digit fund number located below'. (2) Write
the dollar amount of your initial purchase in the column titled 'Indicate dollar
amount'.
(If you are eligible for a reduced sales charge, you must also complete Section
4F). (3) Check off a distribution
<PAGE>
option for your dividends. (4) Check off a distribution option for your capital
gains. All distributions (dividends and capital gains) will be reinvested into
your fund account unless you direct otherwise. If you want distributions sent
directly to your bank account, then you must complete Section 4D and attach a
preprinted, voided check for that account. If you want your distributions sent
to a third party you must complete Section 4E.
Section 4 Your Shareholder Options (Complete only those options you want)
A. Automatic Investment Plans (AIP) - You can make periodic investments into
any of your Alliance Funds in one of three ways. First, by a periodic
withdrawal ($25 minimum) directly from your bank account and invested into an
Alliance Fund. Second, you can direct your distributions (dividends and capital
gains) from one Alliance Fund into another Fund. Or third, you can
automatically exchange monthly ($25 minimum) shares of one Alliance Fund for
shares of another Fund. To elect one of these options, complete the appropriate
portion of Section 4A & 4D. If more than one dividend direction or monthly
exchange is desired, please call our Literature Center to obtain a Shareholder
Account Services Options Form for completion.
B. Telephone Transactions via EFT - Complete this option if you would like to
be able to transact via telephone between your fund account and your bank
account.
C. Systematic Withdrawal Plans (SWP) - Complete this option if you wish to
periodically redeem dollars from one of your fund accounts. Payments can be
made via Electronic Funds Transfer (EFT) to your bank account or by check.
D. Bank Information - If you have elected any options that involve transactions
between your bank account and your fund account or have elected cash
distribution options and would like the payments sent to your bank account,
please tape a preprinted, voided check of the account you wish to use to this
section of the application.
E. Third Party Payment Details - If you have chosen cash distributions and/or a
Systematic Withdrawal Plan and would like the payments sent to a person and/or
address other than those provided in section 1 or 2, complete this option.
Medallion Signature Guarantee is required if your account is not maintained by
a broker dealer.
F. Reduced Charges (Class A Only) - Complete if you would like to link fund
accounts that have combined balances that might exceed $100,000 so that future
purchases will receive discounts. Complete if you intend to purchase over
$100,000 within 13 months.
Section 5 Shareholder Authorization (Required)
All owners must sign. If it is a custodial, corporate, or trust account, the
custodian, an authorized officer, or the trustee respectively must sign.
If We Can Assist You In Any Way, Please Do Not Hesitate To Call Us At: (800)
221-5672.
================================================================================
For Literature Call: (800) 227-4618
================================================================================
<PAGE>
The Alliance Stock Funds Subscription Application
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
1. YOUR ACCOUNT REGISTRATION (Please Print in Capital Letters and Mark Check Boxes Where Applicable)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
|_| Individual Account { |_| Male |_| Female } --or-- Joint Account --or--
|_| Transfer On Death { |_| Male |_| Female } --or-- Gift/Transfer to a Minor
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Owner or Custodian (First Name) (MI) (Last Name)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
(First Name) Joint Owner*, Transfer On Death Beneficiary or Minor (MI) (Last Name)
|_|_|_|-|_|_|-|_|_|_|_| If Uniform Gift/Transfer
Social Security Number of Owner or Minor (required to open account) to Minor Account:
|_| |_| Minor's State of Residence
If Joint Tenants Account: *The Account will be registered
"Joint Tenants with right of Survivorship" unless you indicate
otherwise below:
|_| In Common |_| By Entirety |_| Community Property
|_| Trust --or-- |_| Corporation --or-- |_| Other_____________________________
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name of Trustee if applicable (First Name) (MI) (Last Name)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name of Trust or Corporation or Other Entity
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name of Trust or Corporation or Other Entity continued
|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_|_|
Trust Dated (MM,DD,YYYY) Tax ID Number (required to open account)
|_| Employer ID Number --or-- |_| Social Security
Number
- --------------------------------------------------------------------------------------------------------------------------
2. YOUR ADDRESS
- --------------------------------------------------------------------------------------------------------------------------
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Street Number Street Name
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_| |_|_|_|_|_|
City State Zip code
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_|_| - |_|_|_| - |_|_|_|_|
If Non-U.S., Specify Country Daytime Phone Number
|_| U.S. Citizen |_| Resident Alien |_| Non-Resident Alien
</TABLE>
Alliance Capital[LOGO](R)
80841GEN-TASFApp=P1
1
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
3. Your Initial Investment The minimum investment is $250 per fund.
The maximum investment in Class B is $250,000; Class C is $1,000,000.
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
I hereby subscribe for shares of the following Alliance Stock Fund(s) and elect distribution options as indicated.
Dividend and Capital Gain Distribution Options:
R Reinvest distributions into my fund account.
- ----------------------
- ------------------------------------------ C Send my distributions in cash to the address I have provided in
Broker/Dealer Use Only: Wire Confirm # - -----------------------------
|_|_|_|_|_|_|_|_| Section 2. (Complete Section 4D for direct deposit to your bank
- ------------------------------------------ account. Complete Section 4E for payment to a third party)
D Direct my distributions to another Alliance Fund. Complete the
- ------------------------------------------------
appropriate portion of Section 4A to direct your distributions
(dividends and capital gains) to another Alliance Fund (the $250
minimum investment requirement applies to Funds into which
distributions are directed).
- ------------- ============== ======================== =============================
Indicate three Distributions Options
digit Fund *Check One*
number located Indicate Dollar Amount =============================
below Dividends Captital Gains
Make all ============== ======================== =============================
checks*
payable to: |_|_|_| $ R C D R C D
Alliance
-------- |_|_|_| $ R C D R C D
Funds
----- |_|_|_| $ R C D R C D
- -------------
|_|_|_| $ R C D R C D
==========================
Total Investment $
==========================
*Cash and money orders are not accepted
- --------------------------------------------------------------------------------------------------------------------------
Alliance Stock Fund Names and Numbers
- --------------------------------------------------------------------------------------------------------------------------
============= ============== =================
Contingent
Initial Sales Deferred Sales Asset-Based Sales
Charge Charge Charge
A B C
============= ============== =================
Domestic The Alliance Fund 044 043 344
Growth Fund 031 001 331
Premier Growth Fund 078 079 378
Technology Fund 082 282 382
Quasar Fund 026 029 326
Global International Fund 040 041 340
International Premier Growth 179 279 379
Worldwide Privatization Fund 112 212 312
New Europe Fund 062 058 362
All-Asia Investment Fund 118 218 318
Alliance Greater China '97 Fund 160 260 360
Global Small Cap Fund 045 048 345
Global Environment Fund 181 281 381
Total Return Balanced Shares 096 075 396
Utility Income Fund 009 209 309
Real Estate Investment Fund 110 210 310
Growth & Income Fund 094 074 394
</TABLE>
80841GEN-TASFApp-P2
2
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
4. Your Shareholder Options
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
A. Automatic Investment Plans (AIP)
|_| Withdraw From My Bank Account Via EFT*
I authorize Alliance to draw on my bank account for investment in my fund account(s) as indicated below
(Complete Section 4D also for the bank account you wish to use).
1- |_|_|_| |_|_|_|_| |_|_| , |_|_|_| .00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
2- |_|_|_| |_|_|_|_| |_|_| , |_|_|_| .00 |_| M = monthly
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency Q = quarterly
A = Annually
3- |_|_|_| |_|_|_|_| |_|_| , |_|_|_| .00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
*Electronic Funds Transfer. Your bank must be a member of the National Automated Clearing House Association (NACHA)
|_| Direct My Distributions
As indicated in Section 3, I would like my dividends and/or capital gains directed to the same class of shares of
another Alliance Fund.
FROM: |_|_|_| |_|_|_|_|_|_|_|_|_|_| - |_|
Fund Number Account Number (if existing)
TO : |_|_|_| |_|_|_|_|_|_|_|_|_|_| - |_|
Fund Number Account Number (if existing)
|_| Exchange My Shares Monthly
I authorize Alliance to transact monthly exchanges, within the same class of shares, between my fund accounts as
listed below.
FROM: |_|_|_| |_|_|_|_|_|_|_|_|_|_| - |_|
Fund Number Account Number (if existing)
|_|_| , |_|_|_| .00 |_|_|
Amount ($25 minimum) Day of Exchange**
TO : |_|_|_| |_|_|_|_|_|_|_|_|_|_| - |_|
Fund Number Account Number (if existing)
**Shares exchanged will be redeemed at the net asset value on the "Day of Exchange" (If the "Day of Exchange" is not a
fund business day, the exchange transaction will be processed on the next fund business day). The exchange privilege is not
available if stock certificates have been issued.
B. Purchases and Redemptions Via EFT
You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund Services, Inc. in a recorded conversation
to purchase, redeem or exchange shares for your account. Purchase and redemption requests will be processed via
electronic funds transfer (EFT) to and from your bank account.
Instructions: o Review the information in the Prospectus about telephone transaction services.
o If you select the telephone purchase or redemption privilege, you must write "VOID" across the face of
a check from the bank account you wish to use and attach it to Section 4D of this application.
|_| Purchases and Redemptions via EFT
I hereby authorize Alliance Fund Services, Inc. to effect the purchase and/or redemption of Fund shares for my account
according to my telephone instructions or telephone instructions from my Broker/Agent, and to withdraw money or credit
money for such shares via EFT from the bank account I have selected.
- --------------------------------------------------------------------------------------------------------------------------
For shares recently purchased by check or electronic funds transfer, redemption proceeds will not be made available
until the Fund is reasonably assured that the check or electronic funds transfer has been collected, normally 15
calendar days after the purchase date.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
4. Your Shareholder Options (CONTINUED)
C. Systematic Withdrawal Plans (SWP)
In order to establish a SWP, you must reinvest all dividends and capital
gains.
[_] I authorize Alliance to transact periodic redemptions from my fund
account and send the proceeds to me as indicated below.
<TABLE>
<S> <C> <C> <C> <C> <C>
1- [_] [_] [_] [_] [_] [_] [_] [_] [_],[_] [_] [_].00 [_]
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
2- [_] [_] [_] [_] [_] [_] [_] [_] [_],[_] [_] [_].00 [_] M = monthly
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency Q = quarterly
A = annually
3- [_] [_] [_] [_] [_] [_] [_] [_] [_],[_] [_] [_].00 [_]
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
</TABLE>
Please send my SWP proceeds to:
[_] My Address of Record (via check)
[_] The Payee and address specified in section 4E (via check)(Medallion
Signature Guarantee required)
[_] My checking account-via EFT (complete section 4D) Your bank must be a
member of the National Automated Clearing House Association (NACHA)
in order for you to receive SWP proceeds directly into your bank
account. Otherwise payment will be made by check
D. Bank Information This bank account information will be used for:
[_] Distributions (Section 3) [_] Telephone Transactions
(Section 4B)
[_] Automatic Investments (Section 4A) [_] Withdrawals (Section 4C)
Please Tape a Pre-printed Voided Check Here*
103
J. Smith
123 Main Street
ANYTOWN, USA 12345 ____ 19 __
Pay to the
Order of ________________________________________$ _______________
____________________________________________________________Dollars
YOUR BANK
123 STREET
ANYTOWN, USA 12345 VOID
Note ___________________________ _______________________________
:000000000:103 000000000:765
ABA Routing Number Check Bank Account Number
Number
* The above services cannot be established without a pre-printed voided check.
For EFT transactions, the fund requires signatures of bank account owners
exactly as they appear on bank records. If the registration at the bank differs
from that on the Alliance mutual fund, all parties must sign in Section 5.
[_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_]
Your Bank's ABA Routing Number Your Bank Account Number
[_] Checking Account [_] Savings Account
80887GEN-TASFApp-Advisor-P4
4
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
4. YOUR SHAREHOLDER OPTIONS(CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
E. THIRD PARTY PAYMENT DETAILS Your signautre(s) in Section 5 must be Medallion Signature Guaranteed if your account is
not maintained by a dealer/broker. This third party payee information will be used for:
|_| Distributions (section 3) |_| Systematic Withdrawals (section 4C)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_| |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_||_|_|_|_|
Name (First Name) (MI) (Last Name)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Street Number Street Name
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_| |_|_|_|_|_|
City State Zip code
F. REDUCED CHARGES (CLASS A ONLY) If you, your spouse or minor children own shares in other Alliance Funds, you may be eligible
for a reduced sales charge. Please complete the Right of Accumulation section or the Statement of Intent section.
[ ] A. RIGHT OF ACCUMULATION
Please link the tax identification numbers or account numbers listed below for Right of Accumulation privilieges, so
that this and future purchases will receive any discount for which they are eligible.
|_________________________________| |_________________________________| |_________________________________|
Tax ID or Account Number Tax ID or Account Number Tax ID or Account Number
[ ] B. STATEMENT OF INTENT
I want to reduce my sales charge by agreeing to invest the following amount over a 13-month period.
|_| $100,000 |_| $250,000 |_| $500,000 |_| $1,000,000
If the full amount indicated is not purchased within 13 months, I understand that an additional sales charge must be
paid from my account.
- --------------------------------------------------------------------------------------------------------------------------
DEALER/AGENT AUTHORIZATION -- For selected Dealers or Agents ONLY.
- --------------------------------------------------------------------------------------------------------------------------
We hereby authorize Alliance Fund Services, Inc. to act as our agent in connection with transactions under this
authorization form; and we guarantee the signature(s) set forth in Section 5, as well as the legal capacity of
the shareholder.
|_____________________________________________________________| |_______________________________________________________|
Dealer/Agent Firm Authorized Signature
|________________________________________________________| |__| |_______________________________________________________|
Representative First Name MI Last Name
|_____________________________________________________________| |_______________________________________________________|
Dealer/Agent Firm Number Representative Number
|_____________________________________________________________| |_______________________________________________________|
Branch Number Branch Telephone Number
|_____________________________________________________________| |_______________________________________________________|
Branch Office Address
|_____________________________________________________________| |_||_| |_______________________________________________|
City State Zip Code
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
5. SHAREHOLDER AUTHORIZATION -- This section MUST be completed
----
- --------------------------------------------------------------------------------
Telephone Exchanges and Redemptions by Check
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an
authorized employee of an investment dealer or agent requesting a
redemption or exchange on my behalf. (NOTE: Telephone exchanges may only be
processed between accounts that have identical registrations.) Telephone
redemption checks will only be mailed to the name and address of record;
and the address must not have changed within the last 30 days. The maximum
telephone redemption amount is $50,000 for redemptions by check.
|_| I do not elect the telephone exchange service.
|_| I do not elect the telephone redemption by check service.
By selecting any of the above telephone privileges, I agree that neither
the Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund
Services, Inc. or other Fund Agent will be liable for any loss, injury,
damage or expense as a result of acting upon telephone instructions
purporting to be on my behalf, that the Fund reasonably believes to be
genuine, and that neither the Fund nor any such party will be responsible
for the authenticity of such telephone instructions. I understand that any
or all of these privileges may be discontinued by me or the Fund at any
time. I understand and agree that the Fund reserves the right to refuse any
telephone instructions and that my investment dealer or agent reserves the
right to refuse to issue any telephone instructions I may request.
For non-residents only: Under penalties of perjury, I certify that to the
best of my knowledge and belief, I qualify as a foreign person as indicated
in Section 2.
I am of legal age and capacity and have received and read the Prospectus
and agree to its terms.
I CERTIFY UNDER PENALTY OF PERJURY THAT THE NUMBER SHOWN IN SECTION 1 OF
THIS FORM IS MY CORRECT TAX IDENTIFICATION NUMBER OR I AM WAITING FOR A
NUMBER TO BE ISSUED TO ME AND THAT I HAVE NOT BEEN NOTIFIED THAT THIS
ACCOUNT IS SUBJECT TO BACKUP WITHHOLDING.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION
OF THIS DOCUMENT OTHER THAN THE CERTIFICATION REQUIRED TO AVOID BACKUP
WITHHOLDING.
- ---------------------------------------------------- -------------------------
| | | |
- ---------------------------------------------------- -------------------------
Signature Date
- ---------------------------------------------------- -------------------------
| | | |
- ---------------------------------------------------- -------------------------
Signature Date
- ----------------------------------------------
Medallion Signature Guarantee required if
completing Section 4E and your mutual fund is
not maintained by a broker dealer
Alliance Capital [LOGO]
80841GEN-TASFApp-P6
6
<PAGE>
<PAGE>
The Alliance
- --------------------------------------------------------------------------------
Stock Funds
- --------------------------------------------------------------------------------
c/o Alliance Fund Services, Inc.
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
Prospectus and Application
Advisor Class
November 2, 1998
Domestic Stock Funds Global Stock Funds
- -The Alliance Fund -Alliance International Fund
- -Alliance Growth Fund
- -Alliance Premier Growth Fund -Alliance International
- -Alliance Technology Fund Premier Growth Fund
- -Alliance Quasar Fund -Alliance Worldwide
Privatization Fund
-Alliance New Europe Fund
-Alliance All-Asia Investment
Fund
-Alliance Greater China '97
Fund
-Alliance Global Small Cap
Fund
-Alliance Global
Environment Fund
Total Return Funds
-Alliance Balanced Shares
-Alliance Utility Income Fund
-Alliance Growth and Income Fund
-Alliance Real Estate Investment Fund
<TABLE>
<CAPTION>
Table of Contents Page
<S> <C>
The Funds at a Glance................................................. 2
Expense Information................................................... 4
Financial Highlights.................................................. 7
Glossary.............................................................. 11
Description of the Funds.............................................. 12
Investment Objectives and Policies............................... 12
Additional Investment Practices.................................. 24
Certain Fundamental Investment Policies.......................... 31
Risk Considerations.............................................. 34
Purchase and Sale of Shares........................................... 41
Management of the Funds............................................... 43
Dividends, Distributions and Taxes.................................... 47
Conversion Feature.................................................... 48
General Information................................................... 48
</TABLE>
Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105
The Alliance Stock Funds provide a broad selection of investment alternatives to
investors seeking capital growth or high total return. The Domestic Stock Funds
invest mainly in the United States equity markets and the Global Stock Funds
diversify their investments among equity markets around the world, while the
Total Return Funds invest in both equity and fixed-income securities.
Each fund or portfolio (each a "Fund") is, or is a series of, an open-end
management investment company. This Prospectus sets forth concisely the
information which a prospective investor should know about each Fund before
investing. A "Statement of Additional Information" for each Fund which provides
further information regarding certain matters discussed in this Prospectus and
other matters which may be of interest to some investors has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. For
a free copy, call or write Alliance Fund Services, Inc. at the indicated address
or call the "For Literature" telephone number shown above.
This Prospectus offers the Advisor Class shares of each Fund which may be
purchased at net asset value without any initial or contingent deferred sales
charges and without ongoing distribution expenses. Advisor Class shares are
offered solely to (i) investors participating in fee-based programs meeting
certain standards established by Alliance Fund Distributors, Inc., each Fund's
principal underwriter, (ii) participants in self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that meet certain minimum standards
and (iii) certain other categories of investors described in the Prospectus,
including investment advisory clients of, and certain other persons associated
with, Alliance Capital Management L.P. and its affiliates or the Funds. See
"Purchase and Sale of Shares."
An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.
Investors are advised to read this Prospectus carefully and to retain it for
future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
ALLIANCE(R)
Investing without the Mystery./SM/
(R)/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
<PAGE>
The Funds At A Glance
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
The Funds' Investment Adviser Is . . .
Alliance Capital Management L.P. ("Alliance"), a global investment manager
providing diversified services to institutions and individuals through a broad
line of investments including more than 120 mutual funds. Since 1971, Alliance
has earned a reputation as a leader in the investment world with over $262
billion in assets under management as of June 30, 1998. Alliance provides
investment management services to employee benefit plans for 32 of the FORTUNE
100 companies.
Domestic Stock Funds
Alliance Fund
Seeks . . . Long-term growth of capital and income primarily through investment
in common stocks.
Invests Principally in . . . A diversified portfolio of equity securities that,
in the judgment of Alliance, have the potential to achieve capital appreciation.
Growth Fund
Seeks . . . Long-term growth of capital by investing primarily in common stocks
and other equity securities.
Invests Principally in . . . A diversified portfolio of equity securities of
companies with a favorable outlook for earnings and whose rate of growth is
expected to exceed that of the United States economy over time.
Premier Growth Fund
Seeks . . . Long-term growth of capital by investing in the equity securities of
a limited number of large, carefully selected, high-quality American companies
from a relatively small universe of intensively researched companies.
Invests Principally in . . . A diversified portfolio of equity securities that,
in the judgment of Alliance, are likely to achieve superior earnings growth.
Normally, approximately 40-50 companies will be represented in the Fund's
investment portfolio. The Fund's investments in 25 of these companies most
highly regarded at any point in time by Alliance will usually constitute
approximately 70% of the Fund's net assets.
Technology Fund
Seeks . . . Growth of capital through investment in companies expected to
benefit from advances in technology.
Invests Principally in . . . A diversified portfolio of securities of companies
which use technology extensively in the development of new or improved products
or processes.
Quasar Fund
Seeks . . . Growth of capital by pursuing aggressive investment policies.
Invests Principally in . . . A diversified portfolio of equity securities of any
company and industry and in any type of security which is believed to offer
possibilities for capital appreciation.
Global Stock Funds
International Fund
Seeks . . . A total return on its assets from long-term growth of capital and
from income.
Invests Principally in . . . A diversified portfolio of marketable securities of
established non-United States companies, companies participating in foreign
economies with prospects for growth, and foreign government securities.
International Premier Growth Fund
Seeks . . . Long-term capital appreciation.
Invests Principally in . . . A diversified portfolio of equity securities of a
limited number of large, carefully selected, high-quality non-U.S. companies
that are judged likely to achieve superior earnings growth.
Worldwide Privatization Fund
Seeks . . . Long-term capital appreciation.
Invests Principally in . . . A non-diversified portfolio of equity securities
issued by enterprises that are undergoing, or have undergone, privatization. The
balance of the Fund's investment portfolio will include securities of companies
that are believed by Alliance to be beneficiaries of the privatization process.
New Europe Fund
Seeks . . . Long-term capital appreciation through investment primarily in the
equity securities of companies based in Europe.
Invests Principally in . . . A non-diversified portfolio of equity securities of
European companies.
All-Asia Investment Fund
Seeks . . . Long-term capital appreciation.
Invests Principally in . . . A non-diversified portfolio of equity securities of
Asian/Pacific companies.
Greater China '97 Fund
Seeks . . . Long-term capital appreciation.
Invests Principally in . . . A non-diversified portfolio of equity securities of
Greater China companies.
Global Small Cap Fund
Seeks . . . Long-term growth of capital.
Invests Principally in . . . A diversified global portfolio of the equity
securities of small capitalization companies.
Global Environment Fund
Seeks . . . Long-term capital appreciation.
2
<PAGE>
Invests Principally in . . . A non-diversified portfolio of equity securities of
companies expected to benefit from advances or improvements in products,
processes or services intended to foster the protection of the environment.
Total Return Funds
Balanced Shares
Seeks . . . A high return through a combination of current income and capital
appreciation.
Invests Principally in . . . A diversified portfolio of equity and fixed-income
securities such as common and preferred stocks, U.S. Government and agency
obligations, bonds and senior debt securities.
Utility Income Fund
Seeks . . . Current income and capital appreciation through investment in the
utilities industry.
Invests Principally in . . . A diversified portfolio of equity securities, such
as common stocks, securities convertible into common stocks and rights and
warrants to subscribe for purchase of common stocks, and in fixed-income
securities such as bonds and preferred stocks.
Growth and Income Fund
Seeks . . . Income and appreciation through investment in dividend-paying common
stocks of quality companies.
Invests Principally in . . . A diversified portfolio of dividend-paying common
stocks of good quality, and, under certain market conditions, other types of
securities, including bonds, convertible bonds and preferred stocks.
Real Estate Investment Fund
Seeks . . . Total return on its assets from long-term growth of capital and from
income.
Invests Principally in . . . A diversified portfolio of equity securities of
issuers that are primarily engaged in or related to the real estate industry.
Distributions . . .
Balanced Shares, Utility Income Fund, Growth and Income Fund and Real Estate
Investment Fund intend to make distributions quarterly to shareholders. These
distributions may include ordinary income and capital gain (each of which is
taxable) and a return of capital (which is generally nontaxable). See
"Dividends, Distributions and Taxes."
A Word About Risk . . .
The price of the shares of the Alliance Stock Funds will fluctuate as the daily
prices of the individual securities in which they invest fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost. With
respect to those Funds permitted to invest in foreign currency denominated
securities, these fluctuations may be magnified by changes in foreign exchange
rates. Investment in the Global Stock Funds involves risks not associated with
funds that invest primarily in securities of U.S. issuers. While the Funds
invest principally in common stocks and other equity securities, in order to
achieve their investment objectives the Funds may at times use certain types of
investment derivatives, such as options, futures, forwards and swaps. These
involve risks different from, and, in certain cases, greater than, the risks
presented by more traditional investments. An investment in the Real Estate
Investment Fund is subject to certain risks associated with the direct ownership
of real estate in general, including possible declines in the value of real
estate, general and local economic conditions, environmental problems and
changes in interest rates. Investments by Greater China '97 Fund in Greater
China companies entail certain risks which are different from, and in certain
cases, greater than, risks associated with investments in other international
markets. These risks are fully discussed in this Prospectus.
Getting Started . . .
Shares of the Funds are available through your financial representative. Each
Fund offers multiple classes of shares, of which only the Advisor Class is
offered by this Prospectus. Advisor Class shares may be purchased at net asset
value without any initial or contingent deferred sales charges and are not
subject to ongoing distribution expenses. Advisor Class shares may be purchased
and held solely (i) through accounts established under a fee-based program,
sponsored and maintained by a registered broker-dealer or other financial
intermediary and approved by Alliance Fund Distributors, Inc. ("AFD"), each
Fund's principal underwriter, (ii) through a self-directed defined contribution
employee benefit plan (e.g., a 401(k) plan) that has at least 1,000 participants
or $25 million in assets, (iii) by investment advisory clients of, and certain
other persons associated with, Alliance and its affiliates or the Funds, and
(iv) through registered investment advisers or other financial intermediaries
who charge a management, consulting or other fee for their service and who
purchase shares through a broker or agent approved by AFD and clients of such
registered investment advisers or financial intermediaries whose accounts are
linked to the master account of such investment adviser or financial
intermediary on the books of such approved broker or agent. A shareholder's
Advisor Class shares will automatically convert to Class A shares of the same
Fund under certain circumstances. See "Conversion Feature--Conversion to Class A
Shares." Generally, a fee-based program must charge an asset-based or other
similar fee and must invest at least $250,000 in Advisor Class shares of each
Fund in which the program invests in order to be approved by AFD for investment
in Advisor Class shares. For more detailed information about who may purchase
and hold Advisor Class shares see the Statement of Additional Information. Fee-
based and other programs through which Advisor Class shares may be purchased may
impose different requirements with respect to investment in Advisor Class shares
than described above. For detailed information about purchasing and selling
shares, see "Purchase and Sale of Shares."
ALLIANCE(R)
Investing without the Mystery./SM/
(R)/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
3
<PAGE>
- --------------------------------------------------------------------------------
Expense Information
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses are one of several factors to consider when you
invest in a Fund. The following table summarizes your maximum transaction costs
from investing in the Advisor Class shares of each Fund and estimated annual
expenses for Advisor Class shares of each Fund. For each Fund, the "Examples" to
the right of the table below show the cumulative expenses attributable to a
hypothetical $1,000 investment in Advisor Class shares for the periods
specified.
Advisor Class Shares
--------------------
Maximum sales charge imposed on purchases.............. None
Sales charge imposed on dividend reinvestments......... None
Deferred sales charge.................................. None
Exchange fee........................................... None
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Operating Expenses Examples
---------------------------------------- -------------------------------------------
Alliance Fund Advisor Class Advisor Class
-------------- -------------
<S> <C> <C> <C>
Management fees .68% After 1 year $ 8
12b-1 fees None After 3 years $ 26
Other expenses (a) .15% After 5 years $ 46
---- After 10 years $103
Total fund
operating expenses (b) .83%
===
Growth Fund Advisor Class Advisor Class
------------- -------------
Management fees .74% After 1 year $ 10
12b-1 fees None After 3 years $ 31
Other expenses (a) .24% After 5 years $ 54
---- After 10 years $120
Total fund
operating expenses (b) .98%
====
Premier Growth Fund Advisor Class Advisor Class
------------- -------------
Management fees 1.00% After 1 year $ 13
12b-1 fees None After 3 years $ 40
Other expenses (a) .25% After 5 years $ 69
---- After 10 years $151
Total fund
operating expenses (b) 1.25%
====
Technology Fund Advisor Class Advisor Class
------------- -------------
Management fees (f) 1.04% After 1 year $ 14
12b-1 fees None After 3 years $ 44
Other expenses (a) .35% After 5 years $ 76
---- After 10 years $167
Total fund
operating expenses (b) 1.39%
====
Quasar Fund Advisor Class Advisor Class
------------- -------------
Management fees (f) 1.16% After 1 year $ 16
12b-1 fees None After 3 years $ 50
Other expenses (a) .42% After 5 years $ 86
----
Total fund
operating expenses (b) 1.58%
====
International Fund Advisor Class Advisor Class
------------- -------------
Management fees
(after waiver) (c)(f) .85% After 1 year $ 15
12b-1 fees None After 3 years $ 46
Other expenses (a) .62% After 5 years $ 80
---- After 10 years $176
Total fund
operating expenses (b) (e) 1.47%
====
International Premier
Growth Fund Advisor Class Advisor Class
------------- -------------
Management fees (g) 1.00% After 1 year $ 22
12b-1 fees None After 3 years $ 69
Other expenses (a) 1.20% After 5 years $118
---- After 10 years $253
Total fund
operating expenses (b)(e) 2.20%
====
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes and the discussion following these tables on page
6.
4
<PAGE>
<TABLE>
<CAPTION>
Operating Expenses Examples
- ---------------------------------------------- -------------------------------------------
Worldwide Privatization Fund Advisor Class Advisor Class
------------- -------------
<S> <C> <C> <C>
Management fees 1.00% After 1 year $ 15
12b-1 fees None After 3 years $ 46
Other expenses (a) .45% After 5 years $ 79
---- After 10 years $174
Total fund
operating expenses (b) 1.45%
====
New Europe Fund Advisor Class Advisor Class
------------- -------------
Management fees 1.02% After 1 year $ 16
12b-1 fees None After 3 years $ 49
Other expenses (a) .52% After 5 years $ 84
---- After 10 years $183
Total fund
operating expenses (b) 1.54%
====
All-Asia Investment Fund Advisor Class Advisor Class
------------- -------------
Management fees
(after waiver) (c) .65% After 1 year $ 18
12b-1 fees None After 3 years $ 56
Other expenses After 5 years $ 96
Administration fees After 10 years $209
(after waiver) (d) .00%
Other operating expenses (a) 1.13%
----
Total fund
operating expenses (b) (e) 1.78%
====
Greater China '97 Fund Advisor Class Advisor Class
------------- -------------
Management fees 1.00% After 1 year $ 22
12b-1 fees None After 3 years $ 69
Other expenses (a) 1.20% After 5 years $118
---- After 10 years $253
Total fund
operating expenses (b) (e) 2.20%
====
Global Small Cap Fund Advisor Class Advisor Class
------------- -------------
Management fees 1.00% After 1 year $ 19
12b-1 fees None After 3 years $ 58
Other expenses (a) .84% After 5 years $100
---- After 10 years $216
Total fund
operating expenses (b) 1.84%
====
Global Environment Fund Advisor Class Advisor Class
------------- -------------
Management fees 1.10% After 1 year $ 24
12b-1 fees None After 3 years $ 75
Other expenses (a) 1.29% After 5 years $128
---- After 10 years $273
Total fund
operating expenses (b) 2.39%
====
Balanced Shares Advisor Class Advisor Class
------------- -------------
Management fees .63% After 1 year $ 11
12b-1 fees None After 3 years $ 33
Other expenses (a) .42% After 5 years $ 58
---- After 10 years $128
Total fund
operating expenses (b) 1.05%
====
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Operating Expenses Examples
- ------------------------------------------- --------------------------------------------
Utility Income Fund Advisor Class Advisor Class
------------- -------------
<S> <C> <C> <C>
Management fees
(after waiver) (c) .00% After 1 year $ 12
12b-1 fees None After 3 years $ 38
Other expenses (a) 1.20% After 5 years $ 66
---- After 10 years $145
Total fund
operating expenses (b) (e) 1.20%
====
Growth and Income Fund Advisor Class Advisor Class
------------- -------------
Management fees .49% After 1 year $ 7
12b-1 fees None After 3 years $ 23
Other expenses (a) .22% After 5 years $ 40
---- After 10 years $ 88
Total fund
operating expenses (b) .71%
====
Real Estate Investment Fund Advisor Class Advisor Class
------------- -------------
Management fees .90% After 1 year $ 13
12b-1 fees None After 3 years $ 40
Other expenses (a) .35% After 5 years $ 69
---- After 10 years $151
Total fund
operating expenses (b) 1.25%
====
</TABLE>
- --------------------------------------------------------------------------------
(a) These expenses include a transfer agency fee payable to Alliance Fund
Services, Inc., an affiliate of Alliance. The expenses shown include the
application of credits that reduce Fund expenses.
(b) The expense information does not reflect any charges or expenses imposed by
your financial representative or your employee benefit plan.
(c) Net of voluntary fee waiver. In the absence of such waiver, management fees
would be 1.00% for All-Asia Investment Fund,.75% for Utility Income Fund and
1.00% for International Fund.
(d) Net of voluntary fee waiver. Absent such fee waiver, administration fees
would have been .15%. Reflects the fees payable by All-Asia Investment Fund
to Alliance pursuant to an administration agreement.
(e) Net of voluntary fee waivers and expense reimbursements. Absent such waivers
and/or reimbursements, total fund operating expenses would have been as
follows:
All-Asia Investment Fund International Premier Growth Fund
Advisor Class 2.28% Advisor Class 8.36%
International Fund Utility Income Fund
Advisor Class 1.62% Advisor Class 3.29%
Greater China '97 Fund
Advisor Class 18.13%
(f) Calculated based on average daily net assets. Maximum contractual rate,
based on quarter-end net assets, is 1.00% for International Fund, Quasar
Fund and Technology Fund.
The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in a Fund will bear directly or
indirectly. "Management fees" for All-Asia Investment Fund and "Administration
fees" for All-Asia Investment Fund have been restated to reflect current
voluntary fee waivers. "Other Expenses" for Global Environment Fund and
International Premier Growth Fund are based on estimated amounts for its current
fiscal year. The Examples set forth above assume reinvestment of all dividends
and distributions and utilize a 5% annual rate of return as mandated by
Commission regulations. The Examples should not be considered representative of
future expenses; actual expenses may be greater or less than those shown.
6
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The tables on the following pages present per share income and capital changes
for an Advisor Class share outstanding throughout each period indicated. Except
as otherwise indicated, information for Alliance Fund, Growth Fund, Premier
Growth Fund, Balanced Shares, Utility Income Fund, Worldwide Privatization Fund,
International Premier Growth Fund and Growth and Income Fund has been audited
by PricewaterhouseCoopers LLP, the independent accountants for each such Fund,
and for All-Asia Investment Fund, Technology Fund, Quasar Fund, International
Fund, New Europe Fund, Greater China '97 Fund, Global Small Cap Fund and Real
Estate Investment Fund by Ernst & Young LLP, the independent auditors for each
such Fund. A report of PricewaterhouseCoopers LLP or Ernst & Young LLP, as the
case may be, on the information with respect to each Fund, appears in the Fund's
Statement of Additional Information. The following information for each Fund
should be read in conjunction with the financial statements and related notes
which are included in the Fund's Statement of Additional Information.
Further information about a Fund's performance is contained in the Fund's annual
report to shareholders, which may be obtained without charge by contacting
Alliance Fund Services, Inc. at the address or the "For Literature" telephone
number shown on the cover of this Prospectus.
7
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In
Beginning Of Net Investment Gain (Loss) On Net Asset Value
Fiscal Year or Period Period Income (Loss) Investments From Operations
--------------------- ------------ -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Alliance Fund
Advisor Class
12/1/97 to 5/31/98++ $ 8.69 0.00(b) $ .48 $ .48
Year ended 11/30/97 7.71 (.02)(b) 2.10 2.08
10/2/96+ to 11/30/96 6.99 0.00 .72 .72
Growth Fund
Advisor Class
11/1/97 to 4/30/98++ $ 44.08 $ .12(b) $ 7.50 $ 7.62
Year ended 10/31/97 34.91 (.05)(b) 10.25 10.20
10/2/96+ to 10/31/96 34.14 0.00(b) .77 .77
Premier Growth Fund
Advisor Class
12/1/97 to- 5/31/98++ $ 22.10 $ (.02)(b) $ 4.74 $ 4.72
Year ended 11/30/97 17.99 (.06)(b) 5.25 5.19
10/2/96+ to 11/30/96 15.94 (.01)(b) 2.06 2.05
Technology Fund
Advisor Class
12/1/97 to 5/31/98++ $ 54.63 $ (.21)(b) $ 6.92 $ 6.71
Year ended 11/30/97 51.17 (.45)(b) 4.33 3.88
10/2/96+ to 11/30/96 47.32 (.05)(b) 3.90 3.85
Quasar Fund
Advisor Class
10/1/97 to 3/31/98++ $ 30.42 $ (.06)(b) $ 2.37 $ 2.31
10/2/96+ to 9/30/97 27.82 (.17)(b) 6.88 6.71
International Fund
Advisor Class
Year ended 6/30/98 $ 18.67 $ .02(b)(c) $ 1.13 $ 1.15
10/2/96+ to 6/30/97 17.96 .16(b) 1.78 1.94
International Premier Growth Fund
Advisor Class
3/31/98+ to 5/31/98++ $ 10.00 $ .06(b)(c) $ .29 $ .35
Worldwide Privatization Fund
Advisor Class
Year ended 6/30/98 $ 13.23 $ .19(b) $ .80 $ .99
10/2/96+ to 6/30/97 12.14 .18(b) 2.52 2.70
New Europe Fund
Advisor Class
Year ended 7/31/98 $ 18.57 $ .08(b) $ 5.28 $ 5.36
10/2/96+ to 7/31/97 16.25 .11(b) 3.76 3.87
All-Asia Investment Fund
Advisor Class
11/1/97 to 4/30/98++ $ 7.56 $ (.06)(b)(c) $ (.25) $ (.31)
Year ended 10/31/97 11.04 (.15)(b)(c) (2.99) (3.14)
10/2/96+ to 10/31/96 11.65 0.00(c) (.61) (.61)
Greater China '97 Fund
Advisor Class
9/3/97+ to 7/31/98 $ 10.00 $ .10(b)(c) $ (5.18) $ (5.08)
Global Small Cap Fund
Advisor Class
Year ended 7/31/98 $ 12.89 $ (.07)(b) $ .37 $ .30
10/2/96+ to 7/31/97 12.56 (.08)(b) 1.97 1.89
Global Environment
12/29/97+ to 4/30/98 $ 9.15 $ (.10)(b) $ 1.83 $ 1.73
Balanced Shares
Advisor Class
Year ended 7/31/98 $ 16.17 $ .37(b) $ 1.87 $ 2.24
10/2/96+ to 7/31/97 14.79 .23 3.22 3.45
Utility Income Fund
Advisor Class
12/1/97 to 5/31/98++ $ 12.49 $ .17(b)(c) $ 1.40 $ 1.57
Year ended 11/30/97 10.59 .36(b)(c) 2.04 2.40
10/2/96+ to 11/30/96 9.95 .03(b)(c) .61 .64
Growth and Income Fund
Advisor Class
11/1/97 to 4/30/98++ $ 3.48 $ .02(b) $ .59 $ .61
Year ended 10/31/97 3.00 .05(b) .87 .92
10/2/96+ to 10/31/96 2.97 0.00 .03 .03
Real Estate Investment Fund
Advisor Class
Year ended 8/31/98 $ 12.82 $ .55(b) $ (2.34) $ (1.79)
10/1/96+ to 8/31/97 10.00 .35(b) 2.88 3.23
</TABLE>
<TABLE>
<CAPTION>
Distributions
Dividends From In Excess Of
Net Investment Net Investment
Fiscal Year or Period Income Income
--------------------- --------------- --------------
<S> <C> <C>
Alliance Fund
Advisor Class
12/1/97 to 5/31/98++ $ 0.00 $ 0.00
Year ended 11/30/97 (.04) 0.00
10/2/96+ to 11/30/96 0.00 0.00
Growth Fund
Advisor Class
11/1/97 to 4/30/98++ $ 0.00 $ 0.00
Year ended 10/31/97 0.00 0.00
10/2/96+ to 10/31/96 0.00 0.00
Premier Growth Fund
Advisor Class
12/1/97 to- 5/31/98++ $ 0.00 $ 0.00
Year ended 11/30/97 0.00 0.00
10/2/96+ to 11/30/96 0.00 0.00
Technology Fund
Advisor Class
12/1/97 to 5/31/98++ $ 0.00 $ 0.00
Year ended 11/30/97 0.00 0.00
10/2/96+ to 11/30/96 0.00 0.00
Quasar Fund
Advisor Class
10/1/97 to 3/31/98++ $ 0.00 $ 0.00
10/2/96+ to 9/30/97 0.00 0.00
International Fund
Advisor Class
Year ended 6/30/98 $ (.07) $ 0.00
10/2/96+ to 6/30/97 (.15) 0.00
International Premier Growth Fund
Advisor Class
3/31/98+ to 5/31/98++ $ 0.00 $ 0.00
Worldwide Privatization Fund
Advisor Class
Year ended 6/30/98 $ (.23) $ 0.00
10/2/96+ to 6/30/97 (.19) 0.00
New Europe Fund
Advisor Class
Year ended 7/31/98 $ 0.00 $ (.09)
10/2/96+ to 7/31/97 (.09) (.14)
All-Asia Investment Fund
Advisor Class
11/1/97 to 4/30/98++ $ 0.00 $ 0.00
Year ended 10/31/97 0.00 0.00
10/2/96+ to 10/31/96 0.00 0.00
Greater China '97 Fund
Advisor Class
9/3/97+ to 7/31/98 $ (.07) $ 0.00
Global Small Cap Fund
Advisor Class
Year ended 7/31/98 $ 0.00 $ 0.00
10/2/96+ to 7/31/97 0.00 0.00
Global Environment
12/29/97+ to 4/30/98 $ 0.00 $ 0.00
Balanced Shares
Advisor Class
Year ended 7/31/98 $ (.36) $ 0.00
10/2/96+ to 7/31/97 (.27) 0.00
Utility Income Fund
Advisor Class
12/1/97 to 5/31/98++ $ (.18) $ 0.00
Year ended 11/30/97 (.37) 0.00
10/2/96+ to 11/30/96 0.00 0.00
Growth and Income Fund
Advisor Class
11/1/97 to 4/30/98++ $ (.03) $ 0.00
Year ended 10/31/97 (0.06) 0.00
10/2/96+ to 10/31/96 0.00 0.00
Real Estate Investment Fund
Advisor Class
Year ended 8/31/98 $ (.54) $ 0.00
10/1/96+ to 8/31/97 (.41)(f) 0.00
</TABLE>
Please refer to the footnotes on page 10.
8
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Total Net Asset Investment At End of Ratio Of Investment
Distributions Dividends Value Return Based Period Expenses Income (Loss)
From Net And End Of on Net Asset (000's To Average To Average Portfolio
Realized Gains Distributions Period Value (a) omitted) Net Assets Net Assets Turnover Rate
--------------- ------------- ----------- ------------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(2.17) $(2.17) $7.00 7.47 % $ 13,947 .79%* (.09)%* 53%
(1.06) (1.10) $8.69 32.00 10,275 .83 (.21) 158
0.00 0.00 $7.71 10.30 1,083 .89* 0.38* 80
$(2.91) $(2.91) $48.79 18.12 % $141,589 .87%* .55%* 27%
(1.03) (1.03) $44.08 29.92 101,205 .98(e) (.12) 48
0.00 0.00 $34.91 2.26 946 1.26* .50* 46
$(1.44) $(1.44) $25.38 22.92 % $201,873 1.19%* (.15)%* 30%
(1.08) (1.08) $22.10 30.98 53,459 1.25 (.28) 76
0.00 0.00 $17.99 12.86 1,922 1.50* (.48)* 95
$ (.58) $ (.58) $60.76 12.41 % $169,504 1.33%* (.74)%* 31%
(.42) (.42) $54.63 7.65 167,120 1.39(e) (.81) 51
0.00 0.00 $51.17 8.14 566 1.75* (1.21)* 30
$(1.23) $(1.23) $31.50 8.09 % $192,181 1.35%* (.42)%* 63%
(4.11) (4.11) $30.42 28.47 62,455 1.58 (.74) 135
$(1.21) $(1.28) $18.54 6.98 % $ 47,154 1.47%(d) .13% 121%
(1.08) (1.23) $18.67 11.57 8,697 1.69(d)* 1.47* 94
$ 0.00 $ 0.00 $10.35 3.50 % $ 1,612 2.20%*(d) 2.31%* 26%
$(1.36) $(1.59) $12.63 9.48 % $ 1,716 1.45% 1.48% 53%
(1.42) (1.61) $13.23 25.24 374 1.96* 2.97* 48
$(2.05) $(2.14) $21.79 32.55 % $ 3,143 1.56%(e) .39% 99%
(1.32) (1.55) $18.57 25.76 4,130 1.71(d)* .77* 89
$ 0.00 $ 0.00 $7.25 (4.10) % $ 1,494 3.53%* (1.66)%* 87%
(.34) (.34) $7.56 (29.42) 1,338 3.21(d) (1.51) 70
0.00 0.00 $11.04 (5.24) 27 4.97*(d) 1.63* 66
$ 0.00 $ (.07) $4.85 (51.06)% $ 60 2.22%(d)(e)* 1.51% 58%
$ (.99) $ (.99) $12.20 2.82 % $ 392 1.87%(e) (.57)% 113%
(1.56) (1.56) $12.89 17.08 333 2.05*(e) (.84)* 129
$ 0.00 $ 0.00 $10.88 18.91 % $ 6 2.54%* (2.04)%* 199%
$(2.07) $(2.43) $15.98 15.32 % $ 2,079 1.06%(e) 2.33% 145%
$(1.80) $(2.07) $16.17 25.96 1,565 1.30*(e) 2.15* 207
$ (.47) $ (.65) $13.41 12.88 % $ 52 1.21%*(e) 2.59%* 9%
(.13) (.50) $12.49 23.57 42 1.20 3.29 37
0.00 0.00 $10.59 6.33 33 1.20*(d) 4.02* 98
$ (.46) $ (.49) $3.60 19.45 % $ 4,357 .66%* 1.16%* 41%
(.38) (.44) $3.48 33.61 3,207 .71(e) 1.42 88
0.00 0.00 $3.00 1.01 87 0.37* 3.40* 88
$ (.01) $ (.55) $10.48 (14.74) $ 2,899 1.25% 4.08% 23%
0.00 (.41) $12.82 32.72 2,313 1.45*(d)(e) 3.07* 20
---------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
________________
+ Commencement of distribution.
++ Unaudited.
* Annualized.
(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 the net asset value during the period, and
redemption on the last day of the period. Initial sales charges or
contingent deferred sales charges are not reflected in the calculation of
total investment return. Total investment return calculated for a period of
less than one year are not annualized.
(b) Based on average shares outstanding.
(c) Net of fee waiver and expense reimbursement.
(d) Net of expenses assumed and/or waived/reimbursed. If the following Funds
had borne all expenses in their most recent fiscal year, their expense
ratios, without giving effect to the expense offset arrangements described
in (e) below, would have been as follows:
<TABLE>
<CAPTION>
1996 1997 1998 1997 1998
<S> <C> <C> <C> <C> <C> <C>
All-Asia Investment Fund International Fund
Advisor Class 5.54%* 3.43 -- Advisor Class -- 1.62%
Utility Income Fund Greater China '97 Fund
Advisor Class 3.48%* 3.29 -- Advisor Class -- 18.13%*
Real Estate Investment Fund
Advisor Class -- 1.47%* --
</TABLE>
(e) Amounts do not reflect the impact of expense offset arrangements with the
transfer agent. Taking into account such expense offset arrangements, the
rate of expenses to average net assets assuming the assumption and/or
waived reimbursement of expenses described in note (d) above would have
been as follows:
<TABLE>
<CAPTION>
1997 1998 1997 1998 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
International Fund Balanced Shares Growth Fund
Advisor Class 1.69%* -- Advisor Class 1.29%* 1.05% Advisor Class .96% --
Global Small Cap Fund Real Estate Investment Fund Technology Fund
Advisor Class 2.04%* 1.84% Advisor Class 1.44%* -- Advisor Class 1.38%
New Europe Fund Growth and Income Fund Greater China '97 Fund
Advisor Class 1.71%* 1.54% Advisor Class .70% -- Advisor Class -- 2.20%*
</TABLE>
___________________________
(f) Distributions from net investment income include a tax return of capital of
$.03.
10
<PAGE>
--------------------------------
Glossary
--------------------------------
The following terms are frequently used in this Prospectus.
Equity securities, except as noted otherwise, are (i) common stocks, partnership
interests, business trust shares and other equity or ownership interests in
business enterprises, and (ii) securities convertible into, and rights and
warrants to subscribe for the purchase of, such stocks, shares and interests.
Debt securities are bonds, debentures, notes, bills, repurchase agreements,
loans, other direct debt instruments and other fixed, floating and variable rate
debt obligations, but do not include convertible securities.
Fixed-income securities are debt securities and dividend-paying preferred stocks
and include floating rate and variable rate instruments.
Convertible securities are fixed-income securities that are convertible into
common stock.
U.S. Government securities are securities issued or guaranteed by the United
States Government, its agencies or instrumentalities.
Foreign government securities are securities issued or guaranteed, as to payment
of principal and interest, by governments, quasi-governmental entities,
governmental agencies or other governmental entities.
Asian company is an entity that (i) is organized under the laws of an Asian
country and conducts business in an Asian country, (ii) derives 50% or more of
its total revenues from business in Asian countries, or (iii) issues equity or
debt securities that are traded principally on a stock exchange in an Asian
country.
Asian countries are Australia, the Democratic Socialist Republic of Sri Lanka,
the Hong Kong Special Administrative Region of the People's Republic of China
(Hong Kong), the Islamic Republic of Pakistan, Japan, the Kingdom of Thailand,
Malaysia, Negara Brunei Darussalam (Brunei), New Zealand, the People's Republic
of China, the People's Republic of Kampuchea (Cambodia), the Republic of China
(Taiwan), the Republic of India, the Republic of Indonesia, the Republic of
Korea (South Korea), the Republic of the Philippines, the Republic of Singapore,
the Socialist Republic of Vietnam and the Union of Myanmar.
Greater China company is an entity that (i) is organized under the laws of a
Greater China country and conducts business in a Greater China country, (ii)
derives 50% or more of its total revenues from business in Greater China
countries, or (iii) issues equity or debt securities that are traded principally
on a stock exchange in a Greater China country. A company of a particular
Greater China country is a company that meets any of these criteria with respect
to that country.
Greater China countries are the People's Republic of China ("China"), the Hong
Kong Special Administrative Region of the People's Republic of China ("Hong
Kong") and the Republic of China ("Taiwan").
Non-U.S. company is an entity that (i) is organized under the laws of a
foreign country and conducts business in a foreign country, (ii) derives 50% or
more of its total revenues from business in foreign countries, or (iii) issues
equity or debt securities that are traded principally on a stock exchange in a
foreign country.
Eligible Companies are companies expected to benefit from advances or
improvements in products, processes or services intended to foster the
protection of the environment.
Environmental Companies are Eligible Companies that have a principal business
involving the sale of systems or services intended to foster environmental
protection, such as waste treatment and disposal, remediation, air pollution
control and recycling.
Beneficiary Companies are Eligible Companies whose principal businesses lie
outside the environmental sector but nevertheless anticipate environmental
regulations or consumer preferences through the development of new products,
processes or services that are intended to contribute to a cleaner and healthier
environment, such as companies that anticipate the demand for plastic
substitutes, aerosol substitutes, alternative fuels and processes that generate
less hazardous waste.
Moody's is Moody's Investors Service, Inc.
S&P is Standard & Poor's Ratings Services.
Duff & Phelps is Duff & Phelps Credit Rating Co.
Fitch is Fitch IBCA, Inc.
Investment grade securities are fixed-income securities rated Baa and above by
Moody's or BBB and above by S&P, Duff & Phelps or Fitch, or determined by
Alliance to be of equivalent quality.
Lower-rated securities are fixed-income securities rated Ba or below by Moody's
or BB or below by S&P, Duff & Phelps or Fitch, or determined by Alliance to be
of equivalent quality, and are commonly referred to as "junk bonds."
Prime commercial paper is commercial paper rated Prime 1 by Moody's or A-1 or
higher by S&P or, if not rated, issued by companies that have an outstanding
debt issue rated Aa or higher by Moody's or AA or higher by S&P.
Qualifying bank deposits are certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of banks having total assets of more than $1
billion and which are members of the Federal Deposit Insurance Corporation.
Rule 144A securities are securities that may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "Securities Act").
Depositary receipts include American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") and other types of depositary receipts.
Commission is the Securities and Exchange Commission.
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
Exchange is the New York Stock Exchange.
11
<PAGE>
--------------------------------
Description Of The Funds
--------------------------------
Except as noted, (i) the Funds' investment objectives are "fundamental" and
cannot be changed without shareholder vote, and (ii) the Funds' investment
policies are not fundamental and thus can be changed without a shareholder vote.
No Fund will change a non-fundamental objective or policy without notifying its
shareholders. There is no guarantee that any Fund will achieve its investment
objective.
INVESTMENT OBJECTIVES AND POLICIES
DOMESTIC STOCK FUNDS
The Domestic Stock Funds have been designed to offer investors seeking capital
appreciation a range of alternative approaches to investing in the U.S. equity
markets.
The Alliance Fund
The Alliance Fund, Inc. ("Alliance Fund") is a diversified investment company
that seeks long-term growth of capital and income primarily through investment
in common stocks. The Fund normally invests substantially all of its assets in
common stocks that Alliance believes will appreciate in value, but it may invest
in other types of securities such as convertible securities, high grade
instruments, U.S. Government securities and high quality, short-term obligations
such as repurchase agreements, bankers' acceptances and domestic certificates of
deposit, and may invest without limit in foreign securities. While the
diversification and generally high quality of the Fund's investments cannot
prevent fluctuations in market values, they tend to limit investment risk and
contribute to achieving the Fund's objective. The Fund generally does not effect
portfolio transactions in order to realize short-term trading profits or
exercise control.
The Fund may also: (i) make secured loans of its portfolio securities equal in
value up to 25% of its total assets to brokers, dealers and financial
institutions; (ii) enter into repurchase agreements of up to one week in
duration with commercial banks, but only if those agreements together with any
restricted securities and any securities which do not have readily available
market quotations do not exceed 10% of its net assets; and (iii) write exchange-
traded covered call options with respect to up to 25% of its total assets. For
additional information on the use, risks and costs of these policies and
practices see "Additional Investment Practices."
Alliance Growth Fund
Alliance Growth Fund ("Growth Fund") is a diversified investment company that
seeks long-term growth of capital. Current income is only an incidental
consideration. The Fund seeks to achieve its objective by investing primarily in
equity securities of companies with favorable earnings outlooks and whose long-
term growth rates are expected to exceed that of the U.S. economy over time. The
Fund's investment objective is not fundamental.
The Fund may also invest up to 25% of its total assets in lower-rated fixed-
income and convertible securities. See "Risk Considerations--Securities Ratings"
and "--Investment in Lower-Rated Fixed-Income Securities." The Fund generally
will not invest in securities rated at the time of purchase below Caa- by
Moody's and CCC- by S&P, Duff & Phelps or Fitch or in securities judged by
Alliance to be of comparable investment quality. However, from time to time, the
Fund may invest in securities rated in the lowest grades (i.e., C by Moody's or
D or equivalent by S&P, Duff & Phelps or Fitch), or securities Alliance judges
to be of comparable investment quality, if there are prospects for an upgrade or
a favorable conversion into equity securities. If the credit rating of a
security held by the Fund falls below its rating at the time of purchase (or
Alliance determines that the quality of such security has so deteriorated), the
Fund may continue to hold the security if such investment is considered
appropriate under the circumstances.
The Fund may also: (i) invest in "zero-coupon" bonds and "payment-in-kind"
bonds; (ii) invest in foreign securities, although the Fund will not generally
invest more than 15% of its total assets in foreign securities; (iii) invest in
securities that are not publicly traded, including Rule 144A securities; (iv)
buy or sell foreign currencies, options on foreign currencies, foreign currency
futures contracts (and related options) and deal in forward foreign exchange
contracts; (v) lend portfolio securities amounting to not more than 25% of its
total assets; (vi) enter into repurchase agreements of up to 25% of its total
assets and purchase and sell securities on a forward commitment basis; (vii) buy
and sell stock index futures contracts and buy and sell options on those
contracts and on stock indices; (viii) purchase and sell futures contracts,
options thereon and options with respect to U.S. Treasury securities; (ix) write
covered call and put options on securities it owns or in which it may invest;
and (x) purchase and sell put and call options. For additional information on
the use, risks and costs of these policies and practices see "Additional
Investment Practices."
Alliance Premier Growth Fund
Alliance Premier Growth Fund, Inc. ("Premier Growth Fund") is a diversified
investment company that seeks long-term growth of capital by investing
predominantly in the equity securities of a limited number of large, carefully
selected, high-quality U.S. companies that are judged likely to achieve superior
earnings growth. Normally, about 40-50 companies will be represented in the
Fund's portfolio, with the 25 most highly regarded of these companies usually
constituting approximately 70% of the Fund's net assets. The Fund is thus
atypical from most equity mutual funds in its focus on a relatively small number
of intensively researched companies and is designed for those seeking to
accumulate capital over time with less volatility than that associated with
investment in smaller companies.
As a matter of fundamental policy, the Fund normally invests at least 85% of its
total assets in the equity securities of U.S. companies. These are companies (i)
organized under U.S. law that have their principal office in the U.S., and (ii)
the equity
12
<PAGE>
securities of which are traded principally in the U.S. Alliance's investment
strategy for the Fund emphasizes stock selection and investment in the
securities of a limited number of issuers. Alliance relies heavily upon the
fundamental analysis and research of its large internal research staff, which
generally follows a primary research universe of more than 600 companies that
have strong management, superior industry positions, excellent balance sheets
and superior earnings growth prospects. An emphasis is placed on identifying
companies whose substantially above average prospective earnings growth is not
fully reflected in current market valuations.
In managing the Fund, Alliance seeks to utilize market volatility judiciously
(assuming no change in company fundamentals), striving to capitalize on
apparently unwarranted price fluctuations, both to purchase or increase
positions on weakness and to sell or reduce overpriced holdings. The Fund
normally remains nearly fully invested and does not take significant cash
positions for market timing purposes. During market declines, while adding to
positions in favored stocks, the Fund becomes somewhat more aggressive,
gradually reducing the number of companies represented in its portfolio.
Conversely, in rising markets, while reducing or eliminating fully valued
positions, the Fund becomes somewhat more conservative, gradually increasing the
number of companies represented in its portfolio. Alliance thus seeks to gain
positive returns in good markets while providing some measure of protection in
poor markets.
Alliance expects the average market capitalization of companies represented in
the Fund's portfolio normally to be in the range, or in excess, of the average
market capitalization of companies comprising the "S&P 500" (the Standard &
Poor's 500 Composite Stock Price Index, a widely recognized unmanaged index of
market activity).
The Fund may also: (i) invest up to 20% of its net assets in convertible
securities of companies whose common stocks are eligible for purchase by it;
(ii) invest up to 5% of its net assets in rights or warrants; (iii) invest up to
15% of its total assets in securities of foreign issuers whose common stocks are
eligible for purchase by it; (iv) purchase and sell exchange-traded index
options and stock index futures contracts; and (v) write covered exchange-traded
call options on common stocks, unless as a result, the amount of its securities
subject to call options would exceed 15% of its total assets, and purchase and
sell exchange-traded call and put options on common stocks written by others,
but the total cost of all options held by the Fund (including exchange-traded
index options) may not exceed 10% of its total assets. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices." The Fund will not write put options.
Alliance Technology Fund
Alliance Technology Fund, Inc. ("Technology Fund") is a diversified investment
company that emphasizes growth of capital and invests for capital appreciation,
and only incidentally for current income. The Fund may seek income by writing
listed call options. The Fund invests primarily in securities of companies
expected to benefit from technological advances and improvements (i.e.,
companies that use technology extensively in the development of new or improved
products or processes). The Fund will normally have at least 80% of its assets
invested in the securities of these companies. The Fund normally will have
substantially all its assets invested in equity securities, but it also invests
in debt securities offering an opportunity for price appreciation. The Fund will
invest in listed and unlisted securities and U.S. and foreign securities, but it
will not purchase a foreign security if as a result 10% or more of the Fund's
total assets would be invested in foreign securities.
The Fund's policy is to invest in any company and industry and in any type of
security with potential for capital appreciation. It invests in well-known and
established companies and in new and unseasoned companies.
The Fund may also: (i) write and purchase exchange-listed call options and
purchase listed put options, including exchange-traded index put options; (ii)
invest up to 10% of its total assets in warrants; (iii) invest in restricted
securities and in other assets having no ready market if as a result no more
than 10% of the Fund's net assets are invested in such securities and assets;
(iv) lend portfolio securities equal in value to not more than 30% of the Fund's
total assets; and (v) invest up to 10% of its total assets in foreign
securities. For additional information on the use, risks and costs of the
policies and practices see "Additional Investment Practices."
Alliance Quasar Fund
Alliance Quasar Fund, Inc. ("Quasar Fund") is a diversified investment company
that seeks growth of capital by pursuing aggressive investment policies. It
invests for capital appreciation and only incidentally for current income. The
selection of securities based on the possibility of appreciation cannot prevent
loss in value. Moreover, because the Fund's investment policies are aggressive,
an investment in the Fund is risky and investors who want assured income or
preservation of capital should not invest in the Fund.
The Fund invests in any company and industry and in any type of security with
potential for capital appreciation. It invests in well-known and established
companies and in new and unseasoned companies. When selecting securities for the
Fund, Alliance considers the economic and political outlook, the values of
specific securities relative to other investments, trends in the determinants of
corporate profits and management capability and practices.
The Fund invests principally in equity securities, but it also invests to a
limited degree in non-convertible bonds and preferred stocks. The Fund invests
in listed and unlisted U.S. and foreign securities. The Fund periodically
invests in special situations, which occur when the securities of a company are
expected to appreciate due to a development particularly or uniquely applicable
to that company and regardless of general business conditions or movements of
the market as a whole.
The Fund may also: (i) invest in restricted securities and in other assets
having no ready market, but not more than 10%
13
<PAGE>
of its total assets may be invested in such securities or assets; (ii) make
short sales of securities "against the box," but not more than 15% of its net
assets may be deposited on short sales; and (iii) write call options and
purchase and sell put and call options written by others. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices."
GLOBAL STOCK FUNDS
The Global Stock Funds have been designed to enable investors to participate in
the potential for long-term capital appreciation available from investment in
foreign securities.
Alliance International Fund
Alliance International Fund ("International Fund") is a diversified investment
company that seeks a total return on its assets from long-term growth of capital
and from income primarily through a broad portfolio of marketable securities of
established non-U.S. companies, companies participating in foreign economies
with prospects for growth, including U.S. companies having their principal
activities and interests outside the U.S. and foreign government securities.
Normally, more than 80% of the Fund's assets will be invested in such issuers.
The Fund expects to invest primarily in common stocks of established non-U.S.
companies that Alliance believes have potential for capital appreciation or
income or both, but the Fund is not required to invest exclusively in common
stocks or other equity securities, and it may invest in any other type of
investment grade security, including convertible securities, as well as in
warrants, or obligations of the U.S. or foreign governments and their political
subdivisions.
The Fund intends to diversify its investments broadly among countries and
normally invests in at least three foreign countries, although it may invest a
substantial portion of its assets in one or more of such countries. In this
regard, at June 30, 1998, approximately 15% of the Fund's assets were invested
in securities of Japanese issuers. The Fund may invest in companies, wherever
organized, that Alliance judges have their principal activities and interests
outside the U.S. These companies may be located in developing countries, which
involves exposure to economic structures that are generally less diverse and
mature, and to political systems which can be expected to have less stability,
than those of developed countries. The Fund currently does not intend to invest
more than 10% of its total assets in companies in, or governments of, developing
countries.
The Fund may also: (i) purchase or sell forward foreign currency exchange
contracts; (ii) write, sell and purchase U.S. or foreign exchange-listed put and
call options, including exchange-traded index options; (iii) enter into
financial futures contracts, including contracts for the purchase or sale for
future delivery of foreign currencies and stock index futures, and purchase and
write put and call options on futures contracts traded on U.S. or foreign
exchanges or over-the-counter; (iv) purchase and write put options on foreign
currencies traded on securities exchanges or boards of trade or over-the-
counter; (v) lend portfolio securities equal in value to not more than 30% of
its total assets; and (vi) enter into repurchase agreements of up to seven days'
duration, provided that not more than 10% of the Fund's total assets would be so
invested. For additional information on the use, risks and costs of these
policies and practices see "Additional Investment Practices."
Alliance International Premier Growth Fund, Inc.
Alliance International Premier Growth Fund, Inc. ("International Premier Growth
Fund") is a diversified investment company that seeks long term capital
appreciation by investing predominantly in the equity securities of a limited
number of carefully selected non-U.S. companies that are judged likely to
achieve superior earnings growth. Investments will be made based upon their
potential for capital appreciation. Current income is incidental to that
objective.
In the main, the Fund's investments will be in comparatively large, high-quality
companies. Normally, about 60 companies will be represented in the Fund's
portfolio, and the 30 most highly regarded of these companies usually will
constitute approximately 70% of the Fund's net assets. The Fund thus differs
from more typical international equity mutual funds by focusing on a relatively
small number of intensively researched companies. The Fund is designed for
investors seeking to accumulate capital over time. Because of the market risks
inherent in any investment, the selection of securities on the basis of their
appreciation possibilities cannot ensure against possible loss in value, and
there is, of course, no assurance that the Fund's investment objective will be
met.
Alliance expects the average weighted market capitalization of the companies
represented in the Fund's portfolio (i.e., the number of a company's outstanding
shares multiplied by the price per share) normally will be in the range of, or
in excess of, that of the companies comprising the Morgan Stanley Capital
International Europe, Australasia and Far East ("EAFE") Index. As of December
31, 1997, the average weighted market capitalization of those companies was
approximately $2.6 billion.
Within the investment framework described herein, Alliance's Large Cap Growth
Group, headed by Alfred Harrison, Alliance's Vice Chairman, has responsibility
for managing the Fund's portfolio. As discussed below, in selecting the Fund's
portfolio investments Alliance's Large Cap Growth Group will follow a
structured, disciplined research and investment process which is essentially
similar to that which it employs in managing Premier Growth Fund.
In managing the Fund's assets, Alliance's investment strategy will emphasize
stock selection and investment in the securities of a limited number of issuers.
Alliance depends heavily upon the fundamental analysis and research of its large
global equity research team situated in numerous locations around the world. Its
global equity analysts follow a research universe of approximately 900
companies. As one of the largest multinational investment management firms,
Alliance has access to considerable information concerning the companies
14
<PAGE>
in its research universe, an in-depth understanding of the products, services,
markets and competition of these companies and a good knowledge of their
managements. Research emphasis is placed on the identification of companies
whose superior prospective earnings growth is not fully reflected in current
market valuations.
Companies are constantly added to and deleted from this universe as fundamentals
and valuations change. Alliance's global equity analysts rate companies in three
categories. The performance of each analyst's ratings is an important
determinant of his or her incentive compensation. The equity securities of "one-
rated" companies are expected to significantly outperform the local market in
local currency terms. All equity securities purchased for the Fund's portfolio
will be selected from the universe of approximately 100 "one-rated" companies.
As noted above, approximately 70% of the Fund's net assets will usually be
invested in the approximately 30 most highly regarded such companies. The Fund
will not concentrate more than 25% of its total assets in any one industry.
Within this limit, portfolio emphasis upon particular industries or sectors will
be a by-product of the stock selection process rather than the result of
assigned targets or ranges.
The Fund's investments will be diversified among at least four, and usually
considerably more, countries. No more than 15% of the Fund's total assets will
be invested in issuers in any one foreign country, except that the Fund may
invest up to 25% of its total assets in issuers in each of Canada, France,
Germany, Italy, Japan, The Netherlands, Switzerland and the United Kingdom.
Within these limits, geographic distribution of the Fund's investments among
countries or regions will also be a product of the stock selection process
rather than predetermined allocation. To the extent that the Fund's assets will
be concentrated within any one region, the Fund may be subject to any special
risks that may be associated with that region. While the Fund may engage in
currency hedging programs in periods in which Alliance perceives extreme
exchange rate risk, the Fund will not normally make significant use of currency
hedging strategies.
In the management of the Fund's investment portfolio, Alliance will seek to
utilize market volatility judiciously (assuming no change in company
fundamentals) to adjust the Fund's portfolio positions. To the extent consistent
with local market liquidity considerations, the Fund will strive to capitalize
on apparently unwarranted price fluctuations, both to purchase or increase
positions on weakness and to sell or reduce overpriced holdings. Under normal
circumstances, the Fund will remain substantially fully invested in equity
securities and will not take significant cash positions for market timing
purposes. Rather, through "buying into declines" and "selling into strength,"
Alliance seeks superior relative returns over time.
As a matter of fundamental policy, which may not be changed without shareholder
approval, the Fund will invest under normal circumstances at least 85% of the
value of its total assets in equity securities. The Fund's other investment
policies are not fundamental and, therefore, may be changed by the Board of
Directors of the Fund without shareholder approval. For temporary defensive
purposes, the Fund may vary from its investment policies during periods in which
Alliance believes that business or financial conditions warrants, and may then
invest in high-grade short-term fixed-income securities, including U.S.
Government securities, or hold its assets in cash.
The Fund may invest up to 20% of its total assets in convertible securities of
issuers whose common stocks are eligible for purchase by the Fund. The Fund may
also: (i) invest up to 20% of its total assets in rights or warrants; (ii) write
covered put and call options and purchase put and call options on securities of
the types in which it is permitted to invest and on exchange-traded index
options and may also write uncovered options for cross hedging purposes; (iii)
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 common stock and may purchase and write options on such futures
contract: (iv) purchase and write put and call options on foreign currencies for
hedging purposes; (v) purchase or sell forward contracts; (vi) enter into
forward commitments for the purchase or sale of securities; (vii) enter into
standby commitment agreements; (viii) enter into currency swaps for hedging
purposes; (ix) enter into repurchase agreements pertaining to U.S. Government
securities with member banks of the Federal Reserve System or primary dealers in
such securities; (x) make short sales of securities or maintain short positions,
provided that the Fund may not make a short sale if as a result more than 5% of
its net assets would be held as collateral for short sales; and (xi) make
secured loans of its portfolio securities not in excess of 30% of its total
assets to entities with which it is permitted to enter into repurchase
agreements. For additional information on the use, risks and costs of these
policies and practices see "Additional Investment Practices."
Alliance Worldwide Privatization Fund
Alliance Worldwide Privatization Fund, Inc. ("Worldwide Privatization Fund") is
a non-diversified investment company that seeks long-term capital appreciation.
As a fundamental policy, the Fund invests at least 65% of its total assets in
equity securities issued by enterprises that are undergoing, or have undergone,
privatization (as described below), although normally significantly more of its
assets will be invested in such securities. The balance of its investments will
include securities of companies believed by Alliance to be beneficiaries of
privatizations. The Fund is designed for investors desiring to take advantage of
investment opportunities, historically inaccessible to U.S. individual
investors, that are created by privatizations of state enterprises in both
established and developing economies, including those in Western Europe and
Scandinavia, Australia, New Zealand, Latin America, Asia and Eastern and Central
Europe and, to a lesser degree, Canada and the United States.
The Fund's investments in enterprises undergoing privatization may comprise
three distinct situations. First, the Fund may invest in the initial offering of
publicly traded equity securities (an "initial equity offering") of a
government- or state-owned or controlled company or enterprise (a "state
enterprise").
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Secondly, the Fund may purchase securities of a current or former state
enterprise following its initial equity offering. Finally, the Fund may make
privately negotiated purchases of stock or other equity interests in a state
enterprise that has not yet conducted an initial equity offering. Alliance
believes that substantial potential for capital appreciation exists as
privatizing enterprises rationalize their management structures, operations and
business strategies in order to compete efficiently in a market economy, and the
Fund will thus emphasize investments in such enterprises.
The Fund diversifies its investments among a number of countries and normally
invests in issuers based in at least four, and usually considerably more,
countries. No more than 15% of the Fund's total assets, however, will be
invested in issuers in any one foreign country, except that the Fund may invest
up to 30% of its total assets in issuers in any one of France, Germany, Great
Britain, Italy and Japan. The Fund may invest all of its assets within a single
region of the world. To the extent that the Fund's assets are invested within
any one region, the Fund may be subject to any special risks that may be
associated with that region.
Privatization is a process through which the ownership and control of companies
or assets changes in whole or in part from the public sector to the private
sector. Through privatization a government or state divests or transfers all or
a portion of its interest in a state enterprise to some form of private
ownership. Governments and states with established economies, including France,
Great Britain, Germany and Italy, and those with developing economies, including
Argentina, Mexico, Chile, Indonesia, Malaysia, Poland and Hungary, are engaged
in privatizations. The Fund will invest in any country believed to present
attractive investment opportunities.
A major premise of the Fund's approach is that the equity securities of
privatized companies offer opportunities for significant capital appreciation.
In particular, because privatizations are integral to a country's economic
restructuring, securities sold in initial equity offerings often are priced
attractively so as to secure the issuer's successful transition to private
sector ownership. Additionally, these enterprises often dominate their local
markets and typically have the potential for significant managerial and
operational efficiency gains.
Although the Fund anticipates that it will not concentrate its investments in
any industry, it is permitted to invest more than 25% of its total assets in
issuers whose primary business activity is that of national commercial banking.
Prior to so concentrating, however, the Fund's Directors must determine that its
ability to achieve its investment objective would be adversely affected if it
were not permitted to concentrate. The staff of the Commission is of the view
that registered investment companies may not, absent shareholder approval,
change between concentration and non-concentration in a single industry. The
Fund disagrees with the staff's position but has undertaken that it will not
concentrate in the securities of national commercial banks until, if ever, the
issue is resolved. If the Fund were to invest more than 25% of its total assets
in national commercial banks, the Fund's performance could be significantly
influenced by events or conditions affecting this industry, which is subject to,
among other things, increases in interest rates and deteriorations in general
economic conditions, and the Fund's investments may be subject to greater risk
and market fluctuation than if its portfolio represented a broader range of
investments.
The Fund may invest up to 35% of its total assets in debt securities and
convertible debt securities of issuers whose common stocks are eligible for
purchase by the Fund. The Fund may maintain not more than 5% of its net assets
in lower-rated securities. See "Risk Considerations--Securities Ratings" and "--
Investment in Lower-Rated Fixed-Income Securities." The Fund will not retain a
non-convertible security that is downgraded below C or determined by Alliance to
have undergone similar credit quality deterioration following purchase.
The Fund may also: (i) invest up to 20% of its total assets in rights or
warrants; (ii) write covered put and call options and purchase put and call
options on securities of the types in which it is permitted to invest and on
exchange-traded index options; (iii) 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 common stock and may purchase and
write options on future contracts; (iv) purchase and write put and call options
on foreign currencies for hedging purposes; (v) purchase or sell forward
contracts; (vi) enter into forward commitments for the purchase or sale of
securities; (vii) enter into standby commitment agreements; (viii) enter into
currency swaps for hedging purposes; (ix) enter into repurchase agreements
pertaining to U.S. Government securities with member banks of the Federal
Reserve System or primary dealers in such securities; (x) make short sales of
securities or maintain a short position; and (xi) make secured loans of its
portfolio securities not in excess of 30% of its total assets to entities with
which it can enter into repurchase agreements. For additional information on the
use, risks and costs of these policies and practices see "Additional Investment
Practices."
Alliance New Europe Fund
Alliance New Europe Fund, Inc. ("New Europe Fund") is a non-diversified
investment company that seeks long-term capital appreciation through investment
primarily in the equity securities of companies based in Europe. The Fund
intends to invest substantially all of its assets in the equity securities of
European companies and has a fundamental policy of normally investing at least
65% of its total assets in such securities. Up to 35% of its total assets may be
invested in high quality U.S. dollar or foreign currency denominated fixed-
income securities issued or guaranteed by European governmental entities, or by
European or multinational companies or supranational organizations.
Alliance believes that the quickening pace of economic integration and political
change in Europe creates the potential for many European companies to experience
rapid growth and that the emergence of new market economies in Europe and the
broadening and strengthening of other European
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economies may significantly accelerate economic development. The Fund will
invest in companies that Alliance believes possess rapid growth potential. Thus,
the Fund will emphasize investments in larger, established companies, but will
also invest in smaller, emerging companies.
In recent years, economic ties between the former "east bloc" countries of
Eastern Europe and certain other European countries have been strengthened.
Alliance believes that as this strengthening continues, some Western European
financial institutions and other companies will have special opportunities to
facilitate East-West transactions. The Fund will seek investment opportunities
among such companies and, as such become available, within the former "east
bloc," although the Fund will not invest more than 20% of its total assets in
issuers based therein, or more than 10% of its total assets in issuers based in
any one such country.
The Fund diversifies its investments among a number of European countries and,
under normal circumstances, will invest in companies based in at least three
such countries. Subject to the foregoing and to the limitation on investment in
any one former "east bloc" country, the Fund may invest without limit in a
single European country. While the Fund does not intend to concentrate its
investments in a single country, at times 25% or more of its assets may be
invested in issuers located in a single country. During such times, the Fund
would be subject to a correspondingly greater risk of loss due to adverse
political or regulatory developments, or an economic downturn, within that
country. In this regard, at July 31, 1998, approximately 20% of the Fund's
assets were invested in securities of issuers in the United Kingdom.
The Fund may also: (i) invest up to 10% of its total assets in securities for
which there is no ready market; (ii) invest up to 20% of its total assets in
warrants and rights to purchase equity securities of European companies; (iii)
invest in depositary receipts or other securities convertible into securities of
companies based in European countries, debt securities of supranational entities
denominated in the currency of any European country, debt securities denominated
in European Currency Units of an issuer in a European country (including
supranational issuers) and "semi-governmental securities"; (iv) purchase and
sell forward contracts; (v) write, sell and purchase exchange-traded put and
call options, including exchange-traded index options; (vi) enter into financial
futures contracts, including contracts for the purchase or sale for future
delivery of foreign currencies and futures contracts based on stock indices, and
purchase and write options on futures contracts; (vii) purchase and write put
options on foreign currencies traded on securities exchanges or boards of trade
or over-the-counter; (viii) make secured loans of portfolio securities not in
excess of 30% of its total assets to brokers, dealers and financial
institutions; (ix) enter into forward commitments for the purchase or sale of
securities; and (x) enter into standby commitment agreements. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices."
Alliance All-Asia Investment Fund
Alliance All-Asia Investment Fund, Inc. ("All-Asia Investment Fund") is a non-
diversified investment company whose investment objective is to seek long-term
capital appreciation. In seeking to achieve its investment objective, the Fund
will invest at least 65% of its total assets in equity securities (for the
purposes of this investment policy, rights, warrants and options to purchase
common stocks are not deemed to be equity securities), preferred stocks and
equity-linked debt securities issued by Asian companies. The Fund may invest up
to 35% of its total assets in debt securities issued or guaranteed by Asian
companies or by Asian governments, their agencies or instrumentalities. The Fund
may also invest in securities issued by non-Asian issuers, provided that the
Fund will invest at least 80% of its total assets in securities issued by Asian
companies and the Asian debt securities referred to above. The Fund expects to
invest, from time to time, a significant portion, which may be in excess of 50%,
of its assets in equity securities of Japanese companies.
In the past decade, Asian countries generally have experienced a high level of
real economic growth due to political and economic changes, including foreign
investment and reduced government intervention in the economy. Alliance believes
that certain conditions exist in Asian countries which create the potential for
continued rapid economic growth. These conditions include favorable demographics
and competitive wage rates, increasing levels of foreign direct investment,
rising per capita incomes and consumer demand, a high savings rate and numerous
privatization programs. Asian countries are also becoming more industrialized
and are increasing their intra-Asian exports while reducing their dependence on
Western export demand. Alliance believes that these conditions are important to
the long-term economic growth of Asian countries.
As the economies of many Asian countries move through the "emerging market"
stage, thus increasing the supply of goods, services and capital available to
less developed Asian markets and helping to spur economic growth in those
markets, the potential is created for many Asian companies to experience rapid
growth. In addition, many Asian companies the securities of which are listed on
exchanges in more developed Asian countries will be participants in the rapid
economic growth of the lesser developed countries. These companies generally
offer the advantages of more experienced management and more developed market
regulation.
As their economies have grown, the securities markets in Asian countries have
also expanded. New exchanges have been created and the number of listed
companies, annual trading volume and overall market capitalization have
increased significantly. Additionally, new markets continue to open to foreign
investments. For example, South Korea and India have recently relaxed investment
restrictions and Vietnamese direct investments have recently become available to
U.S. investors. The Fund also offers investors the opportunity to access
relatively restricted markets. Alliance believes that investment opportunities
in Asian countries will continue to expand.
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The Fund will invest in companies believed to possess rapid growth potential.
Thus, the Fund will invest in smaller, emerging companies, but will also invest
in larger, more established companies in such growing economic sectors as
capital goods, telecommunications and consumer services.
The Fund will invest in investment grade debt securities, except that the Fund
may maintain not more than 5% of its net assets in lower-rated securities and
lower-rated loans and other lower-rated direct debt instruments. See "Risk
Considerations--Securities Ratings," "--Investment in Lower-Rated Fixed-Income
Securities" and Appendix C in the Fund's Statement of Additional Information for
a description of such ratings. The Fund will not retain a security that is
downgraded below C or determined by Alliance to have undergone similar credit
quality deterioration following purchase.
The Fund may also: (i) invest up to 25% of its net assets in the convertible
securities of companies whose common stocks are eligible for purchase by the
Fund; (ii) invest up to 20% of its net assets in rights or warrants; (iii)
invest in depositary receipts, instruments of supranational entities denominated
in the currency of any country, securities of multinational companies and "semi-
governmental securities;" (iv) invest up to 25% of its net assets in equity-
linked debt securities with the objective of realizing capital appreciation; (v)
invest up to 25% of its net assets in loans and other direct debt instruments;
(vi) write covered put and call options on securities of the types in which it
is permitted to invest and on exchange-traded index options; (vii) 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, securities issued by foreign
government entities, or common stock and may purchase and write options on
future contracts; (viii) purchase and write put and call options on foreign
currencies for hedging purposes; (ix) purchase or sell forward contracts; (x)
enter into interest rate swaps and purchase or sell interest rate caps and
floors; (xi) enter into forward commitments for the purchase or sale of
securities; (xii) enter into standby commitment agreements; (xiii) enter into
currency swaps for hedging purposes; (xiv) enter into repurchase agreements
pertaining to U.S. Government securities with member banks of the Federal
Reserve System or primary dealers in such securities; (xv) make short sales of
securities or maintain a short position, in each case only if "against the box;"
and (xvi) make secured loans of its portfolio securities not in excess of 30% of
its total assets to entities with which it can enter into repurchase agreements.
For additional information on the use, risks and costs of these policies and
practices see "Additional Investment Practices."
Alliance Greater China '97 Fund, Inc.
Alliance Greater China '97 Fund, Inc. ("Greater China '97 Fund") is a non-
diversified investment company that seeks long-term capital appreciation through
investment of at least 80% of its total assets in equity securities issued by
Greater China companies. In furtherance of its investment objective, the Fund
expects to invest a significant portion, which may be greater than 50%, of its
assets in equity securities of Hong Kong companies and may invest, from time to
time, all of its assets in Hong Kong companies or companies of either of the
other Greater China countries.
In recent years, China, Hong Kong and Taiwan have each experienced a high level
of real economic growth, although growth is expected to slow in 1998. This
growth has resulted from advantageous economic conditions, including favorable
demographics, competitive wage rates, and rising per capita income and consumer
demand. Significantly, the growth has also been fueled by an easing by both
China and Taiwan of government restrictions and an increased receptivity to
foreign investment. This expanded, if not yet complete, openness to foreign
investment extends as well to the securities markets of both countries. Hong
Kong's free market economy has historically included securities markets
completely open to foreign investments. All three countries have regulated stock
exchanges upon which shares of an increasing number of Greater China companies
are traded.
With its population estimated at more than 1.2 billion as a driving force, and
notwithstanding its continuing political rigidity, China's economic growth has
been coupled with significantly reduced government economic intervention and
basic economic structural change. Recent years have seen large increases in
industrial production with a significant decline in the state sector share of
industrial output, and increased involvement of local governmental units and the
private sector in establishing new business enterprises.
With China's growth has come an increasing direct and indirect economic
involvement of all three Greater China countries. For some time, Hong Kong, a
world financial and trade center in its own right, with a large stock exchange
and offices of many of the world's multinational companies, has been the
gateway to trade with and foreign investment in China. With the long-awaited
transfer on July 1, 1997 of the sovereignty of Hong Kong from Great Britain to
China, not only the political but the economic ties between China and Hong Kong
are expected to continue to intensify, albeit with the continuation of Hong
Kong's economic system as provided for in the law governing its sovereignty.
Notwithstanding the, at times considerable, political tension between the two
countries, it is generally recognized that substantially increased trade and
investment with China has been generated from Taiwan, in many cases through Hong
Kong. Along with this increased interaction with China, Taiwan is becoming a
regional technological and telecommunication center, while continuing the
process of opening its economy up to foreign investment. Although geographically
limited, Taiwan boasts an economy among the world's twenty largest and its
foreign exchange reserves are third largest in the world measured in U.S.
dollars. As China's economy continues to expand, it is expected that Taiwan's
economic interaction with China will likewise increase.
Alliance believes that over the long term conditions are favorable for
continuing and expanding economic growth in all three Greater China countries.
It is this potential which the
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Fund hopes to take advantage of by investing both in established and new and
emerging companies.
Set forth below under "Certain Considerations and Risks" and in Appendix A to
the Fund's Statement of Additional Information is additional information
concerning the Greater China countries.
In addition to investing in equity securities of Greater China companies, the
Fund may invest up to 20% of its total assets in (i) debt securities issued or
guaranteed by Greater China companies or by Greater China governments, their
agencies or instrumentalities, and (ii) equity or debt securities issued by
issuers other than Greater China companies. The Fund will not invest in debt
securities other than investment grade securities. Should a debt security in
which the Fund is invested be downgraded below investment grade or be determined
by Alliance to have undergone a similar credit quality deterioration, the Fund
will dispose of that security.
The Fund may also: (i) invest up to 25% of its net assets in the convertible
securities of companies whose common stocks are eligible for purchase by the
Fund; (ii) invest up to 20% of its net assets in rights or warrants; (iii)
invest in depositary receipts, instruments of supranational entities denominated
in the currency of any country, securities of multinational companies and "semi-
governmental securities;" (iv) invest up to 25% of its net assets in equity-
linked debt securities with the objective of realizing capital appreciation; (v)
invest up to 20% of its net assets in loans and other direct debt securities;
(vi) write covered put and call options on securities of the types in which it
is permitted to invest and on exchange-traded index options; (vii) 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, securities issued by foreign
government entities, or common stock, and may purchase and write options on
future contracts; (viii) purchase and write put and call options on foreign
currencies for hedging purposes; (ix) purchase or sell forward contracts; (x)
enter into interest rate swaps and purchase or sell interest rate caps and
floors; (xi) enter into forward commitments for the purchase or sale of
securities; (xii) enter into standby commitment agreements; (xiii) enter into
currency swaps for hedging purposes; (xiv) enter into repurchase agreements
pertaining to U.S. Government securities with member banks of the Federal
Reserve System or primary dealers in such securities; (xv) make short sales of
securities or maintain a short position, in each case only if "against the box;"
and (xvi) make secured loans of its portfolio securities not in excess of 30% of
its total assets to entities with which it can enter into repurchase agreements.
All or some of the policies and practices listed above may not be available to
the Fund in the Greater China countries, and the Fund will utilize these
policies only to the extent permissible. For additional information on the use,
risks and costs of these policies and practices see "Additional Investment
Practices."
Alliance Global Small Cap Fund
Alliance Global Small Cap Fund, Inc. ("Global Small Cap Fund") is a diversified
investment company that seeks long-term growth of capital through investment in
a global portfolio of the equity securities of selected companies with
relatively small market capitalization. The Fund's portfolio emphasizes
companies with market capitalizations that would have placed them (when
purchased) in about the smallest 20% by market capitalization of actively traded
U.S. companies, or market capitalizations of up to about $1.5 billion. Because
the Fund applies the U.S. size standard on a global basis, its foreign
investments might rank above the lowest 20%, and, in fact, might in some
countries rank among the largest, by market capitalization in local markets.
Normally, the Fund invests at least 65% of its assets in equity securities of
these smaller capitalization issuers, and these issuers are located in at least
three countries, one of which may be the U.S. Up to 35% of the Fund's total
assets may be invested in securities of companies whose market capitalizations
exceed the Fund's size standard. The Fund's portfolio securities may be listed
on a U.S. or foreign exchange or traded over-the-counter.
Alliance believes that smaller capitalization issuers often have sales and
earnings growth rates exceeding those of larger companies, and that these growth
rates tend to cause more rapid share price appreciation. Investing in smaller
capitalization stocks, however, involves greater risk than is associated with
larger, more established companies. For example, smaller capitalization
companies often have limited product lines, markets, or financial resources.
They may be dependent for management on one or a few key persons, and can be
more susceptible to losses and risks of bankruptcy. Their securities may be
thinly traded (and therefore have to be sold at a discount from current market
prices or sold in small lots over an extended period of time), may be followed
by fewer investment research analysts and may be subject to wider price swings
and thus may create a greater chance of loss than when investing in securities
of larger capitalization companies. Transaction costs in small capitalization
stocks may be higher than in those of larger capitalization companies.
The Fund may also: (i) invest up to 10% of its total assets in securities for
which there is no ready market; (ii) invest up to 20% of its total assets in
warrants to purchase equity securities; (iii) invest in depositary receipts or
other securities representing securities of companies based in countries other
than the U.S.; (iv) purchase or sell forward foreign currency contracts; (v)
write and purchase exchange-traded call options and purchase exchange-traded put
options, including put options on market indices; and (vi) make secured loans of
portfolio securities not in excess of 30% of its total assets to brokers,
dealers and financial institutions. For additional information on the use, risks
and costs of these policies and practices see "Additional Investment Practices."
Alliance Global Environment Fund
Alliance Global Environment Fund, Inc. ("Global Environment Fund") is a non-
diversified investment company that seeks long-term capital appreciation through
investment in equity securities of Eligible Companies. For purposes of the
Fund's investment objective and investment policies, "equity securities" are
common stocks (but not preferred stocks), rights or warrants to subscribe for or
purchase common
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stocks, and preferred stocks or debt securities that are convertible into common
stocks without the payment of any further consideration. Until October 3, 1997,
the Fund operated as a closed-end investment company, and its common stock
(which then comprised a single class) was listed on the Exchange.
The Fund invests in two categories of Eligible Companies--"Environmental
Companies" and "Beneficiary Companies." Environmental Companies are those that
have a principal business involving the sale of systems or services intended to
foster environmental protection, such as waste treatment and disposal,
remediation, air pollution control and recycling. Under normal circumstances,
the Fund invests at least 65% of its total assets in equity securities of
Environmental Companies. Beneficiary Companies are those whose principal
businesses lie outside the environmental sector but nevertheless anticipate
environmental regulations or consumer preferences through the development of new
products, processes or services that are intended to contribute to a cleaner and
healthier environment. Examples of such companies could be companies that
anticipate the demand for plastic substitutes, aerosol substitutes, alternative
fuels and processes that generate less hazardous waste. In this regard, the Fund
may invest in an issuer with a broadly diversified business only a part of which
provides such products, processes or services, when Alliance believes that these
products, processes or services will yield a competitive advantage that
significantly enhances the issuer's growth prospects. As a matter of fundamental
policy, the Fund will, under normal circumstances, invest substantially all of
its total assets in equity securities of Eligible Companies.
A major premise of the Fund's investment approach is that environmental concerns
will be a significant source of future growth opportunities, and that
Environmental Companies will see an increased demand for their systems and
services. Environmental Companies operate in the areas of pollution control,
clean energy, solid waste management, hazardous waste treatment and disposal,
pulp and paper recycling, waste-to-energy alternatives, biodegradable cartons,
packages, plastics and other products, remedial projects and emergency cleanup
efforts, manufacture of environmental supplies and equipment, the achievement of
purer air, groundwater and foods and the detection, evaluation and treatment of
both existing and potential environmental problems including, among others, air
pollution and acid rain.
The environmental services industry is generally positively affected by
increasing governmental action intended to foster environmental protection. As
environmental regulations are developed and enforced, Environmental Companies
providing the means of compliance with such regulations are afforded substantial
opportunities for growth. Beneficiary Companies may also derive an advantage to
the extent that they have anticipated environmental regulation and are therefore
at a competitive advantage.
In the view of Alliance, increasing public and political awareness of
environmental concerns and resultant environmental regulations are long-term
phenomena that are driven by an emerging global consensus that environmental
protection is a vital and increasingly immediate priority. Alliance believes
that Eligible Companies based in the United States and other economically
developed countries will have increasing opportunities for earnings growth
resulting not only from an increased demand for their existing products or
services but also from innovative responses to changing regulations and
priorities and enforcement policies. Such opportunities will arise, in the
opinion of Alliance, not only within developed countries but also within many
economically developing countries, such as those of Eastern Europe and the
Pacific Rim. These countries lag well behind developed countries in the
conservation and efficient use of natural resources and in their implementation
of policies which protect the environment.
Alliance believes that global investing offers opportunities for superior
investment returns. The Fund spreads investment risk among the capital markets
of a number of countries and invests in equity securities of companies based in
at least three, and normally considerably more, such countries. The percentage
of the Fund's assets invested in securities of companies in a particular country
or denominated in a particular currency will vary in accordance with Alliance's
assessment of the appreciation potential of such securities and the strength of
that currency. As of August 31, 1998, approximately 82% of the Fund's net assets
were invested in equity securities of U.S. companies.
The Fund may also: (i) invest up to 20% of its total assets in warrants to
purchase equity securities to the extent consistent with its investment
objective; (ii) invest in depositary receipts; (iii) purchase and write put and
call options on foreign currencies for hedging purposes; (iv) enter into forward
foreign currency transactions for hedging purposes; (v) invest in currency
futures and options on such futures for hedging purposes; and (vi) make secured
loans of its portfolio securities not in excess of 30% of its total assets. For
additional information on the use, risks and costs of these policies and
practices see "Additional Investment Practices."
TOTAL RETURN FUNDS
The Total Return Funds have been designed to provide a range of investment
alternatives to investors seeking both growth of capital and current income.
Alliance Balanced Shares
Alliance Balanced Shares, Inc. ("Balanced Shares") is a diversified investment
company that seeks a high return through a combination of current income and
capital appreciation. Although the Fund's investment objective is not
fundamental, the Fund is a "balanced fund" as a matter of fundamental policy.
The Fund will not purchase a security if as a result less than 25% of its total
assets will be in fixed-income senior securities (including short- and long-term
debt securities, preferred stocks, and convertible debt securities and
convertible preferred stocks to the extent that their values are attributable to
their fixed-income characteristics). Subject to these restrictions, the
percentage of the Fund's assets invested in each type of security will vary. The
Fund's assets are invested in U.S. Government securities, bonds,
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senior debt securities and preferred and common stocks in such proportions and
of such type as are deemed best adapted to the current economic and market
outlooks. The Fund may invest up to 15% of the value of its total assets in
foreign equity and fixed-income securities eligible for purchase by the Fund
under its investment policies described above. See "Risk Considerations--Foreign
Investment."
The Fund may also: (i) enter into contracts for the purchase or sale for future
delivery of foreign currencies; and (ii) purchase and write put and call options
on foreign currencies and enter into forward foreign currency exchange contracts
for hedging purposes. Subject to market conditions, the Fund may also seek to
realize income by writing covered call options listed on a domestic exchange.
For additional information on the use, risks and costs of these policies and
practices see "Additional Investment Practices."
Alliance Utility Income Fund
Alliance Utility Income Fund, Inc. ("Utility Income Fund") is a diversified
investment company that seeks current income and capital appreciation by
investing primarily in equity and fixed-income securities of companies in the
utilities industry. The Fund may invest in securities of both U.S. and foreign
issuers, although no more than 15% of the Fund's total assets will be invested
in issuers in any one foreign country. The utilities industry consists of
companies engaged in (i) the manufacture, production, generation, provision,
transmission, sale and distribution of gas and electric energy, and
communications equipment and services, including telephone, telegraph,
satellite, microwave and other companies providing communication facilities for
the public, or (ii) the provision of other utility or utility-related goods and
services, including, but not limited to, entities engaged in water provision,
cogeneration, waste disposal system provision, solid waste electric generation,
independent power producers and non-utility generators. The Fund is designed to
take advantage of the characteristics and historical performance of securities
of utility companies, many of which pay regular dividends and increase their
common stock dividends over time. As a fundamental policy, the Fund normally
invests at least 65% of its total assets in securities of companies in the
utilities industry. The Fund considers a company to be in the utilities industry
if, during the most recent twelve-month period, at least 50% of the company's
gross revenues, on a consolidated basis, were derived from its utilities
activities.
At least 65% of the Fund's total assets are invested in income-producing
securities, but there is otherwise no limit on the allocation of the Fund's
investments between equity securities and fixed-income securities. The Fund may
maintain up to 35% of its net assets in lower-rated securities. See "Risk
Considerations--Securities Ratings" and "--Investment in Lower-Rated Fixed-
Income Securities." The Fund will not retain a security that is downgraded below
B or determined by Alliance to have undergone similar credit quality
deterioration following purchase.
The United States utilities industry has experienced significant changes in
recent years. Electric utility companies in general have been favorably affected
by lower fuel costs, the full or near completion of major construction programs
and lower financing costs. In addition, many utility companies have generated
cash flows in excess of current operating expenses and construction
expenditures, permitting some degree of diversification into unregulated
businesses. Regulatory changes with respect to nuclear and conventionally fueled
generating facilities, however, could increase costs or impair the ability of
such electric utilities to operate such facilities, thus reducing their ability
to service dividend payments with respect to the securities they issue.
Furthermore, rates of return of utility companies generally are subject to
review and limitation by state public utilities commissions and tend to
fluctuate with marginal financing costs. Rate changes, however, ordinarily lag
behind the changes in financing costs, and thus can favorably or unfavorably
affect the earnings or dividend pay-outs on utilities stocks depending upon
whether such rates and costs are declining or rising.
Gas transmission companies, gas distribution companies and telecommunications
companies are also undergoing significant changes. Gas utilities have been
adversely affected by declines in the prices of alternative fuels, and have also
been affected by oversupply conditions and competition. Telephone utilities are
still experiencing the effects of the break-up of American Telephone & Telegraph
Company, including increased competition and rapidly developing technologies
with which traditional telephone companies now compete. Although there can be no
assurance that increased competition and other structural changes will not
adversely affect the profitability of such utilities, or that other negative
factors will not develop in the future, in Alliance's opinion, increased
competition and change may provide better positioned utility companies with
opportunities for enhanced profitability.
Utility companies historically have been subject to the risks of increases in
fuel and other operating costs, high interest costs, costs associated with
compliance with environmental and nuclear safety regulations, service
interruptions, economic slowdowns, surplus capacity, competition and regulatory
changes. There can also be no assurance that regulatory policies or accounting
standards changes will not negatively affect utility companies' earnings or
dividends. Utility companies are subject to regulation by various authorities
and may be affected by the imposition of special tariffs and changes in tax
laws. To the extent that rates are established or reviewed by governmental
authorities, utility companies are subject to the risk that such authorities
will not authorize increased rates. Because of the Fund's policy of
concentrating its investments in utility companies, the Fund is more susceptible
than most other mutual funds to economic, political or regulatory occurrences
affecting the utilities industry.
Foreign utility companies, like those in the U.S., are generally subject to
regulation, although such regulations may or may not be comparable to domestic
regulations. Foreign utility companies in certain countries may be more heavily
regulated by their respective governments than utility companies located in the
U.S. and, as in the U.S., generally are required to seek government
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approval for rate increases. In addition, because many foreign utility companies
use fuels that cause more pollution than those used in the U.S., such utilities
may yet be required to invest in pollution control equipment. Foreign utility
regulatory systems vary from country to country and may evolve in ways different
from regulation in the U.S. The percentage of the Fund's assets invested in
issuers of particular countries will vary. See "Risk Considerations--Foreign
Investment."
The Fund may invest up to 35% of its total assets in equity and fixed-income
securities of domestic and foreign corporate and governmental issuers other than
utility companies, including U.S. Government securities and repurchase
agreements pertaining thereto, foreign government securities, corporate fixed-
income securities of domestic issuers, corporate fixed-income securities of
foreign issuers denominated in foreign currencies or in U.S. dollars (in each
case including fixed-income securities of an issuer in one country denominated
in the currency of another country), qualifying bank deposits and prime
commercial paper.
The Fund may also: (i) invest up to 30% of its net assets in the convertible
securities of companies whose common stocks are eligible for purchase by the
Fund; (ii) invest up to 5% of its net assets in rights or warrants; (iii) invest
in depositary receipts, securities of supranational entities denominated in the
currency of any country, securities denominated in European Currency Units and
"semi-governmental securities;" (iv) write covered put and call options and
purchase put and call options on securities of the types in which it is
permitted to invest that are exchange-traded and over-the-counter; (v) purchase
and sell exchange-traded options on any securities index composed of the types
of securities in which it may invest; (vi) 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 an index of U.S. Government
securities, foreign government securities, corporate fixed-income securities, or
common stock, and may purchase and write options on futures contracts; (vii)
purchase and write put and call options on foreign currencies traded on U.S. and
foreign exchanges or over-the-counter for hedging purposes; (viii) purchase or
sell forward contracts; (ix) enter into interest rate swaps and purchase or sell
interest rate caps and floors; (x) enter into forward commitments for the
purchase or sale of securities; (xi) enter into standby commitment agreements;
(xii) enter into repurchase agreements pertaining to U.S. Government securities
with member banks of the Federal Reserve System or primary dealers in such
securities; (xiii) make short sales of securities or maintain a short position
as described below under "Additional Investment Practices--Short Sales;" and
(xiv) make secured loans of its portfolio securities not in excess of 20% of its
total assets to brokers, dealers and financial institutions. For additional
information on the use, risks and costs of these policies and practices, see
"Additional Investment Practices."
Alliance Growth and Income Fund
Alliance Growth and Income Fund, Inc. ("Growth and Income Fund") is a
diversified investment company that seeks appreciation through investments
primarily in dividend-paying common stocks of good quality, although it is
permitted to invest in fixed-income securities and convertible securities.
The Fund may also try to realize income by writing covered call options listed
on domestic securities exchanges. The Fund also invests in foreign securities.
Since the purchase of foreign securities entails certain political and economic
risks, the Fund has restricted its investments in securities in this category to
issues of high quality. The Fund may also purchase and sell financial forward
and futures contracts and options thereon for hedging purposes. For additional
information on the use, risks and costs of these policies and practice see
"Additional Investment Practices."
Alliance Real Estate Investment Fund
Alliance Real Estate Investment Fund, Inc. ("Real Estate Investment Fund") is a
diversified investment company that seeks a total return on its assets from
long-term growth of capital and from income principally through investing in a
portfolio of equity securities of issuers that are primarily engaged in or
related to the real estate industry.
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in equity securities of real estate investment trusts ("REITs") and
other real estate industry companies. A "real estate industry company" is a
company that derives at least 50% of its gross revenues or net profits from the
ownership, development, construction, financing, management or sale of
commercial, industrial or residential real estate or interests therein. The
equity securities in which the Fund will invest for this purpose consist of
common stock, shares of beneficial interest of REITs and securities with common
stock characteristics, such as preferred stock or convertible securities ("Real
Estate Equity Securities").
The Fund may invest up to 35% of its total assets in (a) securities that
directly or indirectly represent participations in, or are collateralized by and
payable from, mortgage loans secured by real property ("Mortgage-Backed
Securities"), such as mortgage pass-through certificates, real estate mortgage
investment conduit ("REMIC") certificates and collateralized mortgage
obligations ("CMOs") and (b) short-term investments. These instruments are
described below. The risks associated with the Fund's transactions in REMICs,
CMOs and other types of mortgage-backed securities, which are considered to be
derivative securities, may include some or all of the following: market risk,
leverage and volatility risk, correlation risk, credit risk and liquidity and
valuation risk. See "Risk Considerations" for a description of these and other
risks.
As to any investment in Real Estate Equity Securities, Alliance's analysis will
focus on determining the degree to which the company involved can achieve
sustainable growth in cash flow and dividend paying capability. Alliance
believes that the primary determinant of this capability is the economic
viability of property markets in which the company operates and that the
secondary determinant of this capability is the ability of management to add
value through strategic focus and operating expertise. The Fund will
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purchase Real Estate Equity Securities when, in the judgment of Alliance, their
market price does not adequately reflect this potential. In making this
determination, Alliance will take into account fundamental trends in underlying
property markets as determined by proprietary models, site visits conducted by
individuals knowledgeable in local real estate markets, price-earnings ratios
(as defined for real estate companies), cash flow growth and stability, the
relationship between asset value and market price of the securities, dividend
payment history, and such other factors which Alliance may determine from time
to time to be relevant. Alliance will attempt to purchase for the Fund Real
Estate Equity Securities of companies whose underlying portfolios are
diversified geographically and by property type.
The Fund may invest without limitation in shares of REITs. REITs are pooled
investment vehicles which invest primarily in income producing real estate or
real estate related loans or interests. REITs are generally classified as equity
REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity
REITs invest the majority of their assets directly in real property and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. Similar to investment companies
such as the Fund, REITs are not taxed on income distributed to shareholders
provided they comply with several requirements of the Code. The Fund will
indirectly bear its proportionate share of expenses incurred by REITs in which
the Fund invests in addition to the expenses incurred directly by the Fund.
Investment Process for Real Estate Equity Securities. The Fund's investment
strategy with respect to Real Estate Equity Securities is based on the premise
that property market fundamentals are the primary determinant of growth
underlying the performance of Real Estate Equity Securities. Value added
management further distinguishes the most attractive Real Estate Equity
Securities. The Fund's research and investment process is designed to identify
those companies with strong property fundamentals and strong management teams.
This process is comprised of real estate market research, specific property
inspection and securities analysis. Alliance believes that this process will
result in a portfolio that will consist of Real Estate Equity Securities of
companies that own assets in the most desirable markets across the country,
diversified geographically and by property type.
In implementing the Fund's research and investment process, Alliance will avail
itself of the consulting services of CB Richard Ellis, Inc. ("CBRE"), a publicly
held company and the largest real estate services company in the United States,
comprised of real estate brokerage, property and facilities management, and real
estate finance and investment advisory activities. In 1997, CBRE completed
22,100 sale and lease transactions, managed over 6,600 client properties,
created over $5 billion in mortgage originations, and completed over 3,600
appraisal and consulting assignments. In addition, it advised and managed for
institutions over $4 billion in real estate investments. As consultant to
Alliance, CBRE provides access to its proprietary model, REIT.Score, that
analyzes the approximately 18,000 properties owned by these 142 companies. Using
proprietary databases and algorithms, CBRE analyzes local market rent, expense,
and occupancy trends, market specific transaction pricing, demographic and
economic trends, and leading indicators of real estate supply such as building
permits. Over 1,000 asset-type specific geographic markets are analyzed and
ranked on a relative scale by CBRE in compiling its REIT.Score database. The
relative attractiveness of these real estate industry companies is similarly
ranked based on the composite rankings of the properties they own. See
"Management of the Funds--Consultant to Alliance with Respect to Investment in
Real Estate Securities" for more information about CBRE.
The universe of property-owning real estate industry firms consists of
approximately 142 companies of sufficient size and quality to merit
consideration for investment by the Fund. Once the universe of real estate
industry companies has been distilled through the market research process,
CBRE's local market presence provides the capability to perform site specific
inspections of key properties. This analysis examines specific location,
condition, and sub-market trends. CBRE's use of locally based real estate
professionals provides Alliance with a window on the operations of the portfolio
companies as information can immediately be put in the context of local market
events. Only those companies whose specific property portfolios reflect the
promise of their general markets will be considered for initial and continued
investment by the Fund.
Alliance further screens the universe of real estate industry companies by using
rigorous financial models and by engaging in regular contact with management of
targeted companies. Each management's strategic plan and ability to execute the
plan are determined and analyzed. Alliance will make extensive use of CBRE's
network of industry analysts in order to assess trends in tenant industries.
This information is then used to further interpret management's strategic plans.
Financial ratio analysis is used to isolate those companies with the ability to
make value-added acquisitions. This information is combined with property market
trends and used to project future earnings potential.
The short-term investments in which Real Estate Investment Fund may invest are:
corporate commercial paper and other short-term commercial obligations, in each
case rated or issued by companies with similar securities outstanding that are
rated Prime-1, Aa or better by Moody's or A-1, AA or better by S&P; obligations
(including certificates of deposit, time deposits, demand deposits and bankers'
acceptances) of banks with securities outstanding that are rated Prime-1, Aa or
better by Moody's or A-1, AA or better by S&P; and obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities with
remaining maturities not exceeding 18 months.
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The Fund may invest in debt securities rated BBB or higher by S&P or Baa or
higher by Moody's or, if not so rated, of equivalent credit quality as
determined by Alliance. The Fund expects that it will not retain a debt security
which is downgraded below BBB or Baa or, if unrated, determined by Alliance to
have undergone similar credit quality deterioration, subsequent to purchase by
the Fund.
The Fund may also engage in the following investment practices to the extent
indicated: (i) invest up to 10% of its net assets in rights or warrants; (ii)
invest up to 15% of its net assets in the convertible securities of companies
whose common stocks are eligible for purchase by the Fund; (iii) lend portfolio
securities equal in value to not more than 25% of total assets; (iv) enter into
repurchase agreements of up to seven days' duration; (v) enter into forward
commitments transactions as long as the Fund's aggregate commitments under such
transactions are not more than 30% of the Fund's total assets; (vi) enter into
standby commitment agreements; (vii) make short sales of securities or maintain
a short position but only if at all times when a short position is open not more
than 25% of the Fund's net assets (taken at market value) is held as collateral
for such sales; and (viii) invest in illiquid securities unless, as a result,
more than 15% of its net assets would be so invested.
ADDITIONAL INVESTMENT PRACTICES
Some or all of the Funds may engage in the following investment practices to the
extent described above.
Convertible Securities. Prior to conversion, convertible securities have the
same general characteristics as non-convertible debt securities, which generally
provide a stable stream of income with yields that are generally higher than
those of equity securities of the same or similar issuers. The price of a
convertible security will normally vary with changes in the price of the
underlying equity security, although the higher yield tends to make the
convertible security less volatile than the underlying equity security. As with
debt securities, the market value of convertible securities tends to decrease as
interest rates rise and increase as interest rates decline. While convertible
securities generally offer lower interest or dividend yields than non-
convertible debt securities of similar quality, they offer investors the
potential to benefit from increases in the market price of the underlying common
stock. Convertible debt securities that are rated Baa or lower by Moody's or BBB
or lower by S&P, Duff & Phelps or Fitch and comparable unrated securities as
determined by Alliance may share some or all of the risks of non-convertible
debt securities with those ratings. For a description of these risks, see "Risk
Considerations--Securities Ratings" and "--Investment in Lower-Rated Fixed-
Income Securities."
Rights and Warrants. A Fund will invest in rights or warrants only if the
underlying equity securities themselves are deemed appropriate by Alliance for
inclusion in the Fund's portfolio.
Rights and warrants entitle the holder to buy equity securities at a specific
price for a specific period of time. Rights are similar to warrants except that
they have a substantially shorter duration. Rights and warrants may be
considered more speculative than certain other types of investments in that they
do not entitle a holder to dividends or voting rights with respect to the
underlying securities nor do they represent any rights in the assets of the
issuing company. The value of a right or warrant does not necessarily change
with the value of the underlying security, although the value of a right or
warrant may decline because of a decrease in the value of the underlying
security, the passage of time or a change in perception as to the potential of
the underlying security, or any combination thereof. If the market price of the
underlying security is below the exercise price set forth in the warrant on the
expiration date, the warrant will expire worthless. Moreover, a right or warrant
ceases to have value if it is not exercised prior to the expiration date.
Depositary Receipts and Securities of Supranational Entities. Depositary
receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. In addition, the issuers
of the stock of unsponsored depositary receipts are not obligated to disclose
material information in the United States and, therefore, there may not be a
correlation between such information and the market value of the depositary
receipts. ADRs are depositary receipts typically issued by a U.S. bank or trust
company that evidence ownership of underlying securities issued by a foreign
corporation. GDRs and other types of depositary receipts are typically issued by
foreign banks or trust companies and evidence ownership of underlying securities
issued by either a foreign or a U.S. company. Generally, depositary receipts in
registered form are designed for use in the U.S. securities markets, and
depositary receipts in bearer form are designed for use in foreign securities
markets. For purposes of determining the country of issuance, investments in
depositary receipts of either type are deemed to be investments in the
underlying securities except with respect to Growth Fund, where investments in
ADRs are deemed to be investments in securities issued by U.S. issuers and those
in GDRs and other types of depositary receipts are deemed to be investments in
the underlying securities.
A supranational entity is an entity designated or supported by the national
government of one or more countries to promote economic reconstruction or
development. Examples of supranational entities include, among others, the World
Bank (International Bank for Reconstruction and Development) and the European
Investment Bank. A European Currency Unit is a basket of specified amounts of
the currencies of the member states of the European Economic Community. "Semi-
governmental securities" are securities issued by entities owned by either a
national, state or equivalent government or are obligations of one of such
government jurisdictions which are not backed by its full faith and credit and
general taxing powers.
Mortgage-Backed Securities. Interest and principal payments (including
prepayments) on the mortgages underlying mortgage-backed securities are passed
through to the holders of the securities. As a result of the pass-through of
prepayments of principal on the underlying securities, mortgage-backed
securities are often subject to more rapid prepayment of principal than their
stated maturity would
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indicate. Prepayments occur when the mortgagor on a mortgage prepays the
remaining principal before the mortgage's scheduled maturity date. Because the
prepayment characteristics of the underlying mortgages vary, it is impossible to
predict accurately the realized yield or average life of a particular issue of
pass-through certificates. Prepayments are important because of their effect on
the yield and price of the mortgage-backed securities. During periods of
declining interest rates, prepayments can be expected to accelerate and a Fund
investing in such securities would be required to reinvest the proceeds at the
lower interest rates then available. Conversely, during periods of rising
interest rates, a reduction in prepayments may increase the effective maturity
of the securities, subjecting them to a greater risk of decline in market value
in response to rising interest rates. In addition, prepayments of mortgages
underlying securities purchased at a premium could result in capital losses.
Adjustable Rate Securities. Adjustable rate securities have interest rates that
are reset at periodic intervals, usually by reference to some interest rate
index or market interest rate. Some adjustable rate securities are backed by
pools of mortgage loans. Although the rate-adjustment feature may reduce sharp
changes in the value of adjustable rate securities, these securities can change
in value based on changes in market interest rates or the issuer's
creditworthiness. Changes in the interest rate on adjustable rate securities may
lag behind changes in prevailing market interest rates. Also, some adjustable
rate securities (or the underlying mortgages) are subject to caps or floors that
limit the maximum change in interest rate.
Asset-Backed Securities. Asset-backed securities (unrelated to first mortgage
loans) represent fractional interests in pools of leases, retail installment
loans, revolving credit receivables and other payment obligations, both secured
and unsecured. These assets are generally held by a trust and payments of
principal and interest or interest only are passed through monthly or quarterly
to certificate holders and may be guaranteed up to certain amounts by letters of
credit issued by a financial institution affiliated or unaffiliated with the
trustee or originator of the trust.
Like mortgages underlying mortgage-backed securities, underlying automobile
sales contracts or credit card receivables are subject to prepayment, which may
reduce the overall return to certificate holders. Certificate holders may also
experience delays in payment on the certificates if the full amounts due on
underlying sales contracts or receivables are not realized by the trust because
of unanticipated legal or administrative costs of enforcing the contracts or
because of depreciation or damage to the collateral (usually automobiles)
securing certain contracts, or other factors.
Zero-Coupon and Payment-in-Kind Bonds. Zero-coupon bonds are issued at a
significant discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer to make current interest
payments on the bonds in additional bonds. Because zero-coupon bonds and
payment-in-kind bonds do not pay current interest in cash, their value is
generally subject to greater fluctuation in response to changes in market
interest rates than bonds that pay interest in cash currently. Both zero-coupon
and payment-in-kind bonds allow an issuer to avoid the need to generate cash to
meet current interest payments. Accordingly, such bonds may involve greater
credit risks than bonds paying interest currently. Even though such bonds do not
pay current interest in cash, a Fund is nonetheless required to accrue interest
income on such investments and to distribute such amounts at least annually to
shareholders. Thus, a Fund could be required at times to liquidate other
investments in order to satisfy its dividend requirements.
Equity-Linked Debt Securities. Equity-linked debt securities are securities with
respect to which the amount of interest and/or principal that the issuer thereof
is obligated to pay is linked to the performance of a specified index of equity
securities. Such amount may be significantly greater or less than payment
obligations in respect of other types of debt securities. Adverse changes in
equity securities indices and other adverse changes in the securities markets
may reduce payments made under, and/or the principal of, equity-linked debt
securities held by a Fund. Furthermore, as with any debt securities, the values
of equity-linked debt securities will generally vary inversely with changes in
interest rates. A Fund's ability to dispose of equity-linked debt securities
will depend on the availability of liquid markets for such securities.
Investment in equity-linked debt securities may be considered to be speculative.
As with other securities, a Fund could lose its entire investment in equity-
linked debt securities.
Loans and Other Direct Debt Instruments. Loans and other direct debt instruments
are interests in amounts owed by a corporate, governmental or other borrower to
another party. They may represent amounts owed to lenders or lending syndicates
(loans and loan participations), to suppliers of goods or services (trade claims
or other receivables), or to other creditors. Direct debt instruments involve
the risk of loss in case of default or insolvency of the borrower and may offer
less legal protection to a Fund in the event of fraud or misrepresentation
than debt securities. In addition, loan participations involve a risk of
insolvency of the lending bank or other financial intermediary. Direct debt
instruments may also include standby financing commitments that obligate a
Fund to supply additional cash to the borrower on demand. Loans and other direct
debt instruments are generally illiquid and may be transferred only through
individually negotiated private transactions.
Purchasers of loans and other forms of direct indebtedness depend primarily upon
the creditworthiness of the borrower for payment of principal and interest.
Direct debt instruments may not be rated by any nationally recognized rating
service. If a Fund does not receive scheduled interest or principal payments on
such indebtedness, the Fund's share price and yield could be adversely affected.
Loans that are fully secured offer a Fund more protection than unsecured loans
in the event of non-payment of scheduled interest or principal. However, there
is no assurance that the liquidation of collateral from a
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secured loan would satisfy the borrower's obligation, or that the collateral can
be liquidated. Making loans to borrowers whose creditworthiness is poor may
involve substantial risks, and may be highly speculative.
Borrowers that are in bankruptcy or restructuring may never pay off their
indebtedness, or may pay only a small fraction of the amount owed. Direct
indebtedness of Asian countries and Greater China countries will also involve a
risk that the governmental entities responsible for the repayment of the debt
may be unable, or unwilling, to pay interest and repay principal when due.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to a Fund. For
example, if a loan is foreclosed, a Fund could become part owner of any
collateral, and would bear the costs and liabilities associated with owning and
disposing of the collateral. Direct debt instruments may also involve a risk of
insolvency of the lending bank or other intermediary.
A loan is often administered by a bank or other financial institution that acts
as agent for all holders. The agent administers the terms of the loan, as
specified on the loan agreement. Unless, under the terms of the loan or other
indebtedness, a Fund has direct recourse against the borrower, it may have to
rely on the agent to apply appropriate credit remedies against a borrower. If
assets held by the agent for the benefit of a Fund were determined to be
subject to the claims of the agent's general creditors, the Fund might incur
certain costs and delays in realizing payment on the loan or loan participation
and could suffer a loss of principal or interest.
Direct indebtedness purchased by a Fund may include letters of credit,
revolving credit facilities, or other standby financing commitments obligating
a Fund to pay additional cash on demand. These commitments may have the effect
of requiring a Fund to increase its investment in a borrower at a time when it
would not otherwise have done so, even if the borrower's condition makes it
unlikely that the amount will ever be repaid. Greater China '97 Fund will not
invest in lower-rated loans and other lower-rated direct debt instruments.
Mortgage-Backed Securities and Associated Risks. Mortgage-Backed Securities
include mortgage pass-through certificates and multiple-class pass-through
securities, such as REMIC pass-through certificates, CMOs and stripped mortgage-
backed securities ("SMBS"), and other types of Mortgage-Backed Securities that
may be available in the future.
Guaranteed Mortgage Pass-Through Securities. Real Estate Investment Fund may
invest in guaranteed mortgage pass-through securities which represent
participation interests in pools of residential mortgage loans and are issued by
U.S. governmental or private lenders and guaranteed by the U.S. Government or
one of its agencies or instrumentalities, including but not limited to the
Government National Mortgage Association ("Ginnie Mae"), the Federal National
Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage
Corporation ("Freddie Mac"). Ginnie Mae certificates are guaranteed by the full
faith and credit of the United States Government for timely payment of principal
and interest on the certificates. Fannie Mae certificates are guaranteed by
Fannie Mae, a federally chartered and privately-owned corporation for full and
timely payment of principal and interest on the certificates. Freddie Mac
certificates are guaranteed by Freddie Mac, a corporate instrumentality of the
United States Government, for timely payment of interest and the ultimate
collection of all principal of the related mortgage loans.
Multiple-Class Pass-Through Securities and Collateralized Mortgage Obligations.
Mortgage-Backed Securities also include CMOs and REMIC pass-through or
participation certificates, which may be issued by, among others, U.S.
Government agencies and instrumentalities as well as private lenders. CMOs and
REMIC certificates are issued in multiple classes and the principal of and
interest on the mortgage assets may be allocated among the several classes of
CMOs or REMIC certificates in various ways. Each class of CMOs or REMIC
certificates, often referred to as a "tranche," is issued at a specific
adjustable or fixed interest rate and must be fully retired no later than its
final distribution date. Generally, interest is paid or accrues on all classes
of CMOs or REMIC certificates on a monthly basis. Real Estate Investment Fund
will not invest in the lowest tranche of CMOs and REMIC certificates.
Typically, CMOs are collateralized by Ginnie Mae or Freddie Mac certificates but
also may be collateralized by other mortgage assets such as whole loans or
private mortgage pass-through securities. Debt service on CMOs is provided from
payments of principal and interest on collateral of mortgaged assets and any
reinvestment income thereon.
A REMIC is a CMO that qualifies for special tax treatment under the Code and
invests in certain mortgages primarily secured by interests in real property and
other permitted investments. Investors may purchase "regular" and "residual"
interest shares of beneficial interest in REMIC trusts although Real Estate
Investment Fund does not intend to invest in residual interests.
Risks. Investing in Mortgage-Backed Securities involves certain unique risks in
addition to those generally associated with investing in the real estate
industry in general. These unique risks include the failure of a counterparty to
meet its commitments, adverse interest rate changes and the effects of
prepayments on mortgage cash flows. See "Risk Considerations--Mortgage-Backed
Securities" for a more complete description of the characteristics of Mortgage-
Backed Securities and associated risks.
Illiquid Securities. Subject to any more restrictive applicable fundamental
investment policy, none of the Funds will maintain more than 15% of its net
assets in illiquid securities. Illiquid securities generally include (i) direct
placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
when trading in the security is suspended or, in the case of unlisted
securities, when market makers do not exist or will not entertain bids or
offers), including many individually
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negotiated currency swaps and any assets used to cover currency swaps and most
privately negotiated investments in state enterprises that have not yet
conducted an initial equity offering, (ii) over-the-counter options and assets
used to cover over-the-counter options, and (iii) repurchase agreements not
terminable within seven days.
Because of the absence of a trading market for illiquid securities, a Fund may
not be able to realize their full value upon sale. With respect to each Fund
that may invest in such securities, Alliance will monitor their illiquidity
under the supervision of the Directors of the Fund. To the extent permitted by
applicable law, Rule 144A securities will not be treated as "illiquid" for
purposes of the foregoing restriction so long as such securities meet liquidity
guidelines established by a Fund's Directors. Investment in non-publicly traded
securities by Growth Fund is restricted to 5% of its total assets (not including
for these purposes Rule 144A securities, to the extent permitted by applicable
law) and is also subject to the 15% restriction on investment in illiquid
securities described above.
A Fund that invests in securities for which there is no ready market may
therefore not be able to readily sell such securities. Such securities are
unlike securities which are traded in the open market and which can be expected
to be sold immediately if the market is adequate. The sale price of illiquid
securities may be lower or higher than Alliance's most recent estimate of their
fair value. Generally, less public information is available with respect to the
issuers of such securities than with respect to companies whose securities are
traded on an exchange. To the extent that these securities are foreign
securities, there is no law in many of the countries in which a Fund may invest
similar to the Securities Act requiring an issuer to register the sale of
securities with a governmental agency or imposing legal restrictions on resales
of securities, either as to length of time the securities may be held or manner
of resale. However, there may be contractual restrictions on resales of
securities.
Options on Securities. An option gives the purchaser of the option, upon payment
of a premium, the right to deliver to (in the case of a put) or receive from (in
the case of a call) the writer a specified amount of a security on or before a
fixed date at a predetermined price. A call option written by a Fund is
"covered" if the Fund owns the underlying security, has an absolute and
immediate right to acquire that security upon conversion or exchange of another
security it holds, or holds a call option on the underlying security with an
exercise price equal to or less than that of the call option it has written. A
put option written by a Fund is covered if the Fund holds a put option on the
underlying securities with an exercise price equal to or greater than that of
the put option it has written.
A call option is for cross-hedging purposes if a Fund does not own the
underlying security, and is designed to provide a hedge against a decline in
value in another security which the Fund owns or has the right to acquire.
Worldwide Privatization Fund, All-Asia Investment Fund, Greater China '97 Fund,
International Premier Growth Fund and Utility Income Fund each may write call
options for cross-hedging purposes. A Fund would write a call option for cross-
hedging purposes, instead of writing a covered call option, when the premium to
be received from the cross-hedge transaction would exceed that which would be
received from writing a covered call option, while at the same time achieving
the desired hedge.
In purchasing an option, a Fund would be in a position to realize a gain if,
during the option period, the price of the underlying security increased (in the
case of a call) or decreased (in the case of a put) by an amount in excess of
the premium paid; otherwise the Fund would experience a loss equal to the
premium paid for the option.
If an option written by a Fund were exercised, the Fund would be obligated to
purchase (in the case of a put) or sell (in the case of a call) the underlying
security at the exercise price. The risk involved in writing an option is that,
if the option were exercised, the underlying security would then be purchased or
sold by the Fund at a disadvantageous price. These risks could be reduced by
entering into a closing transaction (i.e., by disposing of the option prior to
its exercise). A Fund retains the premium received from writing a put or call
option whether or not the option is exercised. The writing of covered call
options could result in increases in a Fund's portfolio turnover rate,
especially during periods when market prices of the underlying securities
appreciate.
Technology Fund, Quasar Fund, International Fund, New Europe Fund and Global
Small Cap Fund will not write uncovered call options. Technology Fund and Global
Small Cap Fund will not write a call option if the premium to be received by the
Fund in doing so would not produce an annualized return of at least 15% of the
then current market value of the securities subject to the option (without
giving effect to commissions, stock transfer taxes and other expenses that are
deducted from premium receipts). Technology Fund, Quasar Fund and Global Small
Cap Fund will not write a call option if, as a result, the aggregate of the
Fund's portfolio securities subject to outstanding call options (valued at the
lower of the option price or market value of such securities) would exceed 15%
of the Fund's total assets or more than 10% of the Fund's assets would be
committed to call options that at the time of sale have a remaining term of more
than 100 days. The aggregate cost of all outstanding options purchased and held
by each of Premier Growth Fund, Technology Fund, Quasar Fund and Global Small
Cap Fund will at no time exceed 10% of the Fund's total assets. Neither
International Fund nor New Europe Fund will write uncovered put options.
A Fund that purchases or writes options on securities in privately negotiated
(i.e., over-the-counter) transactions will effect such transactions only with
investment dealers and other financial institutions (such as commercial banks or
savings and loan institutions) deemed creditworthy by Alliance, and Alliance has
adopted procedures for monitoring the creditworthiness of such entities. Options
purchased or written by a Fund in negotiated transactions are illiquid and it
may not be possible for the Fund to effect a closing transaction at an
advantageous time. See "Illiquid Securities."
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Options on Securities Indices. An option on a securities index is similar to an
option on a security except that, rather than the right to take or make delivery
of a security at a specified price, an option on a securities index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing level of the chosen index is greater than (in the case of a call) or
less than (in the case of a put) the exercise price of the option.
Futures Contracts and Options on Futures Contracts. A "sale" of a futures
contract means the acquisition of a contractual obligation to deliver the
securities or foreign currencies or other commodity called for by the contract
at a specified price on a specified date. A "purchase" of a futures contract
means the incurring of an obligation to acquire the securities, foreign
currencies or other commodity called for by the contract at a specified price on
a specified date. The purchaser of a futures contract on an index agrees to take
or make delivery of an amount of cash equal to the difference between a
specified dollar multiple of the value of the index on the expiration date of
the contract ("current contract value") and the price at which the contract was
originally struck. No physical delivery of the securities underlying the index
is made.
Options on futures contracts written or purchased by a Fund will be traded on
U.S. or foreign exchanges or over-the-counter. These investment techniques will
be used only to hedge against anticipated future changes in market conditions
and interest or exchange rates which otherwise might either adversely affect the
value of the Fund's portfolio securities or adversely affect the prices of
securities which the Fund intends to purchase at a later date.
No Fund will enter into any futures contracts or options on futures contracts if
immediately thereafter the market values of the outstanding futures contracts of
the Fund and the currencies and futures contracts subject to outstanding options
written by the Fund would exceed 50% of its total assets, or in the case of
International Premier Growth Fund 100% of its total assets. Premier Growth Fund
and Growth and Income Fund may not purchase or sell a stock index future if
immediately thereafter more than 30% of its total assets would be hedged by
stock index futures. Premier Growth Fund and Growth and Income Fund may not
purchase or sell a stock index future if, immediately thereafter, the sum of the
amount of margin deposits on the Fund's existing futures positions would exceed
5% of the market value of the Fund's total assets.
Options on Foreign Currencies. As in the case of other kinds of options, the
writing of an option on a foreign currency constitutes only a partial hedge, up
to the amount of the premium received, and a Fund could be required to purchase
or sell foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates although, in the event of
rate movements adverse to a Fund's position, it may forfeit the entire amount of
the premium plus related transaction costs. See the Statement of Additional
Information of each Fund that may invest in options on foreign currencies for
further discussion of the use, risks and costs of options on foreign currencies.
Forward Foreign Currency Exchange Contracts. A Fund purchases or sells forward
foreign currency exchange contracts to minimize the risk to it from adverse
changes in the relationship between the U.S. dollar and other currencies. A
forward contract is an obligation to purchase or sell a specific currency for an
agreed price at a future date, and is individually negotiated and privately
traded.
A Fund may enter into a forward contract, for example, when it enters into a
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security
("transaction hedge"). A Fund will not engage in transaction hedges with respect
to the currency of a particular country to an extent greater than the aggregate
amount of the Fund's transactions in that currency. When a Fund believes that a
foreign currency may suffer a substantial decline against the U.S. dollar, it
may enter into a forward sale contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency, or when the Fund believes that
the U.S. dollar may suffer a substantial decline against a foreign currency, it
may enter into a forward purchase contract to buy that foreign currency for a
fixed dollar amount ("position hedge"). A Fund will not position hedge with
respect to a particular currency to an extent greater than the aggregate market
value (at the time of making such sale) of the securities held in its portfolio
denominated or quoted in that currency. Instead of entering into a position
hedge, a Fund may, in the alternative, enter into a forward contract to sell a
different foreign currency for a fixed U.S. dollar amount where the Fund
believes that the U.S. dollar value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline in the U.S. dollar value
of the currency in which portfolio securities of the Fund are denominated
("cross-hedge"). Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into such forward
contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for a Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. International Fund, New
Europe Fund and Global Small Cap Fund will not enter into a forward contract
with a term of more than one year or if, as a result, more than 50% of its total
assets would be committed to such contracts. The dealings of International Fund,
New Europe Fund and Global Small Cap Fund in forward contracts will be limited
to hedging involving either specific transactions or portfolio positions. Growth
Fund may also purchase and sell foreign currency on a spot basis.
Forward Commitments. Forward commitments for the purchase or sale of securities
may include purchases on a "when-issued" basis or purchases or sales on a
"delayed delivery"
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basis. In some cases, a forward commitment may be conditioned upon the
occurrence of a subsequent event, such as approval and consummation of a merger,
corporate reorganization or debt restructuring (i.e., a "when, as and if issued"
trade).
When forward commitment transactions are negotiated, the price is fixed at the
time the commitment is made, but delivery and payment for the securities take
place at a later date. Normally, the settlement date occurs within two months
after the transaction, but settlements beyond two months may be negotiated.
Securities purchased or sold under a forward commitment are subject to market
fluctuation, and no interest or dividends accrue to the purchaser prior to the
settlement date. At the time a Fund intends to enter into a forward commitment,
it records the transaction and thereafter reflects the value of the security
purchased or, if a sale, the proceeds to be received, in determining its net
asset value. Any unrealized appreciation or depreciation reflected in such
valuation of a "when, as and if issued" security would be canceled in the event
that the required conditions did not occur and the trade was canceled.
The use of forward commitments enables a Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling prices.
In periods of falling interest rates and rising bond prices, a Fund might sell a
security in its portfolio and purchase the same or a similar security on a when-
issued or forward commitment basis, thereby obtaining the benefit of currently
higher cash yields. However, if Alliance were to forecast incorrectly the
direction of interest rate movements, a Fund might be required to complete such
when-issued or forward transactions at prices inferior to the then current
market values. When-issued securities and forward commitments may be sold prior
to the settlement date, but a Fund enters into when-issued and forward
commitments only with the intention of actually receiving securities or
delivering them, as the case may be. If a Fund chooses to dispose of the right
to acquire a when-issued security prior to its acquisition or dispose of its
right to deliver or receive against a forward commitment, it may incur a gain or
loss. Any significant commitment of Fund assets to the purchase of securities on
a "when, as and if issued" basis may increase the volatility of the Fund's net
asset value. No forward commitments will be made by New Europe Fund,
International Premier Growth Fund, All-Asia Investment Fund, Greater China '97
Fund, Worldwide Privatization Fund, Utility Income Fund or Real Estate
Investment Fund if, as a result, the Fund's aggregate commitments under such
transactions would be more than 30% of the Fund's total assets. In the event the
other party to a forward commitment transaction were to default, a Fund might
lose the opportunity to invest money at favorable rates or to dispose of
securities at favorable prices.
Standby Commitment Agreements. Standby commitment agreements commit a Fund, for
a stated period of time, to purchase a stated amount of a security that may be
issued and sold to the Fund at the option of the issuer. The price and coupon of
the security are fixed at the time of the commitment. At the time of entering
into the agreement the Fund is paid a commitment fee, regardless of whether the
security ultimately is issued, typically equal to approximately 0.5% of the
aggregate purchase price of the security the Fund has committed to purchase. A
Fund will enter into such agreements only for the purpose of investing in the
security underlying the commitment at a yield and price considered advantageous
to the Fund and unavailable on a firm commitment basis. No Fund, other than
International Premier Growth Fund, will enter into a standby commitment with a
remaining term in excess of 45 days. Investments in standby commitments will be
limited so that the aggregate purchase price of the securities subject to the
commitments will not exceed 25% with respect to New Europe Fund and Real Estate
Investment Fund, 50% with respect to International Premier Growth Fund,
Worldwide Privatization Fund, All-Asia Investment Fund and Greater China '97
Fund and 20% with respect to Utility Income Fund, of the Fund's assets taken at
the time of making the commitment.
There is no guarantee that a security subject to a standby commitment will be
issued and the value of the security, if issued, on the delivery date may be
more or less than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, a Fund will bear the
risk of capital loss in the event the value of the security declines and may not
benefit from an appreciation in the value of the security during the commitment
period if the issuer decides not to issue and sell the security to the Fund.
Currency Swaps. Currency swaps involve the individually negotiated exchange by a
Fund with another party of a series of payments in specified currencies. A
currency swap may involve the delivery at the end of the exchange period of a
substantial amount of one designated currency in exchange for the other
designated currency. Therefore the entire principal value of a currency swap is
subject to the risk that the other party to the swap will default on its
contractual delivery obligations. The net amount of the excess, if any, of a
Fund's obligations over its entitlements with respect to each currency swap will
be accrued on a daily basis. A Fund will not enter into any currency swap unless
the credit quality of the unsecured senior debt or the claims-paying ability of
the other party thereto is rated in the highest rating category of at least one
nationally recognized rating organization at the time of entering into the
transaction. If there is a default by the other party to such a transaction,
such Fund will have contractual remedies pursuant to the agreements related to
the transactions.
Interest Rate Transactions. Each Fund that may enter into interest rate
transactions expects to do so primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
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date. The Funds do not intend to use these transactions in a speculative manner.
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest (e.g., an exchange of floating
rate payments for fixed rate payments). Interest rate swaps are entered on a net
basis (i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments). With
respect to All-Asia Investment Fund, Greater China '97 Fund and Utility Income
Fund, the exchange commitments can involve payments in the same currency or in
different currencies. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a contractually-based principal amount
from the party selling such interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on an agreed
principal amount from the party selling the interest rate floor.
A Fund may enter into interest rate swaps, caps and floors on either an asset-
based or liability-based basis, depending upon whether it is hedging its assets
or liabilities. The net amount of the excess, if any, of a Fund's obligations
over its entitlements with respect to each interest rate swap, cap and floor is
accrued daily. A Fund will not enter into an interest rate swap, cap or floor
transaction unless the unsecured senior debt or the claims-paying ability of the
other party thereto is then rated in the highest rating category of at least one
nationally recognized rating organization. Alliance will monitor the
creditworthiness of counterparties on an ongoing basis. The swap market has
grown substantially in recent years, with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid.
Caps and floors are more recent innovations for which standardized documentation
has not yet been developed and, accordingly, they are less liquid than swaps.
The use of interest rate transactions is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If Alliance were to incorrectly
forecast market values, interest rates and other applicable factors, the
investment performance of a Fund would be adversely affected by the use of these
investment techniques. Moreover, even if Alliance is correct in its forecasts,
there is a risk that the transaction position may correlate imperfectly with the
price of the asset or liability being hedged. There is no limit on the amount of
interest rate transactions that may be entered into by a Fund that is permitted
to enter into such transactions. These transactions do not involve the delivery
of securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to interest rate transactions is limited to the net amount of
interest payments that a Fund is contractually obligated to make. If the other
party to an interest rate transaction defaults, a Fund's risk of loss consists
of the net amount of interest payments that the Fund contractually is entitled
to receive.
Repurchase Agreements. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an agreed-upon
future date, normally a day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed-upon interest rate for the period
the buyer's money is invested in the security. Such agreements permit a Fund to
keep all of its assets at work while retaining "overnight" flexibility in
pursuit of investments of a longer-term nature. If a vendor defaults on its
repurchase obligation, a Fund would suffer a loss to the extent that the
proceeds from the sale of the collateral were less than the repurchase price. If
a vendor goes bankrupt, a Fund might be delayed in, or prevented from, selling
the collateral for its benefit. Alliance monitors the creditworthiness of the
vendors with which the Fund enters into repurchase agreements. There is no
percentage restriction on a Fund's ability to enter into repurchase agreements,
other than as indicated under "Investment Objectives and Policies."
Short Sales. A short sale is effected by selling a security that a Fund does not
own, or if the Fund does own such security, it is not to be delivered upon
consummation of the sale. A short sale is "against the box" to the extent that a
Fund contemporaneously owns or has the right to obtain securities identical to
those sold short without payment. Worldwide Privatization Fund, All-Asia
Investment Fund, Greater China '97 Fund and Utility Income Fund each may make
short sales of securities or maintain short positions only for the purpose of
deferring realization of gain or loss for U.S. federal income tax purposes,
provided that at all times when a short position is open the Fund owns an equal
amount of securities of the same issue as, and equal in amount to, the
securities sold short. In addition, each of those Funds may not make a short
sale if as a result more than 10% of the Fund's net assets would be held as
collateral for short sales, except that All-Asia Investment Fund, Greater China
'97 Fund and Real Estate Investment Fund may not make a short sale if as a
result more than 25% of the Fund's net assets would be held as collateral for
short sales. If the price of the security sold short increases between the time
of the short sale and the time a Fund replaces the borrowed security, the Fund
will incur a loss; conversely, if the price declines, the Fund will realize a
capital gain. See "Certain Fundamental Investment Policies." Certain special
federal income tax considerations may apply to short sales entered into by a
Fund. See "Dividends, Distributions and Taxes" in the relevant Fund's Statement
of Additional Information.
Loans of Portfolio Securities. The risk in lending portfolio securities, as with
other extensions of credit, consists of the possible loss of rights in the
collateral should the borrower fail financially. In determining whether to lend
securities to a particular borrower, Alliance will consider all relevant facts
and circumstances, including the creditworthiness of the borrower. While
securities are on loan, the borrower will pay the Fund
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any income earned thereon and the Fund may invest any cash collateral in
portfolio securities, thereby earning additional income, or receive an agreed
upon amount of income from a borrower who has delivered equivalent collateral.
Each Fund will have the right to regain record ownership of loaned securities or
equivalent securities in order to exercise ownership rights such as voting
rights, subscription rights and rights to dividends, interest or distributions.
A Fund may pay reasonable finders', administrative and custodial fees in
connection with a loan. A Fund will not lend its portfolio securities to any
officer, director, employee or affiliate of the Fund or Alliance.
General. The successful use of the foregoing investment practices draws upon
Alliance's special skills and experience with respect to such instruments and
usually depends on Alliance's ability to forecast price movements, interest
rates or currency exchange rate movements correctly. Should interest rates,
prices or exchange rates move unexpectedly, a Fund may not achieve the
anticipated benefits of the transactions or may realize losses and thus be in a
worse position than if such strategies had not been used. Unlike many exchange-
traded futures contracts and options on futures contracts, there are no daily
price fluctuation limits with respect to certain options and forward contracts,
and adverse market movements could therefore continue to an unlimited extent
over a period of time. In addition, the correlation between movements in the
prices of futures contracts, options and forward contracts and movements in the
prices of the securities and currencies hedged or used for cover will not be
perfect and could produce unanticipated losses.
A Fund's ability to dispose of its position in futures contracts, options and
forward contracts depends on the availability of liquid markets in such
instruments. Markets in options and futures with respect to a number of types of
securities and currencies are relatively new and still developing, and there is
no public market for forward contracts. It is impossible to predict the amount
of trading interest that may exist in various types of futures contracts,
options and forward contracts. If a secondary market does not exist with respect
to an option purchased or written by a Fund, it might not be possible to effect
a closing transaction in the option (i.e., dispose of the option), with the
result that (i) an option purchased by the Fund would have to be exercised in
order for the Fund to realize any profit and (ii) the Fund may not be able to
sell currencies or portfolio securities covering an option written by the Fund
until the option expires or it delivers the underlying security, futures
contract or currency upon exercise. Therefore, no assurance can be given that
the Funds will be able to utilize these instruments effectively for the purposes
set forth above. Furthermore, a Fund's ability to engage in options and futures
transactions may be limited by tax considerations and the use of certain hedging
techniques may adversely impact the characterization of income to a Fund for
U.S. federal income tax purposes. See "Dividends, Distributions and Taxes" in
the Statement of Additional Information of each Fund that invests in options and
futures.
Future Developments. A Fund may, following written notice to its shareholders,
take advantage of other investment practices that are not currently contemplated
for use by the Fund or are not available but may yet be developed, to the extent
such investment practices are consistent with the Fund's investment objective
and legally permissible for the Fund. Such investment practices, if they arise,
may involve risks that exceed those involved in the activities described above.
Defensive Position. For temporary defensive purposes, each Fund may reduce its
position in equity securities and invest without limit in certain types of
short-term, liquid, high grade or high quality (depending on the Fund) debt
securities. These securities may include U.S. Government securities, qualifying
bank deposits, money market instruments, prime commercial paper and other types
of short-term debt securities including notes and bonds. For Funds that may
invest in foreign countries, such securities may also include short-term,
foreign-currency denominated securities of the type mentioned above issued by
foreign governmental entities, companies and supranational organizations. For a
complete description of the types of securities each Fund may invest in while in
a temporary defensive position, please see such Fund's Statement of Additional
Information.
Portfolio Turnover. Portfolio turnover rates for the existing classes of shares
of the Fund are set forth in the tables that begin on page 8. These portfolio
turnover rates are greater than those of most other investment companies,
including those which emphasize capital appreciation as a basic policy. A high
rate of portfolio turnover involves correspondingly greater brokerage and other
expenses than a lower rate, which must be borne by the Fund and its
shareholders. High portfolio turnover also may result in the realization of
substantial net short-term capital gains. See "Dividends, Distributions and
Taxes" in each Fund's Statement of Additional Information.
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
Each Fund has adopted certain fundamental investment policies listed below,
which may not be changed without the approval of its shareholders. Additional
investment restrictions with respect to a Fund are set forth in its Statement of
Additional Information.
Alliance Fund may not: (i) invest more than 5% of its total assets in the
securities of any one issuer (other than the U.S. Government); (ii) acquire more
than 10% of the voting or other securities of any one issuer; or (iii) buy
securities of any company that (including its predecessors) has not been in
business at least three continuous years. Pursuant to investment policies which
are not fundamental, the Fund does not invest (i) in puts or calls (except as
discussed above); (ii) in straddles, spreads, or any combination thereof; (iii)
in oil, gas or other mineral exploration or development programs; or (iv) more
than 5% of its gross assets in securities the disposition of which would be
subject to restrictions under the federal securities laws.
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Growth Fund may not: (i) invest more than 5% of its total assets in the
securities of any one issuer (other than U.S. Government securities and
repurchase agreements relating thereto), although up to 25% of each Fund's total
assets may be invested without regard to this restriction; or (ii) invest 25% or
more of its total assets in the securities of any one industry.
Premier Growth Fund may not: (i) purchase more than 10% of the outstanding
voting securities of any one issuer; (ii) invest 25% or more of the value of its
total assets in the same industry; (iii) borrow money or issue senior securities
except for temporary or emergency purposes in an amount not exceeding 5% of the
value of its total assets at the time the borrowing is made; (iv) pledge,
mortgage, hypothecate or otherwise encumber any of its assets except in
connection with the writing of call options and except to secure permitted
borrowings; or (v) invest in the securities of any issuer that has a record of
less than three years of continuous operation (including the operation of any
predecessor) if as a result more than 10% of the value of the total assets of
the Fund would be invested in the securities of such issuer or issuers.
Technology Fund may not: (i) with respect to 75% of its total assets, have such
assets represented by other than: (a) cash and cash items, (b) U.S. Government
securities, or (c) securities of any one issuer (other than the U.S. Government
and its agencies or instrumentalities) not greater in value than 5% of the
Fund's total assets, and not more than 10% of the outstanding voting securities
of such issuer; (ii) purchase the securities of any one issuer, other than the
U.S. Government and its agencies or instrumentalities, if as a result (a) the
value of the holdings of the Fund in the securities of such issuer exceeds 25%
of its total assets, or (b) the Fund owns more than 25% of the outstanding
securities of any one class of securities of such issuer; (iii) concentrate its
investments in any one industry, but the Fund has reserved the right to invest
up to 25% of its total assets in a particular industry; and (iv) invest in the
securities of any issuer which has a record of less than three years of
continuous operation (including the operation of any predecessor) if such
purchase would cause 10% or more of its total assets to be invested in the
securities of such issuers.
Quasar Fund may not: (i) purchase the securities of any one issuer, other than
the U.S. Government or any of its agencies or instrumentalities, if as a result
more than 5% of its total assets would be invested in such issuer or the Fund
would own more than 10% of the outstanding voting securities of such issuer,
except that up to 25% of its total assets may be invested without regard to
these 5% and 10% limitations; (ii) invest more than 25% of its total assets in
any particular industry; (iii) borrow money except for temporary or emergency
purposes in an amount not exceeding 5% of its total assets at the time the
borrowing is made; or (iv) invest more than 10% of its assets in restricted
securities.
International Fund may not: (i) invest more than 5% of the value of its total
assets in securities of a single issuer (including repurchase agreements with
any one entity), except U.S. Government securities or foreign government
securities; provided, however, that the Fund may not, with respect to 75% of its
total assets, invest more than 5% of its total assets in securities of any one
foreign government issuer; (ii) own more than 10% of the outstanding securities
of any class of any issuer (for this purpose, all preferred stocks of an issuer
shall be deemed a single class, and all indebtedness of an issuer shall be
deemed a single class), except U.S. Government securities; (iii) invest more
than 25% of the value of its total assets in securities of issuers having their
principal business activities in the same industry; provided, that this
limitation does not apply to U.S. Government securities or foreign government
securities; (iv) invest more than 5% of the value of its total assets in the
securities of any issuer that has a record of less than three years of
continuous operation (including the operation of any predecessor or
unconditional guarantor), except U.S. Government securities or foreign
government securities; (v) invest more than 5% of the value of its total assets
in securities with legal or contractual restrictions on resale, other than
repurchase agreements, or more than 10% of the value of its total assets in
securities that are not readily marketable (including restricted securities and
repurchase agreements not terminable within seven business days); and (vi)
borrow money, except as a temporary measure for extraordinary or emergency
purposes, and then only from banks in amounts not exceeding 5% of its total
assets.
International Premier Growth Fund may not: (i) invest 25% or more of its total
assets in securities of issuers conducting their principal business activities
in the same industry, except that this restriction does not apply to U.S.
Government securities; (ii) borrow money or issue senior securities, except that
the Fund may borrow (a) from a bank if immediately after such borrowing there is
asset coverage of at least 300% as defined in the 1940 Act and (b) for temporary
purposes in an amount not exceeding 5% of the value of the total assets of the
Fund; or (iii) pledge, hypothecate, mortgage or otherwise encumber its assets,
except to secure permitted borrowings.
Worldwide Privatization Fund may not: (i) invest 25% or more of its total assets
in securities of issuers conducting their principal business activities in the
same industry, except that this restriction does not apply to (a) U.S.
Government securities, or (b) the purchase of securities of issuers whose
primary business activity is in the national commercial banking industry, so
long as the Fund's Directors determine, on the basis of factors such as
liquidity, availability of investments and anticipated returns, that the Fund's
ability to achieve its investment objective would be adversely affected if the
Fund were not permitted to invest more than 25% of its total assets in those
securities, and so long as the Fund notifies its shareholders of any decision by
the Directors to permit or cease to permit the Fund to invest more than 25% of
its total assets in those securities, such notice to include a discussion of any
increased investment risks to which the Fund may be subjected as a result of the
Directors' determination; (ii) borrow money except from banks for temporary or
emergency purposes, including the meeting of redemption requests that might
require the untimely disposition of securities; borrowing in the aggregate may
not exceed 15%, and borrowing for purposes other than meeting redemptions may
not exceed 5%, of the
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Fund's total assets (including the amount borrowed) less liabilities (not
including the amount borrowed) at the time the borrowing is made; outstanding
borrowings in excess of 5% of the value of the Fund's total assets will be
repaid before any investments are made; or (iii) pledge, hypothecate, mortgage
or otherwise encumber its assets, except to secure permitted borrowings. The
exception contained in clause (i)(b) above is subject to the operating policy
regarding concentration described in this Prospectus.
New Europe Fund may not: (i) purchase more than 10% of the outstanding voting
securities of any one issuer; (ii) invest more than 15% of its total assets in
the securities of any one issuer or 25% or more of its total assets in the same
industry, provided, however, that the foregoing restriction shall not be deemed
to prohibit the Fund from purchasing the securities of any issuer pursuant to
the exercise of rights distributed to the Fund by the issuer, except that no
such purchase may be made if as a result the Fund will fail to meet the
diversification requirements of the Code and any such acquisition in excess of
the foregoing 15% or 25% limits will be sold by the Fund as soon as reasonably
practicable (this restriction does not apply to U.S. Government securities, but
will apply to foreign government securities unless the Commission permits their
exclusion); (iii) borrow money except from banks for temporary or emergency
purposes, including the meeting of redemption requests that might require the
untimely disposition of securities; borrowing in the aggregate may not exceed
15%, and borrowing for purposes other than meeting redemptions may not exceed
5%, of the Fund's total assets (including the amount borrowed) less liabilities
(not including the amount borrowed) at the time the borrowing is made;
outstanding borrowings in excess of 5% of the Fund's total assets will be repaid
before any subsequent investments are made; or (iv) purchase a security (unless
the security is acquired pursuant to a plan of reorganization or an offer of
exchange) if, as a result, the Fund would own any securities of an open-end
investment company or more than 3% of the total outstanding voting stock of any
closed-end investment company, or more than 5% of the value of the Fund's total
assets would be invested in securities of any closed-end investment company, or
more than 10% of such value in closed-end investment companies in general.
All-Asia Investment Fund may not: (i) invest 25% or more of its total assets in
securities of issuers conducting their principal business activities in the same
industry; (ii) borrow money except from banks for temporary or emergency
purposes, including the meeting of redemption requests that might require the
untimely disposition of securities; borrowing in the aggregate may not exceed
15%, and borrowing for purposes other than meeting redemptions may not exceed
5%, of the Fund's total assets (including the amount borrowed) less liabilities
(not including the amount borrowed) at the time the borrowing is made;
outstanding borrowings in excess of 5% of the value of the Fund's total assets
will be repaid before any investments are made; or (iii) pledge, hypothecate,
mortgage or otherwise encumber its assets, except to secure permitted
borrowings.
Greater China '97 Fund may not: (i) invest 25% or more of its assets in
securities of issuers conducting their principal business activities in the same
industry; (ii) borrow money except from banks for temporary or emergency
purposes, including the meeting of redemption requests that might require the
untimely disposition of securities; borrowing in the aggregate may not exceed
15%, and borrowing for purposes other than meeting redemptions may not exceed
5%, of the Fund's total assets (including the amount borrowed) less liabilities
(not including the amount borrowed) at the time the borrowing is made;
outstanding borrowings in excess of 5% of the value of the Fund's total assets
will be repaid before any investments are made; or (iii) pledge, hypothecate,
mortgage or otherwise encumber its assets, except to secure permitted
borrowings.
Global Small Cap Fund may not: (i) purchase the securities of any one issuer,
other than the U.S. Government or any of its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of its total assets
would be invested in such issuer or the Fund would own more than 10% of the
outstanding voting securities of such issuer, except that up to 25% of the
Fund's total assets may be invested without regard to these 5% and 10%
limitations; (ii) invest 25% or more of its total assets in the same industry;
this restriction does not apply to U.S. Government securities, but will apply to
foreign government securities unless the Commission permits their exclusion;
(iii) borrow money except from banks for emergency or temporary purposes in an
amount not exceeding 5% of the total assets of the Fund; or (iv) make short
sales of securities or maintain a short position, unless at all times when a
short position is open it owns an equal amount of such securities or securities
convertible into or exchangeable for, without payment of any further
consideration, securities of the same issue as, and equal in amount to, the
securities sold short and unless not more than 5% of the Fund's net assets is
held as collateral for such sales at any one time.
Global Environment Fund may not: (i) purchase more than 10% of the outstanding
voting securities of any one issuer; (ii) invest more than 15% of the value of
its total assets in the securities of any one issuer or 25% or more of the value
of its total assets in the same industry, except that the Fund will invest more
than 25% of its total assets in Environmental Companies, provided that this
restriction does not apply to U.S. Government securities, but will apply to
foreign government obligations unless the Commission permits their exclusion;
(iii) borrow money or issue senior securities, except that the Fund may borrow
(a) from a bank if immediately after such borrowing there is asset coverage of
at least 300% as defined in the 1940 Act and (b) for temporary purposes in an
amount not exceeding 5% of the value of the total assets of the Fund; (iv)
pledge, hypothecate, mortgage or otherwise encumber its assets, except (a) to
secure permitted borrowings and (b) in connection with initial and variation
margin deposits relating to futures contracts; (v) purchase a security (unless
the security is acquired pursuant to a plan of reorganization or an offer of
exchange) if, as a result, the Fund would own any securities of an open-end
investment company or more than 3% of the total outstanding voting stock of any
closed-end investment company,
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or more than 5% of the value of the Fund's total assets would be invested in
securities of any closed-end investment company or more than 10% of such value
in closed-end investment companies in the aggregate; (vi) make short sales of
securities or maintain a short position, unless at all times when a short
position is open it owns an equal amount of such securities or securities
convertible into or exchangeable for, without payment of any further
consideration, securities of the same issue as, and equal in amount to, the
securities sold short ("short sales against the box"), and unless not more than
5% of the Fund's net assets (taken at market value) is held as collateral for
such sales at any onetime; or (vii) buy or write (i.e., sell) put or call
options, except (a) the Fund may buy foreign currency options or write covered
foreign currency options and options on foreign currency futures and (b) the
Fund may purchase warrants.
Balanced Shares may not: (i) invest more than 5% of its total assets in the
securities of any one issuer, except U.S. Government securities; or (ii) own
more than 10% of the outstanding voting securities of any one issuer.
Utility Income Fund may not: (i) invest more than 5% of its total assets in the
securities of any one issuer except the U.S. Government, although with respect
to 25% of its total assets it may invest in any number of issuers; (ii) invest
25% or more of its total assets in the securities of issuers conducting their
principal business activities in any one industry, other than the utilities
industry, except that this restriction does not apply to U.S. Government
securities; (iii) purchase more than 10% of any class of the voting securities
of any one issuer; (iv) borrow money except from banks for temporary or
emergency purposes, including the meeting of redemption requests that might
require the untimely disposition of securities; borrowing in the aggregate may
not exceed 15%, and borrowing for purposes other than meeting redemptions may
not exceed 5%, of the Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the borrowing is
made; outstanding borrowings in excess of 5% of the Fund's total assets will be
repaid before any subsequent investments are made; or (v) purchase a security
if, as a result (unless the security is acquired pursuant to a plan of
reorganization or an offer of exchange), the Fund would own any securities of an
open-end investment company or more than 3% of the total outstanding voting
stock of any closed-end investment company or more than 5% of the value of the
Fund's net assets would be invested in securities of any one or more closed-end
investment companies.
Growth and Income Fund may not (i) invest more than 5% of its net assets in the
security of any one issuer, except U.S. Government obligations or (ii) own more
than 10% of the outstanding voting securities of any issuer.
Real Estate Investment Fund may not: (i) with respect to 75% of its total
assets, have such assets represented by other than: (a) cash and cash items, (b)
U.S. Government securities, or (c) securities of any one issuer (other than the
U.S. Government and its agencies or instrumentalities) not greater in value than
5% of the Fund's total assets, and not more than 10% of the outstanding voting
securities of such issuer; (ii) purchase the securities of any one issuer, other
than the U.S. Government and its agencies or instrumentalities, if as a result
(a) the value of the holdings of the Fund in the securities of such issuer
exceeds 25% of its total assets, or (b) the Fund owns more than 25% of the
outstanding securities of any one class of securities of such issuer; (iii)
invest 25% or more of its total assets in the securities of issuers conducting
their principal business activities in any one industry, other than the real
estate industry in which the Fund will invest at least 25% or more of its total
assets, except that this restriction does not apply to U.S. Government
securities; (iv) purchase or sell real estate, except that it may purchase and
sell securities of companies which deal in real estate or interests therein,
including Real Estate Equity Securities; or (v) borrow money except for
temporary or emergency purposes or to meet redemption requests, in an amount not
exceeding 5% of the value of its total assets at the time the borrowing is made.
RISK CONSIDERATIONS
Investment in certain of the Funds involves the special risk considerations
described below. These risks may be heightened when investing in emerging
markets.
Investment in Privatized Enterprises by Worldwide Privatization Fund. In certain
jurisdictions, the ability of foreign entities, such as the Fund, to participate
in privatizations may be limited by local law, or the price or terms on which
the Fund may be able to participate may be less advantageous than for local
investors. Moreover, there can be no assurance that governments that have
embarked on privatization programs will continue to divest their ownership of
state enterprises, that proposed privatizations will be successful or that
governments will not re-nationalize enterprises that have been privatized.
Furthermore, in the case of certain of the enterprises in which the Fund may
invest, large blocks of the stock of those enterprises may be held by a small
group of stockholders, even after the initial equity offerings by those
enterprises. The sale of some portion or all of those blocks could have an
adverse effect on the price of the stock of any such enterprise.
Most state enterprises or former state enterprises go through an internal
reorganization of management prior to conducting an initial equity offering in
an attempt to better enable these enterprises to compete in the private sector.
However, certain reorganizations could result in a management team that does not
function as well as the enterprise's prior management and may have a negative
effect on such enterprise. After making an initial equity offering, enterprises
that may have enjoyed preferential treatment from the respective state or
government that owned or controlled them may no longer receive such preferential
treatment and may become subject to market competition from which they were
previously protected. Some of these enterprises may not be able to effectively
operate in a competitive market and may suffer losses or experience bankruptcy
due to such competition. In addition, the privatization of an enterprise by its
government may occur over
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a number of years, with the government continuing to hold a controlling position
in the enterprise even after the initial equity offering for the enterprise.
Currency Considerations. Substantially all of the assets of International Fund,
International Premier Growth Fund, New Europe Fund, All-Asia Investment Fund,
Greater China '97 Fund and Worldwide Privatization Fund and a substantial
portion of the assets of Global Small Cap Fund and Global Environment Fund will
be invested in securities denominated in foreign currencies, and a corresponding
portion of these Funds' revenues will be received in such currencies. Therefore,
the dollar equivalent of their net assets, distributions and income will be
adversely affected by reductions in the value of certain foreign currencies
relative to the U.S. dollar. If the value of the foreign currencies in which a
Fund receives its income falls relative to the U.S. dollar between receipt of
the income and the making of Fund distributions, the Fund may be required to
liquidate securities in order to make distributions if it has insufficient cash
in U.S. dollars to meet distribution requirements that the Fund must satisfy to
qualify as a regulated investment company for federal income tax purposes.
Similarly, if an exchange rate declines between the time a Fund incurs expenses
in U.S. dollars and the time cash expenses are paid, the amount of the currency
required to be converted into U.S. dollars in order to pay expenses in U.S.
dollars could be greater than the equivalent amount of such expenses in the
currency at the time they were incurred. In light of these risks, a Fund may
engage in certain currency hedging transactions, which themselves involve
certain special risks. See "Additional Investment Practices" above.
Foreign Investment. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, a Fund whose investment portfolio includes such
securities may experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in equity securities of U.S.
companies. These markets may be subject to greater influence by adverse events
generally affecting the market, and by large investors trading significant
blocks of securities, than is usual in the United States. Securities settlements
may in some instances be subject to delays and related administrative
uncertainties. These problems are particularly severe in India, where settlement
is through physical delivery, and, where, currently, a severe shortage of vault
capacity exists among custodial banks, although efforts are being undertaken to
alleviate the shortage. Certain foreign countries require governmental approval
prior to investments by foreign persons or limit investment by foreign persons
to only a specified percentage of an issuer's outstanding securities or a
specific class of securities which may have less advantageous terms (including
price) than securities of the company available for purchase by nationals. These
restrictions or controls may at times limit or preclude investment in certain
securities and may increase the costs and expenses of a Fund. In addition, the
repatriation of investment income, capital or the proceeds of sales of
securities from certain countries is controlled under regulations, including in
some cases the need for certain advance government notification or authority,
and if a deterioration occurs in a country's balance of payments, the country
could impose temporary restrictions on foreign capital remittances.
A Fund could also be adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation, as well as by the application
to it of other restrictions on investment. Investing in local markets may
require a Fund to adopt special procedures, which may involve additional costs
to a Fund. The liquidity of a Fund's investments in any country in which any of
these factors exists could be affected and Alliance will monitor the effect of
any such factor or factors on a Fund's investments. Furthermore, transaction
costs including brokerage commissions for transactions both on and off the
securities exchanges in many foreign countries are generally higher than in the
United States.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements and timely disclosure of information. The reporting, accounting and
auditing standards of foreign countries may differ, in some cases significantly,
from U.S. standards in important respects and less information may be available
to investors in foreign securities than to investors in U.S. securities.
Substantially less information is publicly available about certain non-U.S.
issuers than is available about U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability or diplomatic
developments could affect adversely the economy of a foreign country or the
Fund's investments in such country. In the event of expropriation,
nationalization or other confiscation, a Fund could lose its entire investment
in the country involved. In addition, laws in foreign countries governing
business organizations, bankruptcy and insolvency may provide less protection to
security holders such as the Fund than that provided by U.S. laws.
Investment in United Kingdom Issuers. Investment in securities of United Kingdom
issuers involves certain considerations not present with investment in
securities of U.S. issuers. As with any investment not denominated in the U.S.
dollar, the U.S. dollar value of the Fund's investment denominated in the
British pound sterling will fluctuate with pound sterling--dollar exchange rate
movements. Between 1972, when the pound sterling was allowed to float against
other currencies, and the end of 1992, the pound sterling generally depreciated
against most major currencies, including the U.S. dollar. Between September and
December 1992, after the United Kingdom's exit
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from the Exchange Rate Mechanism of the European Monetary System, the value of
the pound sterling fell by almost 20% against the U.S. dollar. The pound
sterling has since recovered due to interest rate cuts throughout Europe and an
upturn in the economy of the United Kingdom. The average exchange rate of the
U.S. dollar to the pound sterling was 1.50 in 1993 and 1.64 in 1997. On October
13, 1998 the U.S. dollar-pound sterling exchange rate was 1.71.
The United Kingdom's largest stock exchange is the London Stock Exchange, which
is the third largest exchange in the world. As measured by the FT-SE 100 index,
the performance of the 100 largest companies in the United Kingdom reached
5,135.5 at the end of 1997, up approximately 25% from the end of 1996. On
October 5, 1998, the FT-SE 100 index closed at 4648.7, the lowest close in the
12-month period prior to that date, after reaching a high of 6179.0 on July 20,
1998. The FT-SE 100 index closed at 4990.1 on October 14, 1998.
In January 1999, the Economic and Monetary Union ("EMU") is scheduled to take
effect. The EMU will establish a common currency for European countries that
meet the eligibility criteria and choose to participate. Although the United
Kingdom meets the eligibility criteria, the government has not taken any action
to join the EMU.
From 1979 until 1997 the Conservative Party controlled Parliament. In the May 1,
1997 general elections, however, the Labour Party, led by Tony Blair, won a
majority in Parliament, holding 418 of 658 seats in the House of Commons. Mr.
Blair, who was appointed Prime Minister, has launched a number of reform
initiatives, including an overhaul of the monetary policy framework intended to
protect monetary policy from political forces by vesting responsibility for
setting interest rates in a new Monetary Policy Committee headed by the Governor
of the Bank of England, as opposed to the Treasury. Prime Minister Blair has
also undertaken a comprehensive restructuring of the regulation of the financial
services industry. For further information regarding the United Kingdom, see the
Statement of Additional Information of New Europe Fund.
Investment in Japanese Issuers. Investment in securities of Japanese issuers
involves certain considerations not present with investment in securities of
U.S. issuers. As with any investment not denominated in the U.S. dollar, the
U.S. dollar value of each Fund's investments denominated in the Japanese yen
will fluctuate with yen-dollar exchange rate movements. Between 1985 and 1995,
the Japanese yen generally appreciated against the U.S. dollar, but has since
fallen from its post-World War II high (in 1995) against the U.S. dollar.
Japan's largest stock exchange is the Tokyo Stock Exchange, the First Section of
which is reserved for larger, established companies. As measured by the TOPIX, a
capitalization-weighted composite index of all common stocks listed in the First
Section, the performance of the First Section reached a peak in 1989.
Thereafter, the TOPIX declined approximately 50% through the end of 1997. On
October 13, 1998, the TOPIX closed at 998.98, down approximately 15% from the
end of 1997. Certain valuation measures, such as price-to-book value and price-
to-cash flow ratios, indicate that the Japanese stock market is near its lowest
level in the last twenty years relative to other world markets.
In recent years, Japan has consistently recorded large current account trade
surpluses with the U.S. that have caused difficulties in the relations between
the two countries. On October 1, 1994, the U.S. and Japan reached an agreement
that may lead to more open Japanese markets with respect to trade in certain
goods and services. In June 1995, the two countries agreed in principle to
increase Japanese imports of American automobiles and automotive parts.
Nevertheless it is expected that the continuing friction between the U.S. and
Japan with respect to trade issues will continue for the foreseeable future.
Each Fund's investments in Japanese issuers will be subject to uncertainty
resulting from the instability of recent Japanese ruling coalitions. From 1955
to 1993, Japan's government was controlled by a single political party. Between
August 1993 and October 1996 Japan was ruled by a series of four coalition
governments. As the result of a general election on October 20, 1996, however,
Japan returned to a single-party government led by Ryutaro Hashimoto, a member
of the Liberal Democratic Party ("LDP"). While the LDP does not control a
majority of the seats in the parliament, it is only three seats short of the 251
seats required to attain a majority in the House of Representatives (down from a
12-seat shortfall just after the October 1996 election). The popularity of the
LDP declined, however, due to dissatisfaction with Mr. Hashimoto's leadership.
In the July 1998 House of Councillors election, the LDP's representation fell to
103 seats from 120 seats. As a result of the LDP's defeat, Mr. Hashimoto
resigned as prime minister and leader of the LDP. Mr. Hashimoto was replaced by
Keizo Obuchi. For the past several years, Japan's banking industry has been
weakened by a significant amount of problem loans. Japan's banks also have
significant exposure to the current financial turmoil in other Asian markets.
Following the insolvency of one of Japan's largest banks in November 1997, the
government proposed several plans designed to strengthen the weakened banking
sector. In October 1998, the Japanese parliament approved several new laws that
will make $508 billion in public funds available to increase the capital of
Japanese banks, to guarantee depositors' accounts and to nationalize the weakest
banks. It is unclear whether these new laws will achieve their intended effect.
For further information regarding Japan, see the Statements of Additional
Information for All-Asia Investment Fund and International Fund.
Investment in Greater China Issuers. China, in particular, but Hong Kong and
Taiwan, as well, in significant measure because of their existing and increasing
economic, and now in the case of Hong Kong, direct political ties with China,
may be subject to a greater degree of economic, political and social instability
than is the case in the United States.
China's economy is very much in transition. While the government still controls
production and pricing in major economic sectors, significant steps have been
taken toward capitalism and China's economy has become increasingly market
oriented. China's strong economic growth and ability to attract significant
foreign investment in recent years stem from the economic liberalization
initiated by Deng Xiaoping who assumed
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power in the late 1970s. The economic growth, however, has not been smooth and
has been marked by extremes in many respects of inordinate growth, which has not
been tightly controlled, followed by rigid measures of austerity.
The rapidly and erratic nature of the growth have resulted in inefficiencies and
dislocations, including at times high rates of inflation.
China's economic development has occurred notwithstanding the continuation of
the power of China's Communist Party and China's authoritarian government
control, not only of centrally planned economic decisions, but of many aspects
of the social structure. While a significant portion of China's population has
benefited from China's economic growth, the conditions of many leave much room
for improvement. Notwithstanding restrictions on freedom of expression and the
absence of a free press, and notwithstanding the extreme manner in which past
unrest has been dealt with, the 1989 Tiananmen Square uprising being a recent
reminder, the potential for renewed popular unrest associated with demands for
improved social, political and economic conditions be dismissed.
Following the death of Deng Xiaoping in February 1997, Jiang Zemin became the
leader of China's Communist Party. The transfer of political power has
progressed smoothly and Jiang's popularity and credibility have gradually
increased. Jiang continues to consolidate his power, but as of yet does not
appear to have the same degree of control as did Deng Xiaoping. Jiang has
continued the market-oriented policies of Deng. Currently, China's major
economic challenge centers on reforming or eliminating inefficient state-owned
enterprises without creating an unacceptable level of unemployment. Recent
capitalistic policies have in many respects effectively outdated the Communist
Party and the governmental structure, but both remain entrenched. The Communist
Party still controls access to governmental positions and closely monitors
governmental action. Essentially there exists an inefficient set of parallel
bureaucracies and attendant opportunities for corruption.
In addition to the economic impact of China's internal political uncertainties,
the potential effect of China's actions, not only on China itself, but on Hong
Kong and Taiwan as well, could also be significant.
China is heavily dependent on foreign trade, particularly with the United
States, South Korea, Japan and Germany. Political developments adverse to its
trading partners, as well as political and social repression, could cause the
United States and others to alter their trading policy towards China. For
example, in the United States, the continued extension of most favored nation
trading status to China which is reviewed regularly and was renewed in 1999, is
an issue of significant controversy. Loss of that status would clearly hurt
China's economy by reducing its exports. With much of China's trading activity
being funneled through Hong Kong and with trade through Taiwan becoming
increasingly significant, any sizable reduction in demand for goods from China
would have negative implications for both countries. China is believed to be the
largest investor in Hong Kong and its markets and an economic downturn in China
would be expected to reverberate through Hong Kong's markets as well.
Although China has committed by treaty to preserve Hong Kong's autonomy and its
economic, political and social freedoms for fifty years from the July 1, 1997
transfer of sovereignty from Great Britain to China. Hong Kong is headed by a
chief executive, appointed by the central government of China, whose power is
checked by both the government of China and a Legislative Council. Although Hong
Kong voters voted overwhelmingly for pro-democracy candidates in the recent
election, it remains possible that China could exert its authority so as to
alter the economic structure, political structure or existing social policy of
Hong Kong. Investor and business confidence in Hong Kong can be significantly
affected by such developments, which in turn can affect markets and business
performance. In this connection, it is noted that a substantial portion of the
companies listed on the Hong Kong Stock Exchange are involved in real estate-
related activities.
The securities markets of China, and to a lesser extent Taiwan, are relatively
small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, Greater China '97 Fund may experience greater price
volatility and significantly lower liquidity than a portfolio invested solely in
equity securities of U.S. companies. These markets may be subject to greater
influence by adverse events generally affecting the market, and by large
investors trading significant blocks of securities, than is usual in the U.S.
Securities settlements may in some instances be subject to delays and related
administrative uncertainties.
Foreign investment in the securities markets of China and Taiwan is restricted
or controlled to varying degrees. These restrictions or controls, which apply to
the Greater China '97 Fund, may at times limit or preclude investment in certain
securities and may increase the cost and expenses of the Fund. China and Taiwan
require governmental approval prior to investments by foreign persons or limit
investment by foreign persons to only a specified percentage of an issuer's
outstanding securities or a specific class of securities which may have less
advantageous terms (including price) than securities of the company available
for purchase by nationals. In addition, the repatriation of investment income,
capital or the proceeds of sales of securities from China and Taiwan is
controlled under regulations, including in some cases the need for certain
advance government notification or authority, and if a deterioration occurs in a
country's balance of payments, the country could impose restrictions on foreign
capital remittances.
Greater China '97 Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investment. The liquidity of the
Fund's investments in any country in which any of these factors exists could be
affected by any such factor or factors on the Fund's investments.
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The limited liquidity in certain Greater China markets is a factor to be taken
into account in the Fund's valuation of portfolio securities in this category
and may affect the Fund's ability to dispose of securities in order to meet
redemption requests at the price and time it wishes to do so. It is also
anticipated that transaction costs, including brokerage commissions for
transactions both on and off the securities exchanges in Greater China
countries, will be higher than in the U.S.
Issuers of securities in Greater China countries are generally not subject to
the same degree of regulation as are U.S. issuers with respect to such matters
as timely disclosure of information, insider trading rules, restrictions on
market manipulation and shareholder proxy requirements. Reporting, accounting
and auditing standards of Greater China countries may differ, in some cases
significantly, from U.S. standards in important respects, and less information
may be available to investors in securities of Greater China country issuers
than to investors in securities of U.S. issuers.
Investment in Greater China companies which are in the initial stages of their
development involves greater risk than is customarily associated with securities
of more established companies. The securities of such companies may have
relatively limited marketability and may be subject to more abrupt or erratic
market movements than securities of established companies or broad market
indices.
Investment in Smaller, Emerging Companies. The Funds may invest in smaller,
emerging companies. Global Small Cap Fund and New Europe Fund will emphasize
investment in, and All-Asia Investment Fund, Greater China '97 Fund and Global
Environment Fund may emphasize investment in, smaller, emerging companies.
Investment in such companies involves greater risks than is customarily
associated with securities of more established companies. Companies in the
earlier stages of their development often have products and management personnel
which have not been thoroughly tested by time or the marketplace; their
financial resources may not be as substantial as those of more established
companies. The securities of smaller companies may have relatively limited
marketability and may be subject to more abrupt or erratic market movements than
securities of larger companies or broad market indices. The revenue flow of such
companies may be erratic and their results of operations may fluctuate widely
and may also contribute to stock price volatility.
Extreme Governmental Action; Less Protective Laws. In contrast with investing
in the United States, foreign investment may involve in certain situations
greater risk of nationalization, expropriation, confiscatory taxation, currency
blockage or other extreme governmental action which could adversely impact a
Fund's investment. In the event of certain such actions, a Fund could lose its
entire investment in the country involved. In addition, laws in various foreign
countries, including in certain respects each of the Greater China countries,
governing, among other subjects, business organization and practices, securities
and securities trading, bankruptcy and insolvency may provide less protection to
investors such as the Fund than provided under United States laws.
Investing in Environmental Companies by Global Environment Fund. Governmental
regulations or other action can inhibit an Environmental Company's performance,
and it may take years to translate environmental legislation into sales and
profits. Environmental Companies generally face competition in fields often
characterized by relatively short product cycles and competitive pricing
policies. Losses may result from large product development or expansion costs,
unprotected marketing or distribution systems, erratic revenue flows and low
profit margins. Additional risks that Environmental Companies may face include
difficulty in financing the high cost of technological development,
uncertainties due to changing governmental regulation or rapid technological
advances, potential liabilities associated with hazardous components and
operations, and difficult in finding experienced employees.
The Real Estate Industry. Although Real Estate Investment Fund does not invest
directly in real estate, it invests primarily in Real Estate Equity
Securities and has a policy of concentration of its investments in the
real estate industry. Therefore, an investment in the Fund is subject to certain
risks associated with the direct ownership of real estate and with the real
estate industry in general. These risks include, among others: possible declines
in the value of real estate; risks related to general and local economic
conditions; possible lack of availability of mortgage funds; overbuilding;
extended vacancies of properties; increases in competition, property taxes and
operating expenses; changes in zoning laws; costs resulting from the clean-up
of, and liability to third parties for damages resulting from, environmental
problems; casualty or condemnation losses; uninsured damages from floods,
earthquakes or other natural disasters; limitations on and variations in rents;
and changes in interest rates. To the extent that assets underlying the Fund's
investments are concentrated geographically, by property type or in certain
other respects, the Fund may be subject to certain of the foregoing risks to a
greater extent.
In addition, if Real Estate Investment Fund receives rental income or income
from the disposition of real property acquired as a result of a default on
securities the Fund owns, the receipt of such income may adversely affect the
Fund's ability to retain its tax status as a regulated investment company. See
"Dividends, Distributions and Taxes" in the Fund's Statement of Additional
Information. Investments by the Fund in securities of companies providing
mortgage servicing will be subject to the risks associated with refinancings and
their impact on servicing rights.
REITs. Investing in REITs involves certain unique risks in addition to those
risks associated with investing in the real estate industry in general. Equity
REITs may be affected by changes in the value of the underlying property owned
by the REITs, while mortgage REITs may be affected by the quality of any credit
extended. REITs are dependent upon management skills, are not diversified, are
subject to heavy cash flow dependency, default by borrowers and self-
liquidation. REITs are also subject to the possibilities of failing to qualify
for tax free pass-through of income under the Code and failing to maintain their
exemptions from registration under the 1940 Act.
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REITs (especially mortgage REITs) are also subject to interest rate risks. When
interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT's investments in such loans will gradually
align themselves to reflect changes in market interest rates, causing the value
of such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
Investing in REITs involves risks similar to those associated with investing in
small capitalization companies. REITs may have limited financial resources, may
trade less frequently and in a limited volume and may be subject to more abrupt
or erratic price movements than larger company securities. Historically, small
capitalization stocks, such as REITs, have been more volatile in price than the
larger capitalization stocks included in the S&P Index of 500 Common Stocks.
Mortgage-Backed Securities. As discussed above, investing in Mortgage-Backed
Securities involves certain unique risks in addition to those risks associated
with investment in the real estate industry in general. These risks include the
failure of a counterparty to meet its commitments, adverse interest rate changes
and the effects of prepayments on mortgage cash flows. When interest rates
decline, the value of an investment in fixed rate obligations can be expected to
rise. Conversely, when interest rates rise, the value of an investment in fixed
rate obligations can be expected to decline. In contrast, as interest rates on
adjustable rate mortgage loans are reset periodically, yields on investments in
such loans will gradually align themselves to reflect changes in market interest
rates, causing the value of such investments to fluctuate less dramatically in
response to interest rate fluctuations than would investments in fixed rate
obligations.
Further, the yield characteristics of Mortgage-Backed Securities, such as those
in which Real Estate Investment Fund may invest, differ from those of
traditional fixed-income securities. The major differences typically include
more frequent interest and principal payments (usually monthly), the
adjustability of interest rates, and the possibility that prepayments of
principal may be made substantially earlier than their final distribution dates.
Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors, and cannot be
predicted with certainty. Both adjustable rate mortgage loans and fixed rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal
prepayments in an increasing interest rate environment. Early payment associated
with Mortgage-Backed Securities causes these securities to experience
significantly greater price and yield volatility than that experienced by
traditional fixed-income securities. Under certain interest rate and prepayment
rate scenarios, the Fund may fail to recoup fully its investment in Mortgage-
Backed Securities notwithstanding any direct or indirect governmental or agency
guarantee. When the Fund reinvests amounts representing payments and unscheduled
prepayments of principal, it may receive a rate of interest that is lower than
the rate on existing adjustable rate mortgage pass-through securities. Thus,
Mortgage-Backed Securities, and adjustable rate mortgage pass-through securities
in particular, may be less effective than other types of U.S. Government
securities as a means of "locking in" interest rates.
U.S. and Foreign Taxes. A Fund's investment in foreign securities may be subject
to taxes withheld at the source on dividend or interest payments. Foreign taxes
paid by a Fund may be creditable or deductible by U.S. shareholders for U.S.
income tax purposes. No assurance can be given that applicable tax laws and
interpretations will not change in the future. Moreover, non-U.S. investors may
not be able to credit or deduct such foreign taxes. Investors should review
carefully the information discussed under the heading "Dividends, Distributions
and Taxes" and should discuss with their tax advisers the specific tax
consequences of investing in a Fund.
Fixed-Income Securities. The value of each Fund's shares will fluctuate with the
value of its investments. The value of each Fund's investments in fixed-income
securities will change as the general level of interest rates fluctuates. During
periods of falling interest rates, the values of fixed-income securities
generally rise. Conversely, during periods of rising interest rates, the values
of fixed-income securities generally decline.
Under normal market conditions, the average dollar-weighted maturity of a Fund's
portfolio of debt or other fixed-income securities is expected to vary between
five and 30 years in the case of All-Asia Investment Fund, between five and 25
years in the case of Utility Income Fund and between one year or less and 30
years in the case of all other Funds that invest in such securities. In periods
of increasing interest rates, each of the Funds may, to the extent it holds
mortgage-backed securities, be subject to the risk that the average dollar-
weighted maturity of the Fund's portfolio of debt or other fixed-income
securities may be extended as a result of lower than anticipated prepayment
rates. See "Additional Investment Practices--Mortgage-Backed Securities."
Securities Ratings. The ratings of securities by S&P, Moody's, Duff & Phelps and
Fitch are a generally accepted barometer of credit risk. They are, however,
subject to certain limitations from an investor's standpoint. The rating of an
issuer is heavily weighted by past developments and does not necessarily reflect
probable future conditions. There is frequently a lag between the time a rating
is assigned and the time it is updated. In addition, there may be varying
degrees of difference in credit risk of securities within each rating category.
Securities rated Aaa by Moody's and AAA by S&P, Duff & Phelps and Fitch are
considered to be of the highest quality; capacity to pay interest and repay
principal is extremely strong. Securities rated Aa by Moody's and AA by S&P,
Duff & Phelps and Fitch are considered to be high quality; capacity to repay
principal is considered very strong, although elements may exist that make risks
appear somewhat larger than exist with securities rated Aaa
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or AAA. Securities rated A are considered by Moody's to
possess adequate factors giving security to principal and interest. S&P, Duff &
Phelps and Fitch consider such securities to have a strong capacity to pay
interest and repay principal. Such securities are more susceptible to adverse
changes in economic conditions and circumstances than higher-rated securities.
Securities rated Baa by Moody's and BBB by S&P, Duff & Phelps and Fitch are
considered to have an adequate capacity to pay interest and repay principal.
Such securities are considered to have speculative characteristics and share
some of the same characteristics as lower-rated securities. Sustained periods of
deteriorating economic conditions or of rising interest rates are more likely to
lead to a weakening in the issuer's capacity to pay interest and repay principal
than in the case of higher-rated securities. Securities rated Ba by Moody's and
BB by S&P, Duff & Phelps and Fitch are considered to have speculative
characteristics with respect to capacity to pay interest and repay principal
over time; their future cannot be considered as well-assured. Securities rated B
by Moody's, S&P, Duff & Phelps and Fitch are considered to have highly
speculative characteristics with respect to capacity to pay interest and repay
principal. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Securities rated Caa by Moody's and CCC by S&P, Duff & Phelps and Fitch are of
poor standing and there is a present danger with respect to payment of principal
or interest. Securities rated Ca by Moody's and CC by S&P and Fitch are
minimally protected, and default in payment of principal or interest is
probable. Securities rated C by Moody's, S&P and Fitch are in imminent default
in payment of principal or interest and have extremely poor prospects of ever
attaining any real investment standing. Securities rated D by S&P and Fitch are
in default. The issuer of securities rated DD by Duff & Phelps is under an order
of liquidation.
Investment in Lower-Rated Fixed-Income Securities. Lower-rated securities, i.e.,
those rated Ba and lower by Moody's or BB and lower by S&P, Duff & Phelps or
Fitch, are subject to greater risk of loss of principal and interest than
higher-rated securities. They are also generally considered to be subject to
greater market risk than higher-rated securities, and the capacity of issuers of
lower-rated securities to pay interest and repay principal is more likely to
weaken than is that of issuers of higher-rated securities in times of
deteriorating economic conditions or rising interest rates. In addition, lower-
rated securities may be more susceptible to real or perceived adverse economic
conditions than investment grade securities.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, a Fund may experience difficulty in
valuing such securities and, in turn, the Fund's assets. In addition, adverse
publicity and investor perceptions about lower-rated securities, whether or not
factual, may tend to impair their market value and liquidity.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political conditions.
However, there can be no assurance that losses will not occur. Since the risk of
default is higher for lower-rated securities, Alliance's research and credit
analysis are a correspondingly more important aspect of its program for managing
a Fund's securities than would be the case if a Fund did not invest in lower-
rated securities.
In seeking to achieve a Fund's investment objective, there will be times, such
as during periods of rising interest rates, when depreciation and realization of
capital losses on securities in a Fund's portfolio will be unavoidable.
Moreover, medium- and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market conditions. Such
fluctuations after a security is acquired do not affect the cash income received
from that security but are reflected in the net asset value of a Fund. See the
Statement of Additional Information for each Fund that invests in lower-rated
securities for a description of the bond ratings of Moody's, S&P, Duff & Phelps
and Fitch.
Certain lower-rated securities in which Growth Fund and Utility Income Fund may
invest may contain call or buy-back features that permit the issuers thereof to
call or repurchase such securities. Such securities may present risks based on
prepayment expectations. If an issuer exercises such a provision, a Fund may
have to replace the called security with a lower yielding security, resulting in
a decreased rate of return to the Fund.
Non-Diversified Status. Each of Worldwide Privatization Fund, New Europe Fund,
All-Asia Investment Fund, Greater China '97 Fund and Global Environmental Fund
is a "non-diversified" investment company, which means the Fund is not limited
in the proportion of its assets that may be invested in the securities of a
single issuer. However, each Fund intends to conduct its operations so as to
qualify to be taxed as a "regulated investment company" for purposes of the
Code, which will relieve the Fund of any liability for federal income tax to the
extent its earnings are distributed to shareholders. See "Dividends,
Distributions and Taxes" in each Fund's Statement of Additional Information. To
so qualify, among other requirements, the Fund will limit its investments so
that, at the close of each quarter of the taxable year, (i) not more than 25% of
the Fund's total assets will be invested in the securities of a single issuer,
and (ii) with respect to 50% of its total assets, not more than 5% of its total
assets will be invested in the securities of a single issuer and the Fund will
not own more than 10% of the outstanding voting securities of a single issuer. A
Fund's investments in U.S. Government securities and other regulated investment
companies are not subject to these limitations. Because each of Worldwide
Privatization Fund, New Europe Fund, Greater China '97 Fund, Global Environment
Fund and All-Asia Investment Fund is a non-diversified investment company, it
may invest in a smaller number of individual issuers than a diversified
investment
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company, and an investment in such Fund may, under certain circumstances,
present greater risk to an investor than an investment in a diversified
investment company.
Foreign government securities are not treated like U.S. Government securities
for purposes of the diversification tests described in the preceding paragraph,
but instead are subject to these tests in the same manner as the securities of
non-governmental issuers.
Year 2000 and Euro. Many computer systems and applications in use today process
transactions using two-digit date fields for the year of the transaction, rather
than the full four digits. If these systems are not modified or replaced,
transactions occurring after 1999 could be processed as year "1900", which could
result in processing inaccuracies and computer system failures. This is commonly
known as the Year 2000 problem. In addition to the Year 2000 problem, the
European Economic and Monetary Union has established a single currency, the Euro
Currency ("Euro") that will replace the national currency of certain European
countries effective January 1, 1999. Computer systems and applications must be
adapted in order to be able to process Euro sensitive information accurately
beginning in 1999. Should any of the computer systems employed by the Funds'
major service providers fail to process Year 2000 or Euro related information
properly, that could have a significant negative impact on the Funds' operations
and the services that are provided to the Funds' shareholders. In addition, to
the extent that the operations of issuers of securities held by the Funds are
impaired by the Year 2000 problem or the Euro, or prices of securities held by
the Funds' decline as a result of real or perceived problems relating to the
Year 2000 or the Euro, the value of the Funds' shares may be materially
affected.
With respect to the Year 2000, the Funds have been advised that Alliance, each
Fund's investment adviser, Alliance Fund Distributors, Inc. ("AFD"), each Fund's
principal underwriter, and Alliance Fund Services, Inc. ("AFS"), each Fund's
registrar transfer agent and dividend disbursing agent (collectively,
"Alliance") began to address the Year 2000 issue several years ago in connection
with the replacement or upgrading of certain computer systems and applications.
During 1997, Alliance began a formal Year 2000 initiative, which established a
structured and coordinated process to deal with the Year 2000 issue. Alliance
reports that it has completed its assessment of the Year 2000 issues on its
domestic and international computer systems and applications. Currently,
management of Alliance expects that the required modifications for the majority
of its significant systems and applications that will be in use on January 1,
2000, will be completed and tested by the end of 1998. Full integration testing
of these systems and testing of interfaces with third-party suppliers will
continue through 1999. At this time, management of Alliance believes that the
costs associated with resolving this issue will not have a material adverse
effect on its operations or on its ability to provide the level of services it
currently provides to the Funds.
With respect to the Euro, the Funds have been advised that Alliance has
established a project team to assess changes that will be required in connection
with the introduction of the Euro. Alliance reports that its project team has
assessed all systems, including those developed or managed internally, as well
as those provided by vendors, in order to determine the modifications that will
be required to process accurately transactions denominated in Euro after 1998.
At this time, management of Alliance expects that the required modifications for
the introduction of the Euro will be completed and tested before the end of
1998. Management of Alliance believes that the costs associated with resolving
this issue will not have a material adverse effect on its operations or on its
ability to provide the level of services it currently provides to the Funds.
The Funds and Alliance have been advised by the Funds' Custodians that they are
also in the process of reviewing their systems with the same goals. As of the
date of this prospectus, the Funds and Alliance have no reason to believe that
the Custodians will be unable to achieve these goals.
--------------------------------------
Purchase And Sale
--------------------------------------
Of Shares
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HOW TO BUY SHARES
Each Fund offers multiple classes of shares, of which only the Advisor Class is
offered by this Prospectus. Advisor Class shares of each Fund may be purchased
through your financial representative at net asset value without any initial or
contingent deferred sales charges and are not subject to ongoing distribution
expenses. Advisor Class shares may be purchased and held solely (i) through
accounts established under a fee-based program, sponsored and maintained by a
registered broker-dealer or other financial intermediary and approved by AFD,
(ii) through a self-directed defined contribution employee benefit plan (e.g., a
401(k) plan) that has at least 1,000 participants or $25 million in assets,
(iii) by investment advisory clients of, and certain other persons associated
with, Alliance and its affiliates or the Funds, and (iv) through registered
investment advisers or other financial intermediaries who charge a management,
consulting or other fee for their service and who purchase shares through a
broker or agent approved by AFD and clients of such registered investment
advisers or financial intermediaries whose accounts are linked to the master
account of such investment adviser or financial intermediary on the books of
such approved broker or agent. For more detailed information about who may
purchase and hold Advisor Class shares see the Statements of Additional
Information. A shareholder's Advisor Class shares will automatically convert to
Class A shares of the same Fund under certain circumstances.
For a more detailed description of the conversion feature and Class A shares,
see "Conversion Feature."
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Generally, a fee-based program must charge an asset-based or other similar fee
and must invest at least $250,000 in Advisor Class shares of each Fund in which
the program invests in order to be approved by AFD for investment in Advisor
Class shares. Share certificates are issued only upon request. See the
Subscription Application and the Statements of Additional Information for more
information.
The Funds may refuse any order to purchase Advisor Class shares. In this regard,
the Funds reserve the right to restrict purchases of Advisor Class shares
(including through exchanges) when there appears to be evidence of a pattern of
frequent purchases and sales made in response to short-term considerations.
How the Funds Value Their Shares
The net asset value of Advisor Class shares of a Fund is calculated by dividing
the value of the Fund's net assets allocable to the Advisor Class by the
outstanding shares of the Advisor Class. Shares are valued each day the Exchange
is open as of the close of regular trading (currently 4:00 p.m. Eastern time).
The securities in a Fund are valued at their current market value determined on
the basis of market quotations or, if such quotations are not readily available,
such other methods as the Fund's Directors believe accurately reflects fair
market value.
HOW TO SELL SHARES
You may "redeem" (i.e., sell your shares in a Fund to the Fund) on any day the
Exchange is open, either directly or through your financial representative. The
price you will receive is the net asset value next calculated after the Fund
receives your request in proper form. Proceeds generally will be sent to you
within seven days. However, for shares recently purchased by check or electronic
funds transfer, a Fund will not send proceeds until it is reasonably satisfied
that the check or electronic funds transfer has been collected (which may take
up to 15 days). If you are in doubt about what documents are required by your
fee-based program or employee benefit plan, you should contact your financial
representative.
Selling Shares Through Your Financial Representative
Your financial representative must receive your request before 4:00 p.m. Eastern
time, and your financial representative must transmit your request to the Fund
by 5:00 p.m. Eastern time, for you to receive that day's net asset value. Your
financial representative is responsible for furnishing all necessary
documentation to a Fund and may charge you for this service.
Selling Shares Directly To A Fund
Send a signed letter of instruction or stock power form to AFS along with
certificates, if any, that represent the shares you want to sell. For your
protection, signatures must be guaranteed by a bank, a member firm of a national
stock exchange or other eligible guarantor institution. Stock power forms are
available from your financial representative, AFS, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
intermediaries, fiduciaries and surviving joint owners. For details contact:
Alliance Fund Services
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672.
Telephone redemption requests must be made by 4 p.m. Eastern time on a Fund
business day in order to receive that day's net asset value. A shareholder who
has completed the appropriate section of the Subscription Application, or the
Shareholder Options form obtained from AFS, can elect to have the proceeds of
his or her redemption sent to his or her bank via an electronic funds transfer.
Proceeds of telephone redemptions also may be sent by check to a shareholder's
address of record. Except for certain omnibus accounts, redemption requests by
electronic funds transfer may not exceed $100,000 and redemption requests by
check may not exceed $50,000 per day. Telephone redemption is not available for
shares held in nominee or "street name" accounts or retirement plan accounts or
shares held by a shareholder who has changed his or her address of record within
the previous 30 calendar days.
General
The sale of shares is a taxable transaction for federal tax purposes. Under
unusual circumstances, a Fund may suspend redemptions or postpone payment for up
to seven days or longer, as permitted by federal securities law. The Funds
reserve the right to close an account that through redemption has remained below
$200 for 90 days. Shareholders will receive 60 days' written notice to increase
the account value before the account is closed.
During drastic economic or market developments, you might have difficulty
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it failed to do so. Dealers and
agents may charge a commission for handling telephonic requests. The telephone
service may be suspended or terminated at any time without notice.
AFD from time to time pays additional cash or other incentives to dealers or
agents in connection with the sale of shares of the Funds. Such additional
amounts may be utilized, in whole or in part, in some cases together with other
revenues of such dealers or agents, to provide additional compensation to
registered representatives who sell shares of the Funds. On some occasions, such
cash or other incentives will be conditioned upon the sale of specified minimum
dollar amount of the shares of a Fund and/or other Alliance Mutual Funds during
a specific period of time. Such incentives may take the
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form of payment for attendance at seminars, meals, sporting events or theater
performances, or payment for travel, lodging and entertainment incurred in
connection with travel by persons associated with dealer or agent to urban or
resort locations within or outside the United States. Such dealer or agent may
elect to receive cash incentives of equivalent amount in lieu of such payments.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS's toll-free number, 800-221-5672.
HOW TO EXCHANGE SHARES
You may exchange your Advisor Class shares of any Fund for Advisor Class shares
of other Alliance Mutual Funds (including AFD Exchange Reserves, a money market
fund managed by Alliance). Exchanges of shares are made at the net asset value
next determined and without sales or service charges. Exchanges may be made by
telephone or written request. Telephone exchange requests must be received by
AFS by 4:00 p.m. Eastern time on a Fund business day in order to receive that
day's net asset value.
Please read carefully the prospectus of the mutual fund into which you are
exchanging before submitting the request. Call AFS at 800-221-5672 to exchange
uncertificated shares. An exchange is a taxable capital transaction for federal
tax purposes. The exchange service may be changed, suspended, or terminated on
60 days' written notice.
GENERAL
If you are a Fund shareholder through an account established under a fee-based
program, your fee-based program may impose requirements with respect to the
purchase, sale or exchange of Advisor Class shares of a Fund that are different
from those described in this Prospectus. A transaction, service, administrative
or other similar fee may be charged by your broker-dealer, agent, financial
intermediary or other financial representative with respect to the purchase,
sale or exchange of Advisor Class shares made through such financial
representative. Such financial intermediaries may also impose requirements with
respect to the purchase, sale or exchange of shares that are different from, or
in addition to, those imposed by a Fund, including requirements as to the
minimum initial and subsequent investment amounts.
Each Fund offers three classes of shares other than the Advisor Class, which are
Class A, Class B and Class C. All classes of shares of a Fund have a common
investment objective and investment portfolio. Class A shares are offered with
an initial sales charge and pay a distribution services fee. Class B shares have
a contingent deferred sales charge (a "CDSC") and also pay a distribution
services fee. Class C shares have no initial sales charge or CDSC as long as
they are not redeemed within one year of purchase, but pay a distribution
services fee. Because Advisor Class shares have no initial sales charge or CDSC
and pay no distribution services fee, Advisor Class shares are expected to have
different performance from Class A, Class B or Class C shares. You can obtain
more information about Class A, Class B and Class C shares, which are not
offered by this Prospectus, by contacting AFS by telephone at 800-221-5672 or by
contacting your financial representative.
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Management Of The Funds
-----------------------------------
ADVISER
Alliance, which is a Delaware limited partnership with principal offices at 1345
Avenue of the Americas, New York, New York 10105, has been retained under an
advisory agreement (the "Advisory Agreement") to provide investment advice and,
in general, to conduct the management and investment program of each Fund,
subject to the general supervision and control of the Directors of the Fund.
The following table lists the person or persons who are primarily responsible
for the day-to-day management of each Fund's portfolio, the length of time that
each person has been primarily responsible, and each person's principal
occupation during the past five years.
<TABLE>
Principal occupation
during the past
Fund Employee; year; title five years
- --------------------------------------------------------------------------------
<S> <C> <C>
Alliance Fund Alden M. Stewart since 1997- Associated with
Executive Vice President of Alliance
Alliance Capital Management
Corporation ("ACMC")*
Randall E. Haase since 1997- Associated with
Senior Vice President of ACMC Alliance
Growth Fund Tyler Smith since inception- Associated with
Senior Vice President of ACMC Alliance
Premier Growth Fund Alfred Harrison since inception- Associated with
Vice Chairman of ACMC Alliance
Technology Fund Peter Anastos since 1992- Associated with
Senior Vice President of ACMC Alliance
Gerald T. Malone since 1992- Associated with
Senior Vice President of ACMC Alliance
Quasar Fund Alden M. Stewart since (see above)
1994--
(see above)
Randall E. Haase since (see above)
1994--
(see above)
International Fund Bruce W. Calvert since 1998-- Associated with
Vice Chairman and Chief Alliance
Investment Officer
of ACMC
International Premier Alfred Harrison since 1998-- (see above)
Growth Fund (see above)
Thomas Kamp since 1998-- Associated with
Senior Vice President Alliance
of ACMC
</TABLE>
43
<PAGE>
<TABLE>
Principal occupation
during the past
Fund Employee; year; title five years
- --------------------------------------------------------------------------------
<S> <C> <C>
Worldwide Privatization Mark H. Breedon since inception-- Associated with
Fund Senior Vice President of ACMC Alliance
and Director and Vice President
of Alliance Capital Limited **
New Europe Fund Steven Beinhacker since 1997-- Associated with
Vice President of ACMC Alliance
All-Asia Hiroshi Motoki since 1998-- Associated with
Investment Fund Senior Vice President of ACMC Alliance since
and Director of Japanese/Asian 1994; prior
Equity research thereto
associated
with Ford Motor
Company
Greater China Matthew W. S. Lee since 1997-- Associated with
'97 Fund Vice President of ACMC Alliance since
1997; prior
thereto
associated with
National Mutual
Funds
Management (Asia)
since 1994 and
James Capel and
Co. since prior to
1994
Global Small Cap Alden M. Stewart since 1994-- (see above)
Fund (see above)
Randall E. Haase since 1994-- (see above)
(see above)
Ronald L. Simcoe since 1993-- Associated with
Vice President of ACMC Alliance
Global Environment Linda Bolton Weiser since 1998-- Associated with
Fund Vice President of ACMC Alliance
Balanced Shares Paul Rissman since 1997-- Associated with
Senior Vice President of ACMC Alliance
Utility Income Fund Paul Rissman since 1996-- (see above)
(see above)
Growth & Income Paul Rissman since 1994-- (see above)
Fund (see above)
Real Estate Daniel G. Pine since 1996-- Associated with
Investment Fund Senior Vice President Alliance since
of ACMC 1996; prior
thereto, Senior
Vice President of
Desai Capital
Management
David Kruth since 1997-- Associated with
Vice President of ACMC Alliance since
1997; prior
thereto Senior
Vice President of
the Yarmouth
Group
- --------------------------------------------------------------------------------
</TABLE>
* The sole general partner of Alliance.
** An indirect wholly-owned subsidiary of Alliance.
Alliance is a leading international investment manager supervising client
accounts with assets as of June 30, 1998 totaling more than $262 billion (of
which approximately $107 billion represented the assets of investment
companies). Alliance's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies, foundations and
endowment funds. The 58 registered investment companies managed by Alliance
comprising 123 separate investment portfolios currently have over two million
shareholders. As of June 30, 1998, Alliance was an investment manager of
employee benefit plan assets for 32 of the Fortune 100 companies.
Alliance Capital Management Corporation ("ACMC"), the sole general partner of,
and the owner of a 1% general partnership interest in, Alliance, is an indirect
wholly-owned subsidiary of The Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies in the United
States, which is a wholly-owned subsidiary of The Equitable Companies
Incorporated, a holding company controlled by AXA-UAP, a French insurance
holding company. Certain information concerning the ownership and control of
Equitable by AXA-UAP is set forth in each Fund's Statement of Additional
Information under "Management of the Funds."
Performance of Similarly Managed Portfolios. In addition to managing the assets
of Premier Growth Fund, Mr. Harrison has ultimate responsibility for the
management of discretionary tax-exempt accounts of institutional clients managed
as described below without significant client-imposed restrictions ("Historical
Portfolios"). These accounts have substantially the same investment objectives
and policies and are managed in accordance with essentially the same investment
strategies and techniques as those for Premier Growth Fund, except for the
ability of Premier Growth Fund to use futures and options as hedging tools and
to invest in warrants. The Historical Portfolios are also not subject to certain
limitations, diversification requirements and other restrictions imposed under
the 1940 Act and the Code to which Premier Growth Fund, as a registered
investment company, is subject and which, if applicable to the Historical
Portfolios, may have adversely affected the performance results of the
Historical Portfolios. See "Investment Objective and Policies."
Set forth below is performance data provided by Alliance relating to the
Historical Portfolios for each of the nineteen full calendar years during which
Mr. Harrison has managed the Historical Portfolios as an employee of Alliance
and cumulatively through September 30, 1998. As of September 30, 1998, the
assets in the Historical Portfolios totaled approximately $12.3 billion and the
average size of an institutional account in the Historical Portfolio was $412
million. Each Historical Portfolio has a nearly identical composition of
investment holdings and related percentage weightings.
The performance data is net of all fees (including brokerage commissions)
charged to those accounts. The performance data is computed in accordance with
standards formulated by the Association of Investment Management and Research
and has not been adjusted to reflect any fees that will be
44
<PAGE>
payable by Premier Growth Fund, which are higher than the fees imposed on the
Historical Portfolio and will result in a higher expense ratio and lower returns
for Premier Growth Fund. Expenses associated with the distribution of Class A,
Class B and Class C shares of Premier Growth Fund in accordance with the plan
adopted by Premier Growth Fund's Board of Directors pursuant to Rule 12b-1 under
the 1940 Act ("distribution fees") are also excluded. See "Expense Information."
The performance data has also not been adjusted for corporate or individual
taxes, if any, payable by the account owners.
Alliance has calculated the investment performance of the Historical Portfolios
on a trade-date basis. Dividends have been accrued at the end of the month and
cash flows weighted daily. Composite investment performance for all portfolios
has been determined on an asset-weighted basis. New accounts are included in the
composite investment performance computations at the beginning of the quarter
following the initial contribution. The total returns set forth below are
calculated using a method that links the monthly return amounts for the
disclosed periods, resulting in a time-weighted rate of return.
As reflected below, the Historical Portfolios have over time performed favorably
when compared with the performance of recognized performance indices. The S&P
500 Index is a widely recognized, unmanaged index of market activity based upon
the aggregate performance of a selected portfolio of publicly traded common
stocks, including monthly adjustments to reflect the reinvestment of dividends
and other distributions. The S&P 500 Index reflects the total return of
securities comprising the Index, including changes in market prices as well as
accrued investment income, which is presumed to be reinvested. The Russell 1000
universe of securities is compiled by Frank Russell Company and is segmented
into two style indices, based on the capitalization-weighted median book-to-
price ratio of each of the securities. At each reconstitution, the Russell 1000
constituents are ranked by their book-to-price ratio. Once so ranked, the
breakpoint for the two styles is determined by the median market capitalization
of the Russell 1000. Thus, those securities falling within the top fifty percent
of the cumulative market capitalization (as ranked by descending book-to-price)
become members of the Russell Price-Driven Indices. The Russell 1000 Growth
Index is, accordingly, designed to include those Russell 1000 securities with a
greater-than-average growth orientation. In contrast with the securities in the
Russell Price-Driven Indices, companies in the Growth Index tend to exhibit
higher price-to-book and price-earnings ratios, lower dividend yield and higher
forecasted growth values.
To the extent Premier Growth Fund does not invest in U.S. common stocks or
utilizes investment techniques such as futures or options, the S&P 500 Index and
Russell 1000 Growth Index may not be substantially comparable to Premier Growth
Fund. The S&P 500 Index and Russell 1000 Growth Index are included to illustrate
material economic and market factors that existed during the time period shown.
The S&P 500 Index and Russell 1000 Growth Index do not reflect the deduction of
any fees. If Premier Growth Fund were to purchase a portfolio of securities
substantially identical to the securities comprising the S&P 500 Index or the
Russell 1000 Growth Index, Premier Growth Fund's performance relative to the
index would be reduced by Premier Growth Fund's expenses, including brokerage
commissions, advisory fees, distribution fees, custodial fees, transfer agency
costs and other administrative expenses as well as by the impact on Premier
Growth Fund's shareholders of sales charges and income taxes.
The Lipper Growth Fund Index is prepared by Lipper Analytical Services, Inc. and
represents a composite index of the investment performance for the 30 largest
growth mutual funds. The composite investment performance of the Lipper Growth
Fund Index reflects investment management and administrative fees and other
operating expenses paid by these mutual funds and reinvested income dividends
and capital gain distributions, but excludes the impact of any income taxes and
sales charges.
The following performance data is provided solely to illustrate Mr. Harrison's
performance in managing the Historical Portfolios and the Premier Growth Fund as
measured against certain broad based market indices and against the composite
performance of other open-end growth mutual funds. Investors should not rely on
the following performance data of the Historical Portfolios as an indication of
future performance of Premier Growth Fund. The composite investment performance
for the periods presented may not be indicative of future rates of return. Other
methods of computing investment performance may produce different results, and
the results for different periods may vary.
<TABLE>
<CAPTION>
Schedule of Composite Investment Performance--Historical Portfolios*
Russell Lipper
Premier Historical S&P 500 1000 Growth
Growth Portfolios Index Growth Index Fund Index
Fund Total Return** Total Return Total Return Total Return
------ --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1/1/98 to
9/30/98*** 9.09% 15.27% 6.04% 9.44% 2.38%
Year ended:
1997*** 27.05% 34.64% 33.36% 30.49% 25.30%
1996*** 18.84 22.06 22.96 23.12 17.48
1995*** 40.66 39.83 37.58 37.19 32.65
1994 (9.78) (4.82) 1.32 2.66 (1.57)
1993 5.35 10.54 10.08 2.90 11.98
1992 -- 12.18 7.62 5.00 7.63
1991 -- 38.91 30.47 41.16 35.20
1990 -- (1.57) (3.10) (0.26) (5.00)
1989 -- 38.80 31.69 35.92 28.60
1988 -- 10.88 16.61 11.27 15.80
1987 -- 8.49 5.25 5.31 1.00
1986 -- 27.40 18.67 15.36 15.90
1985 -- 37.41 31.73 32.85 30.30
1984 -- (3.31) 6.27 (.95) (2.80)
1983 -- 20.80 22.56 15.98 22.30
1982 -- 28.02 21.55 20.46 20.20
1981 -- (1.09) (4.92) (11.31) (8.40)
1980 -- 50.73 32.50 39.57 37.30
1979 -- 30.76 18.61 23.91 27.40
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Russell Lipper
Premier Historical S&P 500 1000 Growth
Growth Portfolios Index Growth Index Fund Index
Fund Total Return** Total Return Total Return Total Return
------ --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cumulative total
return for
the period
January 1,
1979 to
September 30,
1998 -- 3,542% 2,064% 1,852% 1,613%
</TABLE>
* Total return is a measure of investment performance that is based upon the
change in value of an investment from the beginning to the end of a
specified period and assumes reinvestment of all dividends and other
distributions. The basis of preparation of this data is described in the
preceding discussion. Total returns for Premier Growth Fund are for Class A
Shares with imposition of the maximum 4.25% sales charge.
** Assumes imposition of the maximum advisory fee charged by Alliance for any
Historical Portfolio for the period involved.
*** During this period, the Historical Portfolios differed from Premier Growth
Fund in that Premier Growth Fund invested a portion of its net assets in
warrants on equity securities in which the Historical Portfolios were
unable, by their investment restrictions, to purchase. In lieu of warrants,
the Historical Portfolios acquired the common stock upon which the warrants
were based.
The average annual total returns presented below are based upon the cumulative
total return as of September 30, 1998, and for more than one year assume a
steady compounded rate of return and are not year-by-year results, which
fluctuated over the periods as shown.
<TABLE>
<CAPTION>
Average Annual Total Returns
---------------------------------------------------------------
Premier Russell Lipper
Growth Historical S&P 500 1000 Growth
Fund Portfolios** Index Growth Index Fund Index
-------- ------------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C>
One year........ 6.21% 13.19% 6.08% 11.11% 3.07%
Three years..... 21.82 24.22 22.60 22.50 16.43
Five years...... 20.23 20.70 19.91 20.80 15.52
Ten years*...... 19.98+ 19.70 17.29 18.07 15.01
Since January 1,
1979.......... -- 19.97 16.84 16.23 15.47
---------------------------------------------------------------
</TABLE>
* Since inception on 9/28/92
ADMINISTRATOR TO ALL-ASIA INVESTMENT FUND
Alliance has been retained by All-Asia Investment Fund under an administration
agreement (the "Administration Agreement") to perform administrative services
necessary for the operation of the Fund. For a description of such services, see
the Statement of Additional Information of the Fund.
CONSULTANT TO ALLIANCE WITH RESPECT TO GREATER CHINA COUNTRIES
In connection with its provisions of advisory services to Greater China '97
Fund, Alliance has retained at its expense as a consultant New Alliance, a joint
venture company headquartered in Hong Kong which was formed in 1997 by Alliance
and Sun Hung Kai Properties Limited ("SHKP"). New Alliance provides Alliance
with ongoing, current and comprehensive information and analysis of conditions
and developments in Greater China countries consisting of, but not limited to,
statistical and factual research and assistance with respect to economic,
financial, political, technological and social conditions and trends in Greater
China countries, including information on markets and industries. In addition to
its own staff of professionals, New Alliance has access to the expertise and
personnel of SHKP, one of Hong Kong's preeminent property and business groups.
SHKP is one of the largest enterprises in Hong Kong measured by market
capitalization and has considerable expertise in evaluating business and market
conditions in Hong Kong and the other Greater China countries. Its activities
complementary to property development include insurance and estate management,
and SHKP is diversified as well into telecommunications and infrastructure
projects.
CONSULTANT TO ALLIANCE WITH RESPECT TO INVESTMENT IN REAL ESTATE SECURITIES
Alliance, with respect to investment in real estate securities, has retained as
a consultant CB Richard Ellis, Inc. ("CBRE"), a publicly held company and the
largest real estate services company in the United States, comprised of real
estate brokerage, property and facilities management, and real estate finance
and investment advisory activities. In 1997, CBRE completed 22,100 sale and
lease transactions, managed over 6,600 client properties, created over $5
billion in mortgage originations, and completed over 3,600 appraisal and
consulting assignments. In addition, they advised and managed for institutions
over $4 billion in real estate investments. CBRE will make available to Alliance
the CBRE National Real Estate Index, which gathers, analyzes and publishes
targeted research data for the 66 largest U.S. markets, based on a variety of
public-sector and private-sector sources as well as CBRE's proprietary database
of approximately 80,000 property transactions representing over $500 billion of
investment property. This information provides a substantial component of the
research and data used to create the REIT.Score model. As a consultant, CBRE
provides to Alliance, at Alliance's expense, such in-depth information regarding
the real estate market, the factors influencing regional valuations and analysts
of recent transactions in office, retail, industrial and multi-family properties
as Alliance shall from time to time request. CBRE will not furnish advice or
make recommendations regarding the purchase or sale of securities by the Fund
nor will it be responsible for making investment decisions involving Fund
assets.
CBRE is one of the three largest fee-based property management firms in the
United States, the largest commercial real estate lease brokerage firm in the
country, the largest investment property brokerage firm in the country, as well
as one of the largest publishers of real estate research, with approximately
8,000 employees worldwide. CBRE will provide Alliance with exclusive access to
its REIT . Score model which ranks approximately 142 REITs based on the relative
attractiveness of the property markets in which they own real estate. This model
scores the approximately 18,000 individual properties owned by these companies.
REIT . Score is in turn based on CBRE's National Real Estate Index which
gathers, analyzes and publishes targeted research for the 66 largest U.S. real
estate markets based on a variety of public- and private-sector sources as well
as CBRE's proprietary database of 80,000 commercial property transactions
representing over $500 billion of investment property and over 2,500 tracked
properties which report rent and expense data quarterly. CBRE has previously
provided access to its REIT.Score model results primarily to the institutional
market
46
<PAGE>
through subscriptions. The model is no longer provided to any research
publications and Real Estate Investment Fund is currently the only mutual fund
available to retail investors that has access to CBRE's REIT . Score model.
DISTRIBUTION SERVICES AGREEMENTS
Each Fund has entered into a Distribution Services Agreement with AFD with
respect to the Advisor Class shares. The Glass-Steagall Act and other applicable
laws may limit the ability of a bank or other depository institution to become
an underwriter or distributor of securities. However, in the opinion of the
Funds' management, based on the advice of counsel, these laws do not prohibit
such depository institutions from providing services for investment companies
such as the administrative, accounting and other services referred to in the
Agreements. In the event that a change in these laws prevented a bank from
providing such services, it is expected that other service arrangements would be
made and that shareholders would not be adversely affected. The State of Texas
requires that shares of a Fund may be sold in that state only by dealers or
other financial institutions that are registered there as broker-dealers.
--------------------------------
Dividends, Distributions
And Taxes
--------------------------------
DIVIDENDS AND DISTRIBUTIONS
If you receive an income dividend or capital gains distribution in cash you may,
within 120 days following the date of its payment, reinvest the dividend or
distribution in additional shares of that Fund without charge by returning to
Alliance, with appropriate instructions, the check representing such dividend or
distribution. Thereafter, unless you otherwise specify, you will be deemed to
have elected to reinvest all subsequent dividends and distributions in shares of
that Fund.
Each income dividend and capital gains distribution, if any, declared by a Fund
on its outstanding shares will, at the election of each shareholder, be paid in
cash or in additional shares of the same class of shares of that Fund having an
aggregate net asset value as of the payment date of such dividend or
distribution equal to the cash amount of such income dividend or distribution.
Election to receive dividends and distributions in cash or shares is made at the
time shares are initially purchased and may be changed at any time prior to the
record date for a particular dividend or distribution. Cash dividends can be
paid by check or, if the shareholder so elects, electronically via the ACH
network. There is no sales or other charge in connection with the reinvestment
of dividends and capital gains distributions.
While it is the intention of each Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and time of any such dividend or distribution must
necessarily depend upon the realization by such Fund of income and capital gains
from investments. There is no fixed dividend rate, and there can be no assurance
that a Fund will pay any dividends or realize any capital gains. Since REITs pay
distributions based on cash flow, without regard to depreciation and
amortization, it is likely that a portion of the distributions paid to Real
Estate Investment Fund and subsequently distributed to shareholders may be a
nontaxable return of capital. The final determination of the amount of a Fund's
return of capital distributions for the period will be made after the end of
each calendar year.
If you buy shares just before a Fund deducts a distribution from its net asset
value, you will pay the full price for the shares and then receive a portion of
the price back as a taxable distribution.
FOREIGN INCOME TAXES
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. To the extent that
any Fund is liable for foreign income taxes withheld at the source, each Fund
intends, if possible, to operate so as to meet the requirements of the Code to
"pass through" to the Fund's shareholders credits for foreign income taxes paid
(or to permit shareholders to claim a deduction for such foreign taxes), but
there can be no assurance that any Fund will be able to do so. Furthermore, a
shareholder's ability to claim a foreign tax credit or deduction in respect of
foreign taxes paid by a Fund may be subject to certain limitations imposed by
the Code, as a result of which a shareholder may not be permitted to claim a
full credit or deduction for the amount of such taxes.
U.S. FEDERAL INCOME TAXES
Each Fund intends to qualify to be taxed as a "regulated investment company"
under the Code. Qualification as a regulated investment company relieves that
Fund of federal income taxes on that part of its taxable income including net
capital gain which it pays out to its shareholders. Dividends out of net
ordinary income and distributions of net short-term capital gains are taxable to
the recipient shareholders as ordinary income. In the case of corporate
shareholders, such dividends may be eligible for the dividends-received
deduction, except that the amount eligible for the deduction is limited to the
amount of qualifying dividends received by the Fund. Dividends received from
REITs or from foreign corporations generally do not constitute qualifying
dividends. A corporation's dividends-received deduction generally will be
disallowed unless the corporation holds shares in the Fund at least 46 days
during the 90 day period beginning 45 days before the date on which the
corporation becomes entitled to receive the dividend. Furthermore, the
dividends-received deduction will be disallowed to the extent a corporation's
investment in shares of a Fund is financed with indebtedness.
Distributions of net capital gain (i.e., the excess of net long-term capital
gain over net short-term capital loss) are taxable as long-term capital gain,
regardless of how long a shareholder has held shares in a Fund. Distributions of
net capital gain are not eligible for the dividends-received deduction referred
to above.
Under current federal tax law, the amount of an income dividend or capital gains
distribution declared by a Fund
47
<PAGE>
during October, November or December of a year to shareholders of record as of a
specified date in such a month that is paid during January of the following year
is includable in the prior year's taxable income of shareholders that are
calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of a Fund will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder, although in effect a
return of capital to that particular shareholder, would be taxable to him or her
as described above. If a shareholder held shares six months or less and during
that period received a distribution of net capital gain, any loss realized on
the sale of such shares during such six-month period would be a long-term
capital loss to the extent of such distribution.
A dividend or capital gains distribution with respect to shares of a Fund held
by a tax-deferred or qualified plan, such as an individual retirement account,
403(b)(7) retirement plan or corporate pension or profit-sharing plan, generally
will not be taxable to the plan. Distributions from such plans will be taxable
to individual participants under applicable tax rules without regard to the
character of the income earned by the qualified plan.
A Fund will be required to withhold 31% of any payments made to a shareholder if
the shareholder has not provided a certified taxpayer identification number to
the Fund, or the Secretary of the Treasury notifies a Fund that a shareholder
has not reported all interest and dividend income required to be shown on the
shareholder's Federal income tax return.
Under certain circumstances, if a Fund realizes losses (e.g., from fluctuations
in currency exchange rates) after paying a dividend, all or a portion of the
dividend may subsequently be characterized as a return of capital. Returns of
capital are generally nontaxable, but will reduce a shareholder's basis in
shares of a Fund. If that basis is reduced to zero (which could happen if the
shareholder does not reinvest distributions and returns of capital are
significant) any further returns of capital will be taxable as capital gain. See
"Dividends, Distributions and Taxes" in the Statements of Additional
Information. Shareholders will be advised annually as to the tax status of
dividends and capital gains and return of capital distributions. Shareholders
are urged to consult their tax advisors regarding their own tax situation.
Distributions by a Fund may be subject to state and local taxes.
------------------------------
Conversion Feature
------------------------------
CONVERSION TO CLASS A SHARES
Advisor Class shares may be held solely through the fee-based program accounts,
employee benefit plans and registered investment advisory or other financial
intermediary relationships described above under "Purchase and Sale of Shares--
How to Buy Shares," and by investment advisory clients of, and certain other
persons associated with, Alliance and its affiliates or the Funds. If (i) a
holder of Advisor Class shares ceases to participate in the fee-based program or
plan, or to be associated with an investment advisor or financial intermediary,
in each case that satisfies the requirements to purchase shares set forth under
"Purchase and Sale of Shares--How to Buy Shares" or (ii) the holder is otherwise
no longer eligible to purchase Advisor Class shares as described in this
Prospectus (each, a "Conversion Event"), then all Advisor Class shares held by
the shareholder will convert automatically and without notice to the
shareholder, other than the notice contained in this Prospectus, to Class A
shares of the Fund during the calendar month following the month in which the
Fund is informed of the occurrence of the Conversion Event. The failure of a
shareholder or a fee-based program to satisfy the minimum investment
requirements to purchase Advisor Class shares will not constitute a Conversion
Event. The conversion would occur on the basis of the relative net asset values
of the two classes and without the imposition of any sales load, fee or other
charge. Class A shares are subject to a distribution fee that may not exceed an
annual rate of .30%. The higher fees mean a higher expense ratio, so Class A
shares pay correspondingly lower dividends and may have a lower net asset value
than Advisor Class shares.
--------------------------------
General Information
--------------------------------
PORTFOLIO TRANSACTIONS
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, a Fund may
consider sales of its shares as a factor in the selection of dealers to enter
into portfolio transactions with the Fund.
ORGANIZATION
Each of the following Funds is a Maryland corporation organized in the year
indicated: The Alliance Fund, Inc. (1938), Alliance Balanced Shares, Inc.
(1932), Alliance Premier Growth Fund, Inc. (1992), Alliance Technology Fund,
Inc. (1980), Alliance Quasar Fund, Inc. (1968), Alliance International Premier
Growth Fund (1997), Alliance Worldwide Privatization Fund, Inc. (1994), Alliance
New Europe Fund, Inc. (1990), Alliance All-Asia Investment Fund, Inc. (1994),
Alliance Greater China '97 Fund (1997), Alliance Global Small Cap Fund, Inc.
(1966), Alliance Global Environment Fund, Inc. (1990), Alliance Utility Income
Fund, Inc. (1993), Alliance Growth and Income Fund, Inc. (1932) and Real Estate
Investment Fund, Inc. (1996). Each of the following Funds is either a
Massachusetts business trust or a series of a Massachusetts business trust
organized in the year indicated: Alliance Growth Fund (a series of The Alliance
Portfolios) (1987), and Alliance International Fund (1980). Prior to August 2,
1993, The Alliance Portfolios was known as The Equitable Funds and Growth Fund
was known as The Equitable Growth Fund.
48
<PAGE>
It is anticipated that annual shareholder meetings will not be held; shareholder
meetings will be held only when required by federal or state law. Shareholders
have available certain procedures for the removal of Directors.
A shareholder in a Fund will be entitled to share pro rata with other holders of
the same class of shares all dividends and distributions arising from the Fund's
assets and, upon redeeming shares, will receive the then current net asset value
of the Fund represented by the redeemed shares. The Funds are empowered to
establish, without shareholder approval, additional portfolios, which may have
different investment objectives and policies than those of the Fund, and
additional classes of shares within the Funds, if an additional portfolio or
class were established in a Fund, each share of the portfolio or class would
normally be entitled to one vote for all purposes. Generally, shares of each
portfolio and class would vote together as a single class on matters, such as
the election of Directors, that affect each portfolio and class in substantially
the same manner. Advisor Class, Class A, Class B and Class C shares have
identical voting, dividend, liquidation and other rights, except that each class
bears its own transfer agency expenses, each of Class A, Class B and Class C
shares of each Fund bears its own distribution expenses and Class B and Advisor
Class shares convert to Class A shares under certain circumstances. Each class
of shares of each Fund votes separately with respect to matters for which
separate class voting is appropriate under applicable law. Shares are freely
transferable, are entitled to dividends as determined by the Directors and, in
liquidation of a Fund, are entitled to receive the net assets of the Fund. Since
this Prospectus sets forth information about all the Funds, it is theoretically
possible that a Fund might be liable for any materially inaccurate or incomplete
disclosure in this Prospectus concerning another Fund. Based on the advice of
counsel, however, the Funds believe that the potential liability of each Fund
with respect to the disclosure in this Prospectus extends only to the disclosure
relating to that Fund. Certain additional matters relating to a Fund's
organization are discussed in its Statement of Additional Information.
REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as each Fund's registrar, transfer agent
and dividend-disbursing agent for a fee based upon the number of shareholder
accounts maintained for the Funds.
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue of
the Americas, New York, New York 10105, is the principal underwriter of shares
of the Funds.
PERFORMANCE INFORMATION
From time to time, the Funds advertise their "total return," which is computed
separately for each class of shares, including Advisor Class shares. Such
advertisements disclose a Fund's average annual compounded total return for the
periods prescribed by the Commission. A Fund's total return for each such period
is computed by finding, through the use of a formula prescribed by the
Commission, the average annual compounded rate of return over the period that
would equate an assumed initial amount invested to the value of the investment
at the end of the period. For purposes of computing total return, income
dividends and capital gains distributions paid on shares of a Fund are assumed
to have been reinvested when paid and the maximum sales charges applicable to
purchases and redemptions of a Fund's shares are assumed to have been paid.
Balanced Shares, Growth and Income Fund, Real Estate Investment Fund and Utility
Income Fund may also advertise their "yield," which is also computed separately
for each class of shares, including Advisor Class shares. A Fund's yield for any
30-day (or one-month) period is computed by dividing the net investment income
per share earned during such period by the maximum public offering price per
share on the last day of the period, and then annualizing such 30-day (or one-
month) yield in accordance with a formula prescribed by the Commission which
provides for compounding on a semi-annual basis.
Balanced Shares, Utility Income Fund, Real Estate Investment Fund and Growth and
Income Fund may also state in sales literature an "actual distribution rate" for
each class which is computed in the same manner as yield except that actual
income dividends declared per share during the period in question are
substituted for net investment income per share. The actual distribution rate is
computed separately for each class of shares, including Advisor Class shares.
A Fund's advertisements may quote performance rankings or ratings of a Fund by
financial publications or independent organizations such as Lipper Analytical
Services, Inc. and Morningstar, Inc. or compare a Fund's performance to various
indices.
ADDITIONAL INFORMATION
This Prospectus and the Statements of Additional Information, which have been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statements filed by the Funds with the Commission under the
Securities Act. Copies of the Registration Statements may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at the
offices of the Commission in Washington, D.C.
This prospectus does not constitute an offering in any state in which such
offering may not lawfully be made.
This prospectus is intended to constitute an offer by each Fund only of the
securities of which it is the issuer and is not intended to constitute an offer
by any Fund of the securities of any other Fund whose securities are also
offered by this prospectus. No Fund intends to make any representation as to the
accuracy or completeness of the disclosure in this prospectus relating to any
other Fund. See "General Information--Organization."
49
<PAGE>
- --------------------------------------
Alliance Stock Funds
Subscription Application
- - Advisor Class
- --------------------------------------
The Alliance Fund
Growth Fund
Premier Growth Fund
Technology Fund
Quasar Fund
International Fund
International Premier Growth Fund
Worldwide Privatization Fund
New Europe Fund
All-Asia Investment Fund
Greater China '97 Fund
Global Small Cap Fund
Global Environment Fund
Balanced Shares
Utility Income Fund
Growth & Income Fund
Fund Real Estate Investment Fund
To Open Your New Alliance Account...
Please complete the application and mail it to:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, New Jersey 07096-1520
For certified or overnight deliveries, send to:
Alliance Fund Services, Inc.
500 Plaza Drive
Secaucus, New Jersey 07094
Section 1 Your Account Registration
(Required)
Complete one of the available choices. To ensure proper
tax reporting to the IRS:
. Individuals, Joint Tenants, Transfer on Death and
Gift/Transfer to a Minor:
o Indicate your name(s) exactly as it appears on
your social security card.
. Transfer on Death:
o Ensure that your state participates
. Trust/Other:
o Indicate the name of the entity exactly as it
appeared on the notice you received from the IRS
when your Employer Identification number was
assigned.
Section 2 Your Address (Required) Complete in full.
. Non-Resident Alien:
o Indicate your permanent country of residence.
Section 3 Your Initial Investment (Required) For each fund in which you are
investing (1) Write the three digit fund number in the column titled `Indicate
three digit fund number located below'.
<PAGE>
(2) Write the dollar amount of your initial purchase in the column titled
`Indicate Dollar Amount'.
(3) Check off a distribution option for your dividends.
(4) Check off a distribution option for your capital gains. All distributions
(dividends and capital gains) will be reinvested into your fund account unless
you direct otherwise. If you want distributions sent directly to your bank
account, then you must complete Section 4D and attach a preprinted, voided check
for that account. If you want your distributions sent to a third party you must
complete Section 4E.
Section 4 Your Shareholder Options (Complete only those options you want)
A. Automatic Investment Plans (AIP) - You can make periodic investments into any
of your Alliance Funds in one of three ways. First, by a periodic withdrawal
($25 minimum) directly from your bank account and invested into an Alliance
Fund. Second, you can direct your distributions (dividends and capital gains)
from one Alliance Fund into another Fund. Or third, you can automatically
exchange monthly ($25 minimum) shares of one Alliance Fund for shares of another
Fund. To elect one of these options, complete the appropriate portion of Section
4A & 4D. If more than one dividend direction or monthly exchange is desired,
please call our Literature Center to obtain a Shareholder Account Services
Options Form for completion.
B. Telephone Transactions via EFT - Complete this option if you would like to be
able to transact via telephone between your fund account and your bank account.
C. Systematic Withdrawal Plans (SWP) - Complete this option if you wish to
periodically redeem dollars from one of your fund accounts. Payments can be made
via Electronic Funds Transfer (EFT) to your bank account or by check.
D. Bank Information - If you have elected any options that
involve transactions between your bank account and your fund account or have
elected cash distribution options and would like the payments sent to your bank
account, please tape a preprinted,voided check of the account you wish to use to
this section of the application.
E. Third Party Payment Details - If you have chosen cash distributions and/or a
Systematic Withdrawal Plan and would like the payments sent to a person and/or
address other than those provided in section 1 or 2, complete this
option. Medallion Signature Guarantee is required if your account is not
maintained by a broker dealer.
Section 5 Shareholder Authorization (Required) All owners must sign. If it is a
custodial, corporate, or trust account, the custodian, an authorized officer, or
the trustee respectively must sign.
If We Can Assist You In Any Way, Please Do Not Hesitate To Call Us At:
(800) 221-5672.
- ------------------------------------
For Literature Call: (800) 227-4618
- ------------------------------------
<PAGE>
The Alliance Stock Funds Subscription Application - Advisor Class
1. Your Account Registration (Please Print in Capital Letters and Mark Check
Boxes Where Applicable)
[_] Individual Account { [_] Male [_] Female } -or- [_] Joint Account -or-
[_] Transfer On Death { [_] Male [_] Female } -or- [_] Gift/Transfer to a Minor
[_][_][_][_][_][_][_][_][_][_] [_] [_][_][_][_][_][_][_][_][_][_]
Owner or Custodian (First Name) (MI) (Last Name)
[_][_][_][_][_][_][_][_][_][_] [_] [_][_][_][_][_][_][_][_][_][_]
(First Name) Joint Owner*, (MI) (Last Name)
Transfer On Death Beneficiary
or Minor
[_][_][_]-[_][_]-[_][_][_][_] If Uniform Gift/Transfer
Social Security Number of Owner to Minor Account:
or Minor (required to open account) [_][_] Minor's State of Residence
If Joint Tenants Account: * The Account will be registered
"Joint Tenants with right of Survivorship" unless you indicate
otherwise below:
[_] In Common [_] By Entirety [_] Community Property
[_] Trust -or- [_] Corporation -or- [_] Other_______________________________
[_][_][_][_][_][_][_][_][_][_] [_] [_][_][_][_][_][_][_][_][_][_]
Name of Trustee if applicable (MI) (Last Name)
(First Name)
[_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_]
Name of Trust or Corporation or Other Entity
[_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_]
Name of Trust or Corporation or Other Entity continued
[_][_][_][_][_][_][_][_] [_][_][_][_][_][_][_][_][_]
Trust Dated (MM,DD,YYYY) Tax ID Number (required to open account)
[_] Employer ID Number - OR - [_]Social
Security
Number
2. Your Address
[_][_][_][_][_][_][_] [_][_][_][_][_][_][_][_][_][_][_][_][_][_]
Street Number Street Name
[_][_][_][_][_][_][_][_][_][_][_][_][_] [_][_] [_][_][_][_][_]
City State Zip code
[_][_][_][_][_][_][_][_][_] [_][_][_] - [_][_][_] - [_][_][_][_]
If Non-U.S., Specify Country Daytime Phone Number
[_] U.S. Citizen [_] Resident Alien [_] Non-Resident Alien
ALLIANCE CAPITAL [LOGO]
80887GEN-TASFApp-Advisor-P1
1
<PAGE>
- -----------------------------------
3. Your Initial Investment
- -----------------------------------
I hereby subscribe for shares of the following Alliance Stock Fund(s) Advisor
Class and elect distribution options as indicated.
Broker/Dealer Use Only: Wire Confirm #
Dividend and Capital Gain Distribution Options:
R Reinvest distributions into my fund account.
- - ----------------------
C Send my distributions in cash to the address I have provided in Section 2.
- - -----------------------------
(Complete Section 4D for direct deposit to your bank account. Complete
Section 4E for payment to a third party).
D Direct my distributions to another Alliance fund. Complete the appropriate
- - ------------------------------------------------
portion of Section 4A to direct your distributions (dividends and capital
gains) to another Alliance Fund.
- ----------- -------------- ---------------------- ------------------------
Make all Indicate three Distributions Options
checks/*/ digit Fund Indicate Dollar Amount /*/Check One/*/
payable to: number ------------------------
Alliance located below --------- -------------
Funds Dividends Capital Gains
- ----------- -------------- ---------------------- --------- -------------
R C D R C D
- ----------------------------
Total Investment
- ----------------------------
/*/ Cash and money orders are not accepted
- -----------------------------------------------------
Alliance Stock Fund Names and Numbers
- -----------------------------------------------------
------------
Advisor
Class
------------
The Alliance Fund 444
Growth Fund 431
- -------- Premier Growth Fund 478
DOMESTIC Technology Fund 482
- -------- Quasar Fund 426
International Fund 440
International Premier Growth 479
Worldwide Privatization Fund 412
- ------ New Europe Fund 462
GLOBAL All-Asia Investment Fund 418
- ------ Greater China '97 Fund 460
Global Small Cap Fund 445
Global Environment Fund 481
- ------ Balanced Shares 496
TOTAL Utility Income Fund 409
RETURN Growth & Income Fund 494
- ------ Real Estate Investment Fund 410
80887GEN-TASFApp-Advisor-P2
2
<PAGE>
4. Your Shareholder Options
A. Automatic Investment Plans (AIP)
[_] Withdraw From My Bank Account Via EFT(*) I authorize Alliance to draw on my
bank account for investment in my fund account(s) as indicated below
(Complete Section 4D also for the bank account you wish to use).
<TABLE>
<S> <C> <C> <C>
1- [_] [_] [_] [_] [_] [_] [_] [_] [_],[_] [_] [_].00 [_] Frequency:
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency M = monthly
Q = quarterly
A = annually
2- [_] [_] [_] [_] [_] [_] [_] [_] [_],[_] [_] [_].00 [_]
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- [_] [_] [_] [_] [_] [_] [_] [_] [_],[_] [_] [_].00 [_]
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
(*) Electronic Funds Transfer. Your bank must be a member of the National Automated Clearing House Association (NACHA)
</TABLE>
[_] Direct My Distributions As indicated in Section 3, I would like my
dividends and/or capital gains directed to the same class of shares of
another Alliance Fund.
FROM:
---- [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] - [_]
Fund Number Account Number (If existing)
TO:
-- [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] - [_]
Fund Number Account Number (If existing)
[_] Exchange My Shares Monthly I authorize Alliance to transact monthly
exchanges, within the same class of shares, between my fund accounts as
listed below.
FROM:
---- [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] - [_]
Fund Number Account Number (If existing)
[_] [_], [_] [_] [_].00 [_] [_]
Amount ($25 minimum) Day of Exchange(**)
TO:
-- [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] - [_]
Fund Number Account Number (If existing)
(**) Shares exchanged will be redeemed at the net asset value on the "Day
of Exchange" (If the "Day of Exchange" is not a fund business day, the
exchange transaction will be processed on the next fund business day). The
exchange privilege is not available if stock certificates have been issued.
B. Purchases and Redemptions Via EFT
You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund
Services, Inc. in a recorded conversation to purchase, redeem or exchange
shares for your account. Purchase and redemption requests will be processed
via electronic funds transfer (EFT) to and from your bank account.
Instructions: -- Review the information in the Prospectus about telephone
transaction services.
-- If you select the telephone purchase or redemption
privilege, you must write "VOID" across the face of a
check from the bank account you wish to use and attach it
to Section 4D of this application.
[_] Purchases and Redemptions via EFT
I hereby authorize Alliance Fund Services, Inc. to effect the purchase
and/or redemption of Fund shares for my account according to my telephone
instructions or telephone instructions from my Broker/Agent, and to
withdraw money or credit money for such shares via EFT from the bank
account I have selected.
- --------------------------------------------------------------------------------
For shares recently purchased by check or electronic funds transfer
redemption proceeds will not be made available until the Fund is reasonably
assured the check or electronic funds transfer has been collected, normally
15 calendar days after the purchase date.
- --------------------------------------------------------------------------------
80887GEN-TASFApp-Advisor-P3
3
<PAGE>
4. Your Shareholder Options (CONTINUED)
C. Systematic Withdrawal Plans (SWP)
In order to establish a SWP, you must reinvest all dividends and capital
gains.
[_] I authorize Alliance to transact periodic redemptions from my fund
account and send the proceeds to me as indicated below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1- [_] [_] [_] [_] [_] [_] [_] [_] [_],[_] [_] [_].00 [_]
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
2- [_] [_] [_] [_] [_] [_] [_] [_] [_],[_] [_] [_].00 [_] M = monthly
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency Q = quarterly
A = annually
3- [_] [_] [_] [_] [_] [_] [_] [_] [_],[_] [_] [_].00 [_]
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Please send my SWP proceeds to:
[_] My Address of Record (via check)
[_] The Payee and address specified in section 4E (via check)(Medallion
Signature Guarantee required)
[_] My checking account-via EFT (complete section 4D) Your bank must be a
member of the National Automated Clearing House Association (NACHA)
in order for you to receive SWP proceeds directly into your bank
account. Otherwise payment will be made by check
D. Bank Information This bank account information will be used for:
[_] Distributions (Section 3) [_] Telephone Transactions
(Section 4B)
[_] Automatic Investments (Section 4A) [_] Withdrawals (Section 4C)
Please Tape a Pre-printed Voided Check Here(*)
103
J. Smith
123 Main Street
ANYTOWN, USA 12345 ____ 19 __
Pay to the
Order of ________________________________________$ _______________
____________________________________________________________Dollars
YOUR BANK
123 STREET
ANYTOWN, USA 12345 VOID
Note ___________________________ _______________________________
:000000000: 103 000000000:765
ABA Routing Number Check Bank Account Number
Number
(*) The above services cannot be established without a pre-printed voided check.
For EFT transactions, the fund requires signatures of bank account owners
exactly as they appear on bank records. If the registration at the bank differs
from that on the Alliance mutual fund, all parties must sign in Section 5.
[_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_]
Your Bank's ABA Routing Number Your Bank Account Number
</TABLE>
[_] Checking Account [_] Savings Account
80887GEN-TASFApp-Advisor-P4
4
<PAGE>
4. Your Shareholder Options (CONTINUED)
E. Third Party Payment Details Your signature(s) in Section 5 must be Medallion
Signature Guaranteed if your account is not maintained by a broker/dealer.
This third party payee information will be used for:
[_] Distributions (section 3) [_] Systematic Withdrawals (section 4C)
[_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_]
Name (First Name) (MI) (Last Name)
[_] [_] [_] [_] [_] [_] [_] [_] [_] [_][_][_][_] [_] [_] [_] [_] [_] [_][_]
Street Number Street Name
[_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_] [_][_][_] [_] [_]
City State Zip code
Dealer/Agent Authorization - For selected Dealers or Agents ONLY.
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee the
signature(s) set forth in Section 5, as well as the legal capacity of the
shareholder.
- ------------------------------------- --------------------------------------
- ------------------------------------- --------------------------------------
Dealer/Agent Firm Authorized Signature
- --------------------------------- ---- --------------------------------------
- --------------------------------- ---- --------------------------------------
Representative First Name MI Last Name
- ------------------------------------- --------------------------------------
- ------------------------------------- --------------------------------------
Dealer/Agent Firm Number Representative Number
- ------------------------------------- --------------------------------------
- ------------------------------------- --------------------------------------
Branch Number Branch Telephone Number
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Branch Office Address
- -------------------------------- ----- ---- --------------------------------
- -------------------------------- ----- ---- --------------------------------
City State Zip Code
80887GEN-TASFApp-Advisor-P5
5
<PAGE>
5. Shareholder Authorization -- This section MUST be completed
Telephone Exchanges and Redemptions by Check
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an
authorized employee of an investment dealer or agent requesting a redemption
or exchange on my behalf. (NOTE: Telephone exchanges may only be processed
between accounts that have identical registrations.) Telephone redemption
checks will only be mailed to the name and address of record; and the
address must not have changed within the last 30 days. The maximum telephone
redemption amount is $50,000 for redemptions by check.
[_] I do not elect the telephone exchange service
[_] I do not elect the telephone redemption by check service
By selecting any of the above telephone privileges, I agree that neither the
Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund Services,
Inc. or other Fund Agent will be liable for any loss, injury, damage or
expense as a result of acting upon telephone instructions purporting to be
on my behalf, that the Fund reasonably believes to be genuine, and that
neither the Fund nor any such party will be responsible for the authenticity
of such telephone instructions. I understand that any or all of these
privileges may be discontinued by me or the Fund at any time. I understand
and agree that the Fund reserves the right to refuse any telephone
instructions and that my investment dealer or agent reserves the right to
refuse to issue any telephone instructions I may request.
For non-residents only: Under penalties of perjury, I certify that to the
best of my knowledge and belief, I qualify as a foreign person as indicated
in Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
I certify under penalty of perjury that the number shown in Section 1 of
this form is my correct tax identification number or I am waiting for a
number to be issued to me and that I have not been notified that this
account is subject to backup withholding.
The Internal Revenue Service does not require your consent to any provision
of this document other than the certification required to avoid backup
withholding.
- ------------------------------------------------ ---------------------
- ------------------------------------------------ ---------------------
Signature Date
- ------------------------------------------------ ---------------------
- ------------------------------------------------ ---------------------
Signature Date
- -----------------------------------------
Medallion Signature Guarantee required if
completing Section 4E and your mutual
fund is not maintained by a broker dealer
ALLIANCE CAPITAL [LOGO]
80887GEN-TASFApp-Advisor-P6
6
<PAGE>
THE ALLIANCE BOND FUNDS
_______________________________________________________________________________
C/O ALLIANCE FUND SERVICES, INC.
P.O. BOX 1520, SECAUCUS, NEW JERSEY 07096-1520
TOLL FREE (800) 221-5672
FOR LITERATURE: TOLL FREE (800) 227-4618
PROSPECTUS AND APPLICATION
NOVEMBER 2, 1998
U.S. GOVERNMENT FUNDS GLOBAL BOND FUNDS
- -ALLIANCE SHORT-TERM U.S. -ALLIANCE NORTH AMERICAN
GOVERNMENT FUND GOVERNMENT INCOME TRUST
- -U.S. GOVERNMENT -ALLIANCE GLOBAL DOLLAR
PORTFOLIO GOVERNMENT FUND
- -ALLIANCE LIMITED MATURITY -ALLIANCE GLOBAL STRATEGIC
GOVERNMENT FUND INCOME TRUST
MORTGAGE FUND CORPORATE BOND FUNDS
- -ALLIANCE MORTGAGE -CORPORATE BOND PORTFOLIO
SECURITIES INCOME FUND -ALLIANCE HIGH YIELD FUND
MULTI-MARKET FUND
- -ALLIANCE MULTI-MARKET
STRATEGY TRUST
TABLE OF CONTENTS PAGE
- ----------------- ----
The Funds at a Glance 2
Expense Information 4
Financial Highlights 7
Glossary 15
Description of the Funds 16
Investment Objectives and Policies 16
Additional Investment Practices 23
Certain Fundamental Investment Policies 35
Risk Considerations 36
Purchase and Sale of Shares 41
Management of the Funds 43
Dividends, Distributions and Taxes 46
General Information. 47
Appendix A: Bond Ratings A-1
Appendix B: General Information About Canada,
Mexico and Argentina B-1
Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105
The Alliance Bond Funds provide a broad selection of investment alternatives to
investors seeking high current income. The U.S. Government Funds invest mainly
in U.S. Government securities and the Mortgage Fund invests in mortgage-related
securities, while the Multi-Market Fund diversifies its investments among debt
markets around the world and the Global Bond Funds invest primarily in foreign
government securities. The Corporate Bond Funds invest primarily in corporate
debt securities.
Each fund or portfolio (each a "Fund") is, or is a series of, an open-end
management investment company. This Prospectus sets forth concisely the
information which a prospective investor should know about each Fund before
investing. A "Statement of Additional Information" for each Fund that provides
further information regarding certain matters discussed in this Prospectus and
other matters that 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, write Alliance Fund Services, Inc. at the indicated address or
call the "For Literature" telephone number shown above.
Each Fund offers three classes of shares through this Prospectus. These shares
may be purchased, at the investor's choice, at a price equal to their net asset
value (i) plus an initial sales charge imposed at the time of purchase (the
"Class A shares"), (ii) with a contingent deferred sales charge imposed on most
redemptions made within three years of purchase (four years of purchase for
Alliance Global Strategic Income Trust and Alliance High Yield Fund) (the
"Class B shares"), or (iii) without any initial or contingent deferred sales
charge, as long as the shares are held for one year or more (the "Class C
shares"). See "Purchase and Sale of Shares."
AN INVESTMENT IN THESE SECURITIES IS NOT A DEPOSIT OR OBLIGATION OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK AND IS NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS CAREFULLY AND TO RETAIN IT FOR
FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Alliance (R)
INVESTING WITHOUT THE MYSTERY.(SM)
(R)/(SM) These are registered marks used under licenses from the owner,
Alliance Capital Management L.P.
1
THE FUNDS AT A GLANCE
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
THE FUNDS' INVESTMENT ADVISER IS . . .
Alliance Capital Management L.P. ("Alliance"), a global investment manager
providing diversified services to institutions and individuals through a broad
line of investments including more than 120 mutual funds. Since 1971, Alliance
has earned a reputation as a leader in the investment world with over $262
billion in assets under management as of June 30, 1998. Alliance provides
investment management services to 32 of the FORTUNE 100 companies.
U.S. GOVERNMENT FUNDS
SHORT-TERM U.S. GOVERNMENT FUND
SEEKS . . . High current income consistent with preservation of capital.
INVESTS PRIMARILY IN . . . A diversified portfolio of U.S. Government
securities.
U.S. GOVERNMENT PORTFOLIO
SEEKS . . . As high a level of current income as is consistent with safety of
principal.
INVESTS SOLELY IN . . . A diversified portfolio of U.S. Government securities
backed by the full faith and credit of the United States. The Board of
Directors of the Fund has approved, and recommended to shareholders for their
approval, changes to the Fund's investment objective and policies. See
"Description of the Funds--U.S. Government Portfolio."
LIMITED MATURITY GOVERNMENT FUND
SEEKS . . . The highest level of current income, consistent with low volatility
of net asset value.
INVESTS PRIMARILY IN . . . A diversified portfolio of U.S. Government
securities, including mortgage-related securities, and repurchase agreements
relating to U.S. Government securities.
MORTGAGE FUND
MORTGAGE SECURITIES INCOME FUND
SEEKS . . . A high level of current income consistent with prudent investment
risk.
INVESTS PRIMARILY IN . . . A diversified portfolio of mortgage-related
securities.
MULTI-MARKET FUND
MULTI-MARKET STRATEGY TRUST
SEEKS . . . The highest level of current income that is available from a
portfolio of high-quality debt securities having remaining maturities of not
more than five years.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. The Fund
expects to maintain at least 70% of its assets in debt securities denominated
in foreign currencies, but not more than 25% of the Fund's total assets may be
invested in debt securities denominated in a single currency other than the
U.S. Dollar.
GLOBAL BOND FUNDS
NORTH AMERICAN GOVERNMENT INCOME TRUST
SEEKS . . . The highest level of current income that is available from a
portfolio of investment grade debt securities issued or guaranteed by the
governments of the United States, Canada and Mexico.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of government securities
denominated in the U.S. Dollar, the Canadian Dollar and the Mexican Peso. The
Fund expects to maintain at least 25% of its assets in securities denominated
in the U.S. Dollar. In addition, the Fund may invest up to 25% of its total
assets in debt securities issued by governmental entities in Argentina.
GLOBAL DOLLAR GOVERNMENT FUND
SEEKS . . . Primarily a high level of current income and, secondarily, capital
appreciation.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of sovereign debt
obligations and in U.S. and non-U.S. corporate fixed-income securities.
Substantially all of the Fund's assets are invested in lower-rated securities.
GLOBAL STRATEGIC INCOME TRUST
SEEKS . . . Primarily a high level of current income and secondarily capital
appreciation.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of fixed-income
securities of U.S. and non-U.S. issuers.
2
CORPORATE BOND FUNDS
CORPORATE BOND PORTFOLIO
SEEKS . . . Primarily to maximize income over the long term; secondarily, the
Fund will attempt to increase its capital through appreciation of its
investments.
INVESTS PRIMARILY IN . . . A diversified portfolio of U.S. Dollar-denominated
corporate bonds issued by domestic and foreign issuers that give promise of
relatively attractive yields.
HIGH YIELD FUND
SEEKS . . . A high total return by maximizing current income and, to the extent
consistent with that objective, capital appreciation.
INVESTS PRIMARILY IN . . . A diversified mix of high yield, below investment
grade fixed-income securities involving greater volatility of price and risk of
principal and income than higher quality fixed-income securities.
DISTRIBUTIONS . . .
The Funds intend to make monthly distributions to shareholders. These
distributions may include ordinary income and capital gain (each of which is
taxable) and a return of capital (which is generally non-taxable). See
"Dividends, Distributions and Taxes."
A WORD ABOUT RISK . . .
The prices of the shares of the Alliance Bond Funds will fluctuate daily as the
prices of the individual bonds in which they invest fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost.
Price fluctuations may be caused by changes in the general level of interest
rates or changes in bond credit quality ratings. Changes in interest rates have
a greater effect on bonds with longer maturities than those with shorter
maturities. Some of the Funds invest in high-yield, high-risk bonds that are
rated below investment grade and are considered to have predominantly
speculative characteristics. The prices of non-U.S. Dollar denominated bonds
also fluctuate with changes in foreign exchange rates. Investment in the Global
Bond Funds, the Multi-Market Fund and any other Fund that may invest a
significant amount of its assets in non-U.S. securities involves risks not
associated with Funds that invest primarily in securities of U.S. issuers.
While the Funds invest principally in fixed-income securities, in order to
achieve their investment objectives, the Funds may at times use certain types
of derivative instruments, such as options, futures, forwards and swaps. These
instruments involve risks different from, and, in certain cases, greater than,
the risks presented by more traditional investments. These risks are fully
discussed in this Prospectus. See "Description of the Funds--Additional
Investment Practices" and "--Risk Considerations."
GETTING STARTED . . .
Shares of the Funds are available through your financial representative and
most banks, insurance companies and brokerage firms nationwide. Shares of each
Fund can be purchased for a minimum initial investment of $250, and subsequent
investments can be made for as little as $50. For detailed information about
purchasing and selling shares, see "Purchase and Sale of Shares." In addition,
the Funds offer several time and money saving services to investors. Be sure to
ask your financial representative about:
AUTOMATIC REINVESTMENT
AUTOMATIC INVESTMENT PROGRAM
RETIREMENT PLANS
SHAREHOLDER COMMUNICATIONS
DIVIDEND DIRECTION PLANS
AUTO EXCHANGE
SYSTEMATIC WITHDRAWALS
CHECK-WRITING
A CHOICE OF PURCHASE PLANS
TELEPHONE TRANSACTIONS
24-HOUR INFORMATION
ALLIANCE CAPITAL (R)
(R) These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
3
EXPENSE INFORMATION
_______________________________________________________________________________
SHAREHOLDER TRANSACTION EXPENSES are one of several factors to consider when
you invest in a Fund. The following tables summarize your maximum transaction
costs from investing in a Fund and annual operating expenses for each class of
shares of each Fund. For each Fund, the "Examples" below show the cumulative
expenses attributable to a hypothetical $1,000 investment, assuming a 5% annual
return, in each class for the periods specified.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES(B) CLASS B SHARES(D) CLASS C SHARES
-------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.25%(a) None None None
Sales charge imposed on dividend reinvestments None None None None
Deferred sales charge (as a percentage
of original purchase price or redemption
proceeds, whichever is lower) None 3.0% during 4.0% during 1.0% during
the first year, the first year, the first year,
decreasing 1.0% decreasing 1.0% 0% thereafter
annually to 0% annually to 0%
after the third after the fourth
year (c) year (e)
Exchange fee None None None None
</TABLE>
(A) REDUCED FOR LARGER PURCHASES. PURCHASES OF $1,000,000 OR MORE ARE NOT
SUBJECT TO AN INITIAL SALES CHARGE BUT MAY BE SUBJECT TO A 1% DEFERRED SALES
CHARGE ON REDEMPTIONS WITHIN ONE YEAR OF PURCHASE. SEE "PURCHASE AND SALE OF
SHARES--HOW TO BUY SHARES" --PAGE 41.
(B) FOR ALL FUNDS EXCEPT GLOBAL STRATEGIC INCOME AND HIGH YIELD.
(C) CLASS B SHARES OF EACH FUND, OTHER THAN GLOBAL STRATEGIC INCOME AND HIGH
YIELD, AUTOMATICALLY CONVERT TO CLASS A SHARES AFTER SIX YEARS. SEE "PURCHASE
AND SALE OF SHARES--HOW TO BUY SHARES" --PAGE 41.
(D) FOR GLOBAL STRATEGIC INCOME AND HIGH YIELD ONLY.
(E) SHARES OF GLOBAL STRATEGIC INCOME AND HIGH YIELD AUTOMATICALLY CONVERT TO
CLASS A SHARES AFTER EIGHT YEARS. SEE "PURCHASE AND SALE OF SHARES--HOW TO BUY
SHARES"--PAGE 41.
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES EXAMPLES
- ---------------------------------------------------------------- ----------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
SHORT-TERM U.S. GOVERNMENT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees(a) (after waiver) None None None After 1 year $ 60 $ 56 $ 26 $ 36 $ 26
12b-1 fees .30% 1.00% 1.00% After 3 years $ 97 $ 89 $ 79 $ 79 $ 79
Other expenses After 5 years $137 $136 $136 $136 $136
Interest expense .42% .45% .45% After 10 years $246 $254 $254 $289 $289
Other operating expenses(a)(b)
(after reimbursement) 1.10% 1.10% 1.10%
Total other expenses 1.52% 1.55% 1.55%
Total fund operating expenses(b)(c)
(after waiver/reimbursement) 1.82% 2.55% 2.55%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
U.S. GOVERNMENT
Management fees .55% .55% .55% After 1 year $ 53 $ 48 $ 18 $ 28 $ 18
12b-1 fees .30% 1.00% 1.00% After 3 years $ 75 $ 65 $ 55 $ 55 $ 55
Other expenses(b) .21% .21% .21% After 5 years $ 98 $ 95 $ 95 $ 95 $ 95
Total fund operating expenses 1.06% 1.76% 1.76% After 10 years $166 $172 $172 $207 $207
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
LIMITED MATURITY GOVERNMENT
Management fees .65% .65% .65% After 1 year $ 66 $ 62 $ 32 $ 42 $ 32
12b-1 fees .30% 1.00% 1.00% After 3 years $114 $107 $ 97 $ 97 $ 97
Other expenses After 5 years $166 $164 $164 $164 $164
Interest expense .76% .75% .76% After 10 years $305 $313 $313 $344 $344
Other operating expenses(b) .70% .74% .72%
Total other expenses 1.46% 1.49% 1.48%
Total fund operating expenses(d) 2.41% 3.14% 3.13%
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 6.
4
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES EXAMPLES
- ---------------------------------------------------------------- ----------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MORTGAGE SECURITIES INCOME
Management fees .52% .52% .52% After 1 year $ 56 $ 52 $ 22 $ 32 $ 22
12b-1 fees .30% 1.00% 1.00% After 3 years $ 85 $ 77 $ 67 $ 66 $ 66
Other expenses After 5 years $116 $115 $115 $114 $114
Interest expense .34% .36% .35% After 10 years $204 $212 $212 $245 $245
Other operating expenses(b) .25% .26% .25%
Total other expenses .59% .62% .60%
Total fund operating expenses(e) 1.41% 2.14% 2.12%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
MULTI-MARKET STRATEGY
Management fees .60% .60% .60% After 1 year $ 58 $ 53 $ 23 $ 33 $ 23
12b-1 fees .30% 1.00% 1.00% After 3 years $ 90 $ 82 $ 72 $ 71 $ 71
Other expenses After 5 years $125 $123 $123 $122 $122
Other operating expenses(d) .68% .69% .68% After 10 years $222 $228 $228 $262 $262
Total other expenses
Total fund operating expenses(d) 1.58% 2.29% 2.28%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
NORTH AMERICAN GOVERNMENT INCOME
Management fees(f) .73% .73% .73% After 1 year $ 63 $ 59 $ 29 $ 39 $ 29
12b-1 fees .30% 1.00% 1.00% After 3 years $107 $ 99 $ 89 $ 88 $ 88
Other expenses After 5 years $153 $151 $151 $150 $150
Interest expense .77% .77% .77% After 10 years $280 $286 $286 $318 $318
Other operating expenses(b) .35% .36% .35%
Total other expenses 1.12% 1.13% 1.12%
Total fund operating expenses(g) 2.15% 2.86% 2.85%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
GLOBAL DOLLAR GOVERNMENT
Management fees .75% .75% .75% After 1 year $ 57 $ 53 $ 23 $ 32 $ 22
12b-1 fees .30% 1.00% 1.00% After 3 years $ 87 $ 79 $ 69 $ 69 $ 69
Other expenses(b) .43% .47% .44% After 5 years $120 $119 $119 $117 $117
Total fund operating After 10 years $212 $220 $220 $252 $252
expenses 1.48% 2.22% 2.19%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
GLOBAL STRATEGIC INCOME
Management fees(h)(after waiver) None None None After 1 year $ 61 $ 66 $ 26 $ 37 $ 26
12b-1 fees .30% 1.00% 1.00% After 3 years $100 $101 $ 81 $ 81 $ 81
Other expenses(b)(h) After 5 years $141 $138 $138 $138 $138
(after reimbursement) 1.60% 1.60% 1.60% After 10 years $255 $261 $261 $293 $293
Total fund operating expenses(h)
(after waiver/reimbursement) 1.90% 2.60% 2.60%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
CORPORATE BOND
Management fees .55% .55% .55% After 1 year $ 53 $ 48 $ 18 $ 28 $ 18
12b-1 fees .30% 1.00% 1.00% After 3 years $ 74 $ 65 $ 55 $ 55 $ 55
Other expenses(b) .20% .20% .20% After 5 years $ 98 $ 95 $ 95 $ 95 $ 95
Total fund operating After 10 years $165 $171 $171 $206 $206
expenses 1.05% 1.75% 1.75%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
HIGH YIELD
Management fees .75% .75% .75% After 1 year $ 56 $ 62 $ 22 $ 32 $ 22
12b-1 fees .30% 1.00% 1.00% After 3 years $ 86 $ 87 $ 67 $ 67 $ 67
Other expenses(b)(i) After 5 years $117 $114 $114 $114 $114
(after reimbursement) .38% .38% .38% After 10 years $207 $228 $228 $246 $246
Total fund operating expenses(i)
(after reimbursement) 1.43% 2.13% 2.13%
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 6.
5
+ ASSUMES REDEMPTION AT END OF PERIOD AND, WITH RESPECT TO SHARES HELD TEN
YEARS, CONVERSION OF CLASS B SHARES TO CLASS A SHARES AFTER SIX YEARS (EIGHT
YEARS IN THE CASE OF GLOBAL STRATEGIC INCOME AND HIGH YIELD).
++ ASSUMES NO REDEMPTION AT END OF PERIOD AND, WITH RESPECT TO SHARES HELD
TEN YEARS, CONVERSION OF CLASS B SHARES TO CLASS A SHARES AFTER SIX YEARS
(EIGHT YEARS IN THE CASE OF GLOBAL STRATEGIC INCOME AND HIGH YIELD).
(A) NET OF VOLUNTARY FEE WAIVERS AND EXPENSE REIMBURSEMENTS. ABSENT SUCH
WAIVERS AND REIMBURSEMENTS, MANAGEMENT FEES WOULD HAVE BEEN .55%, OTHER
EXPENSES WOULD HAVE BEEN 1.97% FOR CLASS A, 2.09% FOR CLASS B AND 2.04% FOR
CLASS C AND TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN 2.82% FOR CLASS A,
3.64% FOR CLASS B AND 3.59% FOR CLASS C.
(B) THESE EXPENSES INCLUDE A TRANSFER AGENCY FEE PAYABLE TO ALLIANCE FUND
SERVICES, INC., AN AFFILIATE OF ALLIANCE. THE EXPENSES SHOWN REFLECT THE
APPLICATION OF CREDITS THAT REDUCE FUND EXPENSES.
(C) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.40%, FOR CLASS B, 2.10%, AND FOR CLASS C, 2.10%.
(D) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.65%, FOR CLASS B, 2.39%, AND FOR CLASS C, 2.37%.
(E) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.07%, FOR CLASS B, 1.78%, AND FOR CLASS C, 1.77%.
(F) REPRESENTS .65 OF 1% OF THE FUND'S AVERAGE DAILY ADJUSTED TOTAL NET
ASSETS.
(G) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.38%, FOR CLASS B, 2.09%, AND FOR CLASS C, 2.08%.
(H) NET OF VOLUNTARY FEE WAIVERS AND EXPENSE REIMBURSEMENT. ABSENT SUCH
WAIVERS AND REIMBURSEMENTS, MANAGEMENT FEES WOULD HAVE BEEN .75%, OTHER
EXPENSES WOULD HAVE BEEN 3.01% FOR CLASS A, 3.01% FOR CLASS B, AND 3.02% FOR
CLASS C, AND TOTAL OPERATING EXPENSES WOULD HAVE BEEN 4.06% FOR CLASS A, 4.76%
FOR CLASS B, AND 4.77% FOR CLASS C.
(I) NET OF EXPENSE REIMBURSEMENTS. ABSENT SUCH REIMBURSEMENTS, OTHER EXPENSES
WOULD HAVE BEEN .41% FOR CLASS A, .41% FOR CLASS B, AND .41% FOR CLASS C; AND
TOTAL OPERATING EXPENSES WOULD HAVE BEEN 1.46% FOR CLASS A, 2.16% FOR CLASS B,
AND 2.16% FOR CLASS C.
The purpose of the tables on pages 4, 5 and 6 is to assist the investor in
understanding the various costs and expenses that shareholders of a Fund will
bear directly or indirectly. Long-term shareholders of a Fund may pay aggregate
sales charges totaling more than the economic equivalent of the maximum initial
sales charges permitted by the Conduct Rules of the National Association of
Securities Dealers, Inc. See "Management of the Funds--Distribution Services
Agreements." The Rule 12b-1 fee for each class comprises a service fee not
exceeding .25% of the aggregate average daily net assets of the Fund
attributable to the class and an asset-based sales charge equal to the
remaining portion of the Rule 12b-1 fee. With respect to each of SHORT-TERM
U.S. GOVERNMENT, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME,
MORTGAGE SECURITIES INCOME and LIMITED MATURITY GOVERNMENT, "interest expense"
represents interest paid by the Fund on borrowings for the purpose of making
additional portfolio investments. Such borrowings are intended to enable each
of those Funds to produce higher net yields to shareholders than the Funds
could pay without such borrowings. See "Description of Funds--Risk
Considerations--Effects of Borrowing." Excluding interest expense, total fund
operating expenses of each of SHORT-TERM U.S. GOVERNMENT, MULTI-MARKET
STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, MORTGAGE SECURITIES INCOME and
LIMITED MATURITY GOVERNMENT would be lower (see notes (b), (c), (d), (e), (g),
(h) and (i) above) and the cumulative expenses shown in the Examples above with
respect to those Funds would be lower. The Examples set forth above assume
reinvestment of all dividends and distributions and utilize a 5% annual rate of
return as mandated by Commission regulations. THE EXAMPLES SHOULD NOT BE
CONSIDERED REPRESENTATIVE OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. ACTUAL RETURNS WILL VARY.
6
FINANCIAL HIGHLIGHTS
The tables on the following pages present, for each Fund, per share income and
capital changes for a share outstanding throughout each period indicated. The
information in the tables relating to SHORT-TERM U.S. GOVERNMENT has been
audited by PricewaterhouseCoopers LLP, the independent accountants for the
Fund, and the information in the tables relating to U.S. GOVERNMENT, LIMITED
MATURITY GOVERNMENT, MORTGAGE SECURITIES INCOME, MULTI-MARKET STRATEGY, NORTH
AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT, GLOBAL STRATEGIC INCOME,
CORPORATE BOND and HIGH YIELD has been audited by Ernst & Young LLP, the
independent auditors for these Funds. A report of PricewaterhouseCoopers LLP or
Ernst & Young LLP, as the case may be, on the information with respect to each
Fund appears in the Fund's Statement of Additional Information. The following
information for each Fund should be read in conjunction with the financial
statements and related notes which are included in the Fund's Statement of
Additional Information.
Further information about a Fund's performance is contained in the Fund's
annual report to shareholders, which may be obtained without charge by
contacting Alliance Fund Services, Inc. at the address or the "For Literature"
telephone number shown on the cover of this Prospectus.
7
<TABLE>
<CAPTION>
NET NET NET
ASSET REALIZED AND INCREASE
VALUE UNREALIZED (DECREASE) IN DIVIDENDS FROM DISTRIBUTIONS
BEGINNING OF NET INVESTMENT GAIN (LOSS) ON NET ASSET VALUE NET INVESTMENT FROM NET
FISCAL YEAR OR PERIOD PERIOD INCOME (LOSS) INVESTMENTS FROM OPERATIONS INCOME REALIZED GAINS
- --------------------- ------------- -------------- ----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM U.S. GOVERNMENT#
CLASS A
Year Ended 8/31/98 $ 9.63 $ .49(h) $(.11) $ .38 $(.50) $0.00
Year Ended 8/31/97 9.66 .47(h) .03 .50 (.46) 0.00
Year Ended 8/31/96 9.70 .47 (.02) .45 (.49) 0.00
Year Ended 8/31/95 9.67 .42 .05 .47 (.41) 0.00
Period Ended 8/31/94** 9.77 .14 (.09) .05 (.12) 0.00
Year Ended 4/30/94 10.22 .35 (.29) .06 (.42) 0.00
5/4/92+ to 4/30/93 10.00 .46 .34 .80 (.46) (.12)
CLASS B
Year Ended 8/31/98 $ 9.74 $ .42(h) $(.08) $ .34 $(.43) $0.00
Year Ended 8/31/97 9.77 .41(h) .02 .43 (.39) 0.00
Year Ended 8/31/96 9.81 .41 (.03) .38 (.42) 0.00
Year Ended 8/31/95 9.78 .36 .04 .40 (.34) 0.00
Period Ended 8/31/94** 9.88 .10 (.07) .03 (.11) 0.00
Year Ended 4/30/94 10.31 .40 (.39) .01 (.35) 0.00
5/4/92+ to 4/30/93 10.00 .38 .33 .71 (.38) (.02)
CLASS C
Year Ended 8/31/98 $ 9.73 $ .42(h) $(.08) $ .34 $(.43) $0.00
Year Ended 8/31/97 9.76 .41(h) .02 .43 (.39) 0.00
Year Ended 8/31/96 9.80 .40 (.02) .38 (.42) 0.00
Year Ended 8/31/95 9.77 .34 .06 .40 (.34) 0.00
Period Ended 8/31/94** 9.87 .10 (.07) .03 (.11) 0.00
8/2/93++ to 4/30/94 10.34 .26 (.42) (.16) (.25) 0.00
U.S. GOVERNMENT
CLASS A
Year Ended 6/30/98 $ 7.41 $ .54(h) $ .18 $ .72 $(.54) $0.00
Year Ended 6/30/97 7.52 .57(h) (.10) .47 (.57) 0.00
Year Ended 6/30/96 7.96 .58 (.44) .14 (.58) 0.00
Year Ended 6/30/95 7.84 .64 .13 .77 (.65) 0.00
Year Ended 6/30/94 8.64 .65 (.80) (.15) (.65) 0.00
Year Ended 6/30/93 8.34 .69 .29 .98 (.68) 0.00
Year Ended 6/30/92 8.01 .70 .35 1.05 (.72) 0.00
Year Ended 6/30/91 8.14 .81 (.11) .70 (.83) 0.00
Year Ended 6/30/90 8.49 .86 (.38) .48 (.83) 0.00
Year Ended 6/30/89 8.51 .89 (.03) .86 (.88) 0.00
CLASS B
Year Ended 6/30/98 $ 7.41 $ .48(h) $ .18 $ .66 $(.48) $0.00
Year Ended 6/30/97 7.52 .52(h) (.10) .42 (.52) 0.00
Year Ended 6/30/96 7.96 .52 (.44) .08 (.52) 0.00
Year Ended 6/30/95 7.84 .58 .13 .71 (.59) 0.00
Year Ended 6/30/94 8.64 .59 (.80) (.21) (.59) 0.00
Year Ended 6/30/93 8.34 .62 .30 .92 (.62) 0.00
9/30/91++ to 6/30/92 8.25 .49 .09 .58 (.49) 0.00
CLASS C
Year Ended 6/30/98 $ 7.41 $ .48(h) $ .18 $ .66 $(.48) $0.00
Year Ended 6/30/97 7.52 .52(h) (.10) .42 (.52) 0.00
Year Ended 6/30/96 7.96 .52 (.44) .08 (.52) 0.00
Year Ended 6/30/95 7.83 .58 .14 .72 (.59) 0.00
Year Ended 6/30/94 8.64 .59 (.81) (.22) (.59) 0.00
5/3/93++ to 6/30/93 8.56 .10 .08 .18 (.10) 0.00
LIMITED MATURITY GOVERNMENT
CLASS A
12/1/97 to 5/31/98 $ 9.44 $ .25(h) $ .01 $ .26 $(.27) $0.00
Year Ended 11/30/97 9.45 .51(h) .02 .53 (.52) 0.00
Year Ended 11/30/96 9.52 .51(h) (.04) .47 (.51) 0.00
Year Ended 11/30/95 9.51 .52(h) .02 .54 (.50) 0.00
Year Ended 11/30/94 9.94 .42 (.32) .10 (.48) (.01)
Year Ended 11/30/93 9.84 .57 .11 .68 (.58) 0.00
6/1/92+ to 11/30/92 10.00 .35 (.17) .18 (.34) 0.00
CLASS B
12/1/97 to 5/31/98 $ 9.44 $ .21(h) $ .03 $ .24 $(.24) $0.00
Year Ended 11/30/97 9.45 .45(h) .01 .46 (.45) 0.00
Year Ended 11/30/96 9.52 .44(h) (.04) .40 (.44) 0.00
Year Ended 11/30/95 9.52 .46(h) .01 .47 (.44) 0.00
Year Ended 11/30/94 9.94 .39 (.35) .04 (.42) (.01)
Year Ended 11/30/93 9.84 .49 .12 .61 (.51) 0.00
6/1/92+ to 11/30/92 10.00 .31 (.17) .14 (.30) 0.00
CLASS C
12/1/97 to 5/31/98 $ 9.44 $ .21(h) $ .03 $ .24 $(.24) $0.00
Year Ended 11/30/97 9.45 .45(h) .01 .46 (.45) 0.00
Year Ended 11/30/96 9.52 .45(h) (.05) .40 (.45) 0.00
Year Ended 11/30/95 9.52 .46(h) .01 .47 (.44) 0.00
Year Ended 11/30/94 9.94 .37 (.33) .04 (.42) (.01)
5/3/93++ to 11/30/93 9.98 .27 (.03) .24 (.28) 0.00
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
8
<TABLE>
<CAPTION>
DISTRIBUTIONS TOTAL NET ASSETS RATIO OF NET
IN EXCESS TOTAL INVESTMENT AT END OF RATIO INVESTMENT
OF NET RETURN DIVIDENDS NET ASSET RETURN PERIOD OF EXPENSES INCOME (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END BASED ON NET (000'S TO AVERAGE TO AVERAGE TURNOVER
INCOME CAPITAL DISTRIBUTIONS OF PERIOD ASSET VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
------------- ---------- -------------- ---------- --------------- ---------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0.00 $(.03) $(.53) $ 9.48 4.04% $ 5,535 1.83%(i) 5.00% 206%
0.00 (.07) (.53) 9.63 5.29 3,901 1.41(d)(e) 4.90 65
0.00 0.00 (.49) 9.66 4.71 3,455 1.53(d)(e) 4.85 110
(.03) 0.00 (.44) 9.70 5.14 2,997 1.40(d) 4.56 15
(.03)(a) 0.00 (.15)(c) 9.67 .53 2,272 1.40*(d) 3.98* 144
(.09)(a) 0.00 (.51)(c) 9.77 .52 2,003 1.27(d) 4.41 55
0.00 0.00 (.58)(c) 10.22 8.20 6,081 1.00*(d) 4.38* 294
$0.00 $(.03) $(.46) $ 9.62 3.52% $ 10,827 2.56%(i) 4.49% 206%
0.00 (.07) (.46) 9.74 4.45 6,458 2.11(d)(e) 4.13 65
0.00 0.00 (.42) 9.77 3.89 6,781 2.23(d)(e) 4.11 110
(.03) 0.00 (.37) 9.81 4.32 6,380 2.10(d) 3.82 15
(.02)(a) 0.00 (.13)(c) 9.78 .28 6,281 2.10*(d) 3.22* 144
(.09)(a) 0.00 (.44)(c) 9.88 .03 7,184 2.05(d) 3.12 55
0.00 0.00 (.40)(c) 10.31 7.22 1,292 1.75*(d) 3.36* 294
$0.00 $(.03) $(.46) $ 9.61 3.53% $ 5,074 2.56%(i) 4.48% 206%
0.00 (.07) (.46) 9.73 4.45 5,012 2.11(d)(e) 4.15 65
0.00 0.00 (.42) 9.76 3.90 4,850 2.22(d)(e) 4.11 110
(.03) 0.00 (.37) 9.80 4.33 5,180 2.10(d) 3.80 15
(.02)(a) 0.00 (.13)(c) 9.77 .28 7,128 2.10*(d) 3.26* 144
(.06)(a) 0.00 (.31)(c) 9.87 (1.56) 8,763 2.10*(d) 2.60* 55
$0.00 $(.02) $(.56) $ 7.57 10.02% $352,749 1.06% 7.08% 153%
0.00 (.01) (.58) 7.41 6.49 354,782 1.02 7.66 330
0.00 0.00 (.58) 7.52 1.74 397,894 1.01 7.38 334
0.00 0.00 (.65) 7.96 10.37 463,660 1.01 8.27 190
0.00 0.00 (.65) 7.84 (1.93) 482,595 1.02 7.76 188
0.00 0.00 (.68) 8.64 12.23 527,968 1.10 8.04 386
0.00 0.00 (.72) 8.34 13.52 492,448 1.12 8.43 418
0.00 0.00 (.83) 8.01 8.97 491,910 1.07 10.02 402
0.00 0.00 (.83) 8.14 5.99 510,675 1.09 10.35 455
0.00 0.00 (.88) 8.49 10.87 532,525 1.11 10.70 148
$0.00 $(.02) $(.50) $ 7.57 9.20% $390,523 1.76% 6.37% 153%
0.00 (.01) (.53) 7.41 5.69 471,889 1.73 6.95 330
0.00 0.00 (.52) 7.52 1.01 628,628 1.72 6.67 334
0.00 0.00 (.59) 7.96 9.52 774,097 1.72 7.57 190
0.00 0.00 (.59) 7.84 (2.63) 756,282 1.72 7.04 188
0.00 0.00 (.62) 8.64 11.45 552,471 1.81 7.25 386
0.00 0.00 (.49) 8.34 6.95 32,227 1.80* 7.40* 418
$0.00 $(.02) $(.50) $ 7.57 9.21% $114,392 1.76% 6.38% 153%
0.00 (.01) (.53) 7.41 5.69 115,607 1.72 6.96 330
0.00 0.00 (.52) 7.52 1.01 166,075 1.71 6.68 334
0.00 0.00 (.59) 7.96 9.67 181,948 1.71 7.59 190
0.00 0.00 (.59) 7.83 (2.75) 231,859 1.70 6.97 188
0.00 0.00 (.10) 8.64 2.12 67,757 1.80* 6.00* 386
$0.00 $0.00 $(.27) $ 9.43 2.78% $ 17,154 2.79%(e)* 5.21%* 176%
0.00 (.02) (.54) 9.44 5.79 16,197 2.41(e) 5.52 249
0.00 (.03) (.54) 9.45 5.11 16,248 2.22(e) 5.44 159
0.00 (.03) (.53) 9.52 5.91 27,887 2.14(e) 5.53 293
0.00 (.04) (.53) 9.51 1.03 43,173 1.34(e) 4.78 375
0.00 0.00 (.58) 9.94 7.02 59,215 1.54(e) 5.66 499
0.00 0.00 (.34) 9.84 1.84 24,186 1.44*(d)(e) 6.58*(d) 101
$0.00 $0.00 $(.24) $ 9.44 2.52% $ 32,294 3.47%(e)* 4.49%* 176%
0.00 (.02) (.47) 9.44 5.04 33,613 3.14(e) 4.80 249
0.00 (.03) (.47) 9.45 4.36 50,386 2.94(e) 4.73 159
0.00 (.03) (.47) 9.52 5.05 84,362 2.85(e) 4.83 293
0.00 (.03) (.46) 9.52 .42 136,458 2.08(e) 4.12 375
0.00 0.00 (.51) 9.94 6.27 168,157 2.26(e) 4.98 499
0.00 0.00 (.30) 9.84 1.50 149,188 2.13*(d)(e) 6.01*(d) 101
$0.00 $0.00 $(.24) $ 9.44 2.53% $ 24,022 3.45%(e)* 4.50%* 176%
0.00 (.02) (.47) 9.44 5.05 28,738 3.13(e) 4.82 249
0.00 (.02) (.47) 9.45 4.38 43,457 2.92(e) 4.75 159
0.00 (.03) (.47) 9.52 5.06 68,459 2.85(e) 4.84 293
0.00 (.03) (.46) 9.52 .42 141,838 2.04(e) 4.10 375
0.00 0.00 (.28) 9.94 2.40 228,703 1.74*(e) 3.70* 499
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
9
<TABLE>
<CAPTION>
NET NET NET
ASSET REALIZED AND INCREASE
VALUE UNREALIZED (DECREASE) IN DIVIDENDS FROM DISTRIBUTIONS
BEGINNING OF NET INVESTMENT GAIN (LOSS) ON NET ASSET VALUE NET INVESTMENT FROM NET
FISCAL YEAR OR PERIOD PERIOD INCOME (LOSS) INVESTMENTS FROM OPERATIONS INCOME REALIZED GAINS
- --------------------- ------------- -------------- ----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
MORTGAGE SECURITIES INCOME
CLASS A
1/1/98 to 6/30/98 $ 8.63 $ .26(h) $ .02 $ .28 $ (.28) $ 0.00
Year Ended 12/31/97 8.51 .54(h) .15 .69 (.54) 0.00
Year Ended 12/31/96 8.75 .54(h) (.19) .35 (.51) 0.00
Year Ended 12/31/95 8.13 .57(h) .64 1.21 (.57) 0.00
Year Ended 12/31/94 9.29 .57 (1.13) (.56) (.58) 0.00
Year Ended 12/31/93 9.08 .67 .23 .90 (.67) 0.00
Year Ended 12/31/92 9.21 .77 (.09) .68 (.81) 0.00
Year Ended 12/31/91 8.79 .88 .41 1.29 (.87) 0.00
Year Ended 12/31/90 8.76 .87 .03 .90 (.87) 0.00
Year Ended 12/31/89 8.81 .97 (.05) .92 (.97) 0.00
Year Ended 12/31/88 9.03 .99 (.23) .76 (.98) 0.00
CLASS B
1/1/98 to 6/30/98 $ 8.63 $ .23(h) $ .02 $ .25 $ (.25) $ 0.00
Year Ended 12/31/97 8.51 .48(h) .15 .63 (.48) 0.00
Year Ended 12/31/96 8.75 .48(h) (.19) .29 (.46) 0.00
Year Ended 12/31/95 8.13 .51(h) .64 1.15 (.51) 0.00
Year Ended 12/31/94 9.29 .51 (1.14) (.63) (.51) 0.00
Year Ended 12/31/93 9.08 .61 .22 .83 (.60) 0.00
1/30/92++ to 12/31/92 9.16 .68 (.08) .60 (.68) 0.00
CLASS C
1/1/98 to 6/30/98 $ 8.63 $ .23(h) $ .02 $ .25 $ (.25) $ 0.00
Year Ended 12/31/97 8.51 .48(h) .15 .63 (.48) 0.00
Year Ended 12/31/96 8.75 .48(h) (.19) .29 (.46) 0.00
Year Ended 12/31/95 8.13 .51(h) .64 1.15 (.51) 0.00
Year Ended 12/31/94 9.29 .51 (1.14) (.63) (.51) 0.00
5/3/93++ to 12/31/93 9.30 .40 0.00 .40 (.40) 0.00
MULTI-MARKET STRATEGY
CLASS A
11/1/97 to 4/30/98 $ 7.11 $ .23(h) $ .04 $ .27 $ (.59) $ 0.00
Year Ended 10/31/97 7.23 .47(h) .08 .55 (.47) 0.00
Year Ended 10/31/96 6.83 .59(h) .48 1.07 (.67) 0.00
Year Ended 10/31/95 8.04 .77(h) (1.31) (.54) 0.00 0.00
Year Ended 10/31/94 8.94 .85 (1.08) (.23) (.09) 0.00
Year Ended 10/31/93 8.85 1.02 (.26) .76 (.67) 0.00
Year Ended 10/31/92 9.91 1.00 (1.23) (.23) (.81) (.02)
5/29/91+ to 10/28/91 10.00 .42 (.09) .33 (.42) 0.00
CLASS B
11/1/97 to 4/30/98 $ 7.11 $ .18(h) $ .07 $ .25 $ (.56) $ 0.00
Year Ended 10/31/97 7.23 .42(h) .06 .48 (.42) 0.00
Year Ended 10/31/96 6.83 .53(h) .47 1.00 (.60) 0.00
Year Ended 10/31/95 8.04 .44(h) (1.05) (.61) 0.00 0.00
Year Ended 10/31/94 8.94 .88 (1.18) (.30) (.08) 0.00
Year Ended 10/31/93 8.85 .92 (.22) .70 (.61) 0.00
Year Ended 10/31/92 9.91 1.04 (1.34) (.30) (.74) (.02)
5/29/91+ to 10/28/91 10.00 .39 (.09) .30 (.39) 0.00
CLASS C
11/1/97 to 4/30/98 $ 7.11 $ .20(h) $ .05 $ .25 $ (.56) $ 0.00
Year Ended 10/31/97 7.23 .42(h) .07 .49 (.42) 0.00
Year Ended 10/31/96 6.83 .54(h) .47 1.01 (.61) 0.00
Year Ended 10/31/95 8.04 .44(h) (1.04) (.60) 0.00 0.00
Year Ended 10/31/94 8.94 .46 (.75) (.29) (.09) 0.00
5/3/93++ to 10/31/93 8.76 .32 .16 .48 (.30) 0.00
NORTH AMERICAN GOVERNMENT INCOME
CLASS A
12/1/97 to 5/31/98 $ 8.02 $ .44(h) $ (.11) $ .33 $ (.48) $ 0.00
Year Ended 11/30/97 8.01 1.03(h) (.05) .98 (.97) 0.00
Year Ended 11/30/96 6.75 1.09(h) 1.14 2.23 (.75) 0.00
Year Ended 11/30/95 8.13 1.18(h) (1.59) (.41) 0.00 0.00
Year Ended 11/30/94 10.35 1.02 (2.12) (1.10) (.91) 0.00
Year Ended 11/30/93 9.70 1.09 .66 1.75 (1.09) (.01)
3/27/92+ to 11/30/92 10.00 .69 (.31) .38 (.68) 0.00
CLASS B
12/1/97 to 5/31/98 $ 8.02 $ .41(h) $ (.10) $ .31 $ (.45) $ 0.00
Year Ended 11/30/97 8.01 .98(h) (.07) .91 (.90) 0.00
Year Ended 11/30/96 6.75 1.04(h) 1.12 2.16 (.69) 0.00
Year Ended 11/30/95 8.13 1.13(h) (1.61) (.48) 0.00 0.00
Year Ended 11/30/94 10.35 .96 (2.13) (1.17) (.84) 0.00
Year Ended 11/30/93 9.70 1.01 .67 1.68 (1.02) (.01)
3/27/92+ to 11/30/92 10.00 .64 (.31) .33 (.63) 0.00
CLASS C
12/1/97 to 5/31/98 $ 8.02 $ .41(h) $ (.10) $ .31 $ (.45) $ 0.00
Year Ended 11/30/97 8.01 .98(h) (.07) .91 (.90) 0.00
Year Ended 11/30/96 6.75 1.05(h) 1.11 2.16 (.69) 0.00
Year Ended 11/30/95 8.13 1.13(h) (1.61) (.48) 0.00 0.00
Year Ended 11/30/94 10.34 .96 (2.12) (1.16) (.84) 0.00
5/3/93++ to 11/30/93 10.04 .58 .30 .88 (.58) 0.00
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
10
<TABLE>
<CAPTION>
DISTRIBUTIONS TOTAL NET ASSETS RATIO OF NET
IN EXCESS TOTAL INVESTMENT AT END OF RATIO INVESTMENT
OF NET RETURN DIVIDENDS NET ASSET RETURN PERIOD OF EXPENSES INCOME (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END BASED ON NET (000'S TO AVERAGE TO AVERAGE TURNOVER
INCOME CAPITAL DISTRIBUTIONS OF PERIOD ASSET VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
------------- ---------- -------------- ---------- --------------- ---------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0.00 $ 0.00 $ (.28) $ 8.63 3.32% $ 367,230 1.90%(e)* 6.18%* 86%
(.03) 0.00 (.57) 8.63 8.04 372,494 1.41(e) 6.30 184
0.00 (.08) (.59) 8.51 4.23 412,899 1.68(e) 6.38 208
0.00 (.02) (.59) 8.75 15.34 502,390 1.66(e) 6.77 285
0.00 (.02) (.60) 8.13 (6.14) 553,889 1.29(e) 6.77 438
(.02) 0.00 (.69) 9.29 10.14 848,069 1.00 7.20 622
0.00 0.00 (.81) 9.08 7.73 789,898 1.18 8.56 555
0.00 0.00 (.87) 9.21 15.44 544,171 1.16 9.92 439
0.00 0.00 (.87) 8.79 11.01 495,353 1.12 10.09 393
0.00 0.00 (.97) 8.76 10.98 556,077 1.13 11.03 328
0.00 0.00 (.98) 8.81 8.64 619,572 1.11 10.80 239
$ 0.00 $ 0.00 $ (.25) $ 8.63 2.94% $ 263,783 2.59%(e)* 5.45%* 86%
(.03) 0.00 (.51) 8.63 7.60 323,916 2.14(e) 5.60 184
0.00 (.07) (.53) 8.51 3.46 477,196 2.37(e) 5.66 208
0.00 (.02) (.53) 8.75 14.48 737,593 2.37(e) 6.06 285
0.00 (.02) (.53) 8.13 (6.84) 921,418 2.00(e) 6.05 438
(.02) 0.00 (.62) 9.29 9.38 1,454,303 1.70 6.47 622
0.00 0.00 (.68) 9.08 7.81 1,153,957 1.67* 5.92* 555
$ 0.00 $ 0.00 $ (.25) $ 8.63 2.94% $ 26,044 2.59%(e)* 5.47%* 86%
(.03) 0.00 (.51) 8.63 7.60 27,859 2.12(e) 5.61 184
0.00 (.07) (.53) 8.51 3.46 35,355 2.38(e) 5.67 208
0.00 (.02) (.53) 8.75 14.46 45,558 2.35(e) 6.07 285
0.00 (.02) (.53) 8.13 (6.84) 58,338 1.97(e) 6.06 438
(.01) 0.00 (.41) 9.29 4.34 91,724 1.67* 5.92* 622
$ 0.00 $ 0.00 $ (.59) $ 6.79 4.00% $ 100,629 1.69%* 6.55%* 12%
(.20) 0.00 (.67) 7.11 7.82 96,133 1.58(i) 6.50 173
0.00 0.00 (.67) 7.23 16.37 68,776 1.64(f) 8.40 215
0.00 (.67) (.67) 6.83 (6.47) 76,837 1.60(f) 8.56 400
0.00 (.58) (.67) 8.04 (2.64) 52,385 1.41(f) 7.17 605
0.00 0.00 (.67) 8.94 9.01 82,977 1.94(f) 9.17(g) 200
0.00 0.00 (.83) 8.85 (2.80) 141,526 2.53(f) 10.58(g) 239
0.00 0.00 (.42) 9.91 3.68 143,594 2.81*(f) 10.17*(g) 121
$ 0.00 $ 0.00 $ (.56) $ 6.80 3.69% $ 9,948 2.37%* 5.67%* 12%
(.18) 0.00 (.60) 7.11 6.90 29,949 2.29(i) 5.79 173
0.00 0.00 (.60) 7.23 15.35 88,427 2.35(f) 7.69 215
0.00 (.60) (.60) 6.83 (7.31) 116,551 2.29(f) 7.53 400
0.00 (.52) (.60) 8.04 (3.35) 233,896 2.11(f) 6.44 605
0.00 0.00 (.61) 8.94 8.25 431,186 2.64(f) 8.46(g) 200
0.00 0.00 (.76) 8.85 (3.51) 701,465 3.24(f) 9.83(g) 239
0.00 0.00 (.39) 9.91 3.36 662,981 3.53*(f) 9.40*(g) 121
$ 0.00 $ 0.00 $ (.56) $ 6.80 3.70% $ 848 2.37%* 5.80%* 12%
(.19) 0.00 (.61) 7.11 6.92 1,203 2.28(i) 5.80 173
0.00 0.00 (.61) 7.23 15.36 1,076 2.34(f) 7.62 215
0.00 (.61) (.61) 6.83 (7.29) 786 2.29(f) 7.55 400
0.00 (.52) (.61) 8.04 (3.34) 1,252 2.08(f) 6.10 605
0.00 0.00 (.30) 8.94 5.54 718 2.44*(f) 7.17*(g) 200
$ 0.00 $ 0.00 $ (.48) $ 7.87 4.20% $ 719,954 1.99%(f)* 10.93%* 128%
0.00 0.00 (.97) 8.02 12.85 511,749 2.15(f) 12.78 118
0.00 (.22) (.97) 8.01 35.22 385,784 2.34(f) 14.82 166
0.00 (.97) (.97) 6.75 (3.59) 252,608 2.62(f) 18.09 180
0.00 (.21) (1.12) 8.13 (11.32) 303,538 1.70(f) 11.22 131
0.00 0.00 (1.10) 10.35 18.99 268,233 1.61(f) 10.77 254
0.00 0.00 (.68) 9.70 3.49 61,702 2.45*(d)(f) 10.93* 86
$ 0.00 $ 0.00 $ (.45) $ 7.88 3.88% $1,401,892 2.71%(f)* 10.26%* 128%
0.00 0.00 (.90) 8.02 11.88 1,378,407 2.86(f) 12.15 118
0.00 (.21) (.90) 8.01 33.96 1,329,719 3.05(f) 14.20 166
0.00 (.90) (.90) 6.75 (4.63) 1,123,074 3.33(f) 17.31 180
0.00 (.21) (1.05) 8.13 (11.89) 1,639,602 2.41(f) 10.53 131
0.00 0.00 (1.03) 10.35 18.15 1,313,591 2.31(f) 10.01 254
0.00 0.00 (.63) 9.70 3.30 216,317 3.13*(d)(f) 10.16* 86
$ 0.00 $ 0.00 $ (.45) $ 7.88 3.88% $ 292,894 2.70%(f)* 10.27%* 128%
0.00 0.00 (.90) 8.02 11.88 283,483 2.85(f) 12.14 118
0.00 (.21) (.90) 8.01 33.96 250,676 3.04(f) 14.22 166
0.00 (.90) (.90) 6.75 (4.63) 219,009 3.33(f) 17.32 180
0.00 (.21) (1.05) 8.13 (11.89) 369,714 2.39(f) 10.46 131
0.00 0.00 (.58) 10.34 9.00 310,230 2.21*(f) 9.74* 254
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
11
<TABLE>
<CAPTION>
NET NET NET
ASSET REALIZED AND INCREASE
VALUE UNREALIZED (DECREASE) IN DIVIDENDS FROM DISTRIBUTIONS
BEGINNING OF NET INVESTMENT GAIN (LOSS) ON NET ASSET VALUE NET INVESTMENT FROM NET
FISCAL YEAR OR PERIOD PERIOD INCOME (LOSS) INVESTMENTS FROM OPERATIONS INCOME REALIZED GAINS
- --------------------- ------------- -------------- ----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
GLOBAL DOLLAR GOVERNMENT
CLASS A
Year Ended 8/31/98 $10.64 $ .73(h) $(4.03) $(3.30) $(.73) $(1.37)
Year Ended 8/31/97 10.01 .88(h) 1.85 2.73 (.95) (1.15)
Year Ended 8/31/96 8.02 .84 2.10 2.94 (.95) 0.00
Year Ended 8/31/95 9.14 .86 (1.10) (.24) (.88) 0.00
2/25/94+ to 8/31/94 10.00 .45 (.86) (.41) (.45) 0.00
CLASS B
Year Ended 8/31/98 $10.64 $ .67(h) $(4.05) $(3.38) $(.67) $(1.36)
Year Ended 8/31/97 10.01 .81(h) 1.84 2.65 (.87) (1.15)
Year Ended 8/31/96 8.02 .78 2.08 2.86 (.87) 0.00
Year Ended 8/31/95 9.14 .80 (1.11) (.31) (.81) 0.00
2/25/94+ to 8/31/94 10.00 .42 (.86) (.44) (.42) 0.00
CLASS C
Year Ended 8/31/98 $10.64 $ .67(h) $(4.05) $(3.38) $(.67) $(1.36)
Year Ended 8/31/97 10.01 .82(h) 1.84 2.66 (.88) (1.15)
Year Ended 8/31/96 8.02 .77 2.10 2.87 (.88) 0.00
Year Ended 8/31/95 9.14 .79 (1.10) (.31) (.81) 0.00
2/25/94+ to 8/31/94 10.00 .42 (.86) (.44) (.42) 0.00
GLOBAL STRATEGIC INCOME
CLASS A
11/1/97 to 4/30/98 $11.46 $ .38(h) $ .48 $ .86 $(.55) $(.36)
Year Ended 10/31/97 10.83 .74(h) 1.02 1.76 (.75) (.10)
1/9/96+ to 10/31/96 10.00 .69(h) .95 1.64 (.81) 0.00
CLASS B
11/1/97 to 4/30/98 $11.46 $ .34(h) $ .48 $ .82 $(.51) $(.36)
Year Ended 10/31/97 10.83 .66(h) 1.03 1.69 (.67) (.10)
3/25/96++ to 10/31/96 9.97 .41(h) 1.01 1.42 (.56) 0.00
CLASS C
11/1/97 to 4/30/98 $11.46 $ .33(h) $ .49 $ .82 $(.51) $(.36)
Year Ended 10/31/97 10.83 .66(h) 1.03 1.69 (.67) (.10)
3/25/96++ to 10/31/96 9.97 .39(h) 1.03 1.42 (.56) 0.00
CORPORATE BOND
CLASS A
Year Ended 6/30/98 $14.19 $1.08(h) $ .12 $1.20 $(1.08) $0.00
Year Ended 6/30/97 13.29 1.15(h) .97 2.12 (1.22) 0.00
Year Ended 6/30/96 12.92 1.26 .27 1.53 (1.16) 0.00
Year Ended 6/30/95 12.51 1.19 .36 1.55 (1.14) 0.00
Year Ended 6/30/94 14.15 1.11 (1.36) (.25) (1.11) (.25)
Year Ended 6/30/93 12.01 1.25 2.13 3.38 (1.24) 0.00
Year Ended 6/30/92 11.21 1.06 .82 1.88 (1.08) 0.00
Year Ended 6/30/91 11.39 1.11 (.06) 1.05 (1.23) 0.00
Year Ended 6/30/90 12.15 1.24 (.86) .38 (1.14) 0.00
Year Ended 6/30/89 11.82 1.12 .32 1.44 (1.11) 0.00
CLASS B
Year Ended 6/30/98 $14.19 $ .98(h) $ .13 $1.11 $(.98) $0.00
Year Ended 6/30/97 13.29 1.05(h) .98 2.03 (1.13) 0.00
Year Ended 6/30/96 12.92 1.15 .29 1.44 (1.07) 0.00
Year Ended 6/30/95 12.50 1.11 .36 1.47 (1.05) 0.00
Year Ended 6/30/94 14.15 1.02 (1.37) (.35) (1.04) (.25)
1/8/93++ to 6/30/93 12.47 .49 1.69 2.18 (.50) 0.00
CLASS C
Year Ended 6/30/98 $14.19 $ .99(h) $ .12 $1.11 $(.99) $0.00
Year Ended 6/30/97 13.29 1.04(h) .99 2.03 (1.13) 0.00
Year Ended 6/30/96 12.93 1.14 .29 1.43 (1.07) 0.00
Year Ended 6/30/95 12.50 1.10 .38 1.48 (1.05) 0.00
Year Ended 6/30/94 14.15 1.02 (1.37) (.35) (1.05) (.25)
5/3/93++ to 6/30/93 13.63 .16 .53 .69 (.17) 0.00
HIGH YIELD
CLASS A
Year Ended 8/31/98 $11.17 $1.03(h) $(.27) $ .76 $(1.02) $(.14)
4/22/97+ to 8/31/97 10.00 .37(h) 1.15 1.52 (.35) 0.00
CLASS B
Year Ended 8/31/98 $11.17 $ .96(h) $(.28) $ .68 $(.95) $(.14)
4/22/97+ to 8/31/97 10.00 .31(h) 1.19 1.50 (.33) 0.00
CLASS C
Year Ended 8/31/98 $11.17 $ .96(h) $(.28) $ .68 $(.95) $(.14)
4/22/97+ to 8/31/97 10.00 .32(h) 1.18 1.50 (.33) 0.00
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
12
<TABLE>
<CAPTION>
DISTRIBUTIONS TOTAL NET ASSETS RATIO OF NET
IN EXCESS TOTAL INVESTMENT AT END OF RATIO INVESTMENT
OF NET RETURN DIVIDENDS NET ASSET RETURN PERIOD OF EXPENSES INCOME (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END BASED ON NET (000'S TO AVERAGE TO AVERAGE TURNOVER
INCOME CAPITAL DISTRIBUTIONS OF PERIOD ASSET VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
------------- ---------- -------------- ---------- --------------- ---------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(.04) $(.15) $(2.29) $ 5.05 (38.56)% $ 32,365 1.48% 8.51% 188%
0.00 0.00 (2.10) 10.64 30.04 37,416 1.55 8.49 314
0.00 0.00 (.95) 10.01 38.47 23,253 1.65 9.23 315
0.00 0.00 (.88) 8.02 (1.48) 12,020 1.93 11.25 301
0.00 0.00 (.45) 9.14 (3.77) 10,995 .75*(d) 9.82* 100
$(.04) $(.14) $(2.21) $ 5.05 (39.11)% $ 79,660 2.22% 7.78% 188%
0.00 0.00 (2.02) 10.64 29.14 93,377 2.26 7.81 314
0.00 0.00 (.87) 10.01 37.36 84,295 2.37 8.57 315
0.00 0.00 (.81) 8.02 (2.40) 62,406 2.64 10.52 301
0.00 0.00 (.42) 9.14 (4.17) 47,030 1.45*(d) 9.11* 100
$(.04) $(.14) $(2.22) $ 5.05 (39.09)% $ 23,711 2.19% 7.75% 188%
0.00 0.00 (2.03) 10.64 29.17 25,130 2.25 7.82 314
0.00 0.00 (.88) 10.01 37.40 14,511 2.35 8.52 315
0.00 0.00 (.81) 8.02 (2.36) 9,330 2.63 10.46 301
0.00 0.00 (.42) 9.14 (4.16) 10,404 1.45*(d) 9.05* 100
$0.00 $0.00 $(.91) $11.41 7.88% $ 21,877 1.90%(d)* 6.91%* 247%
(.28) 0.00 (1.13) 11.46 16.83 12,954 1.90(d) 6.56 417
0.00 0.00 (.81) 10.83 17.31 2,295 1.90*(d) 8.36* 282
$0.00 $0.00 $(.87) $11.41 7.55% $ 35,840 2.60%(d)* 6.17%* 247%
(.29) 0.00 (1.06) 11.46 16.12 18,855 2.60(d) 5.86 417
0.00 0.00 (.56) 10.83 14.47 800 2.60*(d) 7.26* 282
$0.00 $0.00 $(.87) $11.41 7.55% $ 8,017 2.60%(d)* 6.18%* 247%
(.29) 0.00 (1.06) 11.46 16.12 4,388 2.60(d) 5.86 417
0.00 0.00 (.56) 10.83 14.47 750 2.60*(d) 7.03* 282
$(.12) $0.00 $(1.20) $14.19 8.66% $510,397 1.05% 7.52% 244%
0.00 0.00 (1.22) 14.19 16.59 370,845 1.12 8.34 307
0.00 0.00 (1.16) 13.29 12.14 277,369 1.20 9.46 389
0.00 0.00 (1.14) 12.92 13.26 230,750 1.24 9.70 387
(.03) 0.00 (1.39) 12.51 (2.58) 219,182 1.30 7.76 372
0.00 0.00 (1.24) 14.15 29.62 216,171 1.39 9.29 579
0.00 0.00 (1.08) 12.01 17.43 60,356 1.48 8.98 610
0.00 0.00 (1.23) 11.21 9.71 62,268 1.44 9.84 357
0.00 0.00 (1.14) 11.39 3.27 68,049 1.51 10.70 480
0.00 0.00 (1.11) 12.15 12.99 52,381 1.84 9.53 104
$(.13) $0.00 $(1.11) $14.19 7.95% $672,374 1.75% 6.80% 244%
0.00 0.00 (1.13) 14.19 15.80 480,326 1.82 7.62 307
0.00 0.00 (1.07) 13.29 11.38 338,152 1.90 8.75 389
0.00 0.00 (1.05) 12.92 12.54 241,393 1.99 9.07 387
(.01) 0.00 (1.30) 12.50 (3.27) 184,129 2.00 7.03 372
0.00 0.00 (.50) 14.15 17.75 55,508 2.10* 7.18* 579
$(.12) $0.00 $(1.11) $14.19 7.95% $254,530 1.75% 6.83% 244%
0.00 0.00 (1.13) 14.19 15.80 174,762 1.82 7.61 307
0.00 0.00 (1.07) 13.29 11.30 83,095 1.90 8.74 389
0.00 0.00 (1.05) 12.93 12.62 51,028 1.84 8.95 387
0.00 0.00 (1.30) 12.50 (3.27) 50,860 1.99 6.98 372
0.00 0.00 (.17) 14.15 5.08 5,115 2.05* 5.51* 579
$(.01) $0.00 $(1.17) $10.76 6.42% $ 43,960 1.43% 8.89% 311%
0.00 0.00 (.35) 11.17 15.33 5,889 1.70*(d) 8.04* 73
$(.01) $0.00 $(1.10) $10.75 5.69% $269,426 2.13% 8.18% 311%
0.00 0.00 (.33) 11.17 15.07 43,297 2.40*(d) 7.19* 73
$(.01) $0.00 $(1.10) $10.75 5.69% $ 48,337 2.13% 8.17% 311%
0.00 0.00 (.33) 11.17 15.07 7,575 2.40*(d) 7.24* 73
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
13
# PRIOR TO JULY 22, 1993, EQUITABLE CAPITAL MANAGEMENT CORPORATION
("EQUITABLE") SERVED AS THE INVESTMENT ADVISER TO THE ALLIANCE PORTFOLIOS (THE
"TRUST"), OF WHICH SHORT-TERM U.S. GOVERNMENT IS A SERIES. ON JULY 22, 1993,
ALLIANCE ACQUIRED THE BUSINESS AND SUBSTANTIALLY ALL OF THE ASSETS OF EQUITABLE
AND BECAME INVESTMENT ADVISER TO THE TRUST.
+ COMMENCEMENT OF OPERATIONS.
++ COMMENCEMENT OF DISTRIBUTION.
* ANNUALIZED.
** REFLECTS NEWLY ADOPTED FISCAL YEAR END.
(A) INCLUDES WITH RESPECT TO SHORT-TERM U.S. GOVERNMENT A RETURN OF CAPITAL
FOR THE YEAR ENDED APRIL 30, 1994 OF $(0.08) FOR CLASS A, $(0.08) FOR CLASS B
AND $(0.05) FOR CLASS C AND FOR THE PERIOD ENDED AUGUST 31, 1994 OF $(0.03) FOR
CLASS A AND $(0.02) FOR CLASS B AND CLASS C.
(B) 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 THE NET ASSET VALUE DURING THE PERIOD, AND A
REDEMPTION ON THE LAST DAY OF THE PERIOD. INITIAL SALES CHARGE OR CONTINGENT
DEFERRED SALES CHARGE IS NOT REFLECTED IN THE CALCULATION OF TOTAL INVESTMENT
RETURN. TOTAL INVESTMENT RETURNS CALCULATED FOR PERIODS OF LESS THAN ONE YEAR
ARE NOT ANNUALIZED.
(C) "TOTAL DIVIDENDS AND DISTRIBUTIONS" INCLUDES DIVIDENDS IN EXCESS OF NET
INVESTMENT INCOME AND RETURN OF CAPITAL. SHORT-TERM U.S. GOVERNMENT HAD
DIVIDENDS IN EXCESS OF NET INVESTMENT INCOME, FOR THE YEAR ENDED APRIL 30,
1994, WITH RESPECT TO CLASS A SHARES OF $(.01); WITH RESPECT TO CLASS B SHARES,
$(.01); AND WITH RESPECT TO CLASS C SHARES, $(.01).
(D) NET OF EXPENSES ASSUMED AND/OR WAIVED/REIMBURSED. IF SHORT-TERM U.S.
GOVERNMENT HAD BORNE ALL EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES, 2.20% (ANNUALIZED) FOR 1993, 2.17% FOR THE YEAR
ENDED APRIL 30, 1994, 2.95% (ANNUALIZED) FOR THE PERIOD ENDED AUGUST 31, 1994,
3.71% FOR THE YEAR ENDED AUGUST 31, 1995, 3.04% FOR THE YEAR ENDED AUGUST 31,
1996, 2.42% FOR THE YEAR ENDED AUGUST 31, 1997, 2.82% FOR THE YEAR ENDED AUGUST
31, 1998; WITH RESPECT TO CLASS B SHARES, 4.81% (ANNUALIZED) FOR 1993, 3.21%
FOR THE YEAR ENDED APRIL 30, 1994, 3.60% (ANNUALIZED) FOR THE PERIOD ENDED
AUGUST 31, 1994, 4.33% FOR THE YEAR ENDED AUGUST 31, 1995, 3.74% FOR THE YEAR
ENDED AUGUST 31, 1996 AND 3.10% FOR THE YEAR ENDED AUGUST 31, 1997 3.64% FOR
THE YEAR ENDED AUGUST 31, 1998; WITH RESPECT TO CLASS C SHARES, 3.10%
(ANNUALIZED) FOR THE YEAR ENDED APRIL 30, 1994, 3.64% (ANNUALIZED) FOR THE
PERIOD ENDED AUGUST 31, 1994 (ANNUALIZED), 4.23% FOR THE YEAR ENDED AUGUST 31,
1995, 3.72% FOR THE YEAR ENDED AUGUST 31, 1996, 3.10% FOR THE YEAR ENDED AUGUST
31, 1997, 3.59% FOR THE YEAR ENDED AUGUST 31, 1998. IF LIMITED MATURITY
GOVERNMENT HAD BORNE ALL EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES, 1.55% (ANNUALIZED) FOR 1992; AND WITH RESPECT TO
CLASS B SHARES, 2.28% (ANNUALIZED) FOR 1992. THE RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS FOR LIMITED MATURITY GOVERNMENT WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES, 6.47% (ANNUALIZED) FOR 1992; AND WITH RESPECT TO
CLASS B SHARES, 5.86% (ANNUALIZED) FOR 1992. IF NORTH AMERICAN GOVERNMENT
INCOME HAD BORNE ALL EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN WITH RESPECT
TO CLASS A SHARES, 2.49% (ANNUALIZED) FOR 1992; AND WITH RESPECT TO CLASS B
SHARES, 3.16% (ANNUALIZED) FOR 1992. IF GLOBAL DOLLAR GOVERNMENT HAD BORNE ALL
EXPENSES FOR THE PERIOD FEBRUARY 25, 1994 TO AUGUST 31, 1994, THE EXPENSE
RATIOS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 1.91% (ANNUALIZED); WITH
RESPECT TO CLASS B SHARES, 2.63% (ANNUALIZED); AND WITH RESPECT TO CLASS C
SHARES, 2.59% (ANNUALIZED). IF GLOBAL STRATEGIC INCOME HAD BORNE ALL EXPENSES
FOR THE RESPECTIVE PERIODS JANUARY 9, 1996 TO OCTOBER 31, 1996, 1997 AND ITS
FISCAL YEAR ENDED IN 1998, THE EXPENSE RATIO WOULD HAVE BEEN WITH RESPECT TO
CLASS A SHARES, 19.20% (ANNUALIZED), 4.06%, AND 2.00% RESPECTIVELY; WITH
RESPECT TO CLASS B SHARES, 19.57% (ANNUALIZED), 4.76%, AND 2.69% RESPECTIVELY;
AND WITH RESPECT TO CLASS C SHARES, 19.49% (ANNUALIZED), 4.77%, AND 2.71%
RESPECTIVELY. IF HIGH YIELD HAD BORNE ALL EXPENSES FOR THE PERIOD APRIL 22,
1997 TO AUGUST 31, 1997, THE EXPENSE RATIOS WOULD HAVE BEEN WITH RESPECT TO
CLASS A SHARES, 3.11% (ANNUALIZED); WITH RESPECT TO CLASS B SHARES, 3.85%
(ANNUALIZED); AND WITH RESPECT TO CLASS C SHARES, 3.84% (ANNUALIZED).
(E) IF SHORT-TERM U.S. GOVERNMENT HAD NOT BORNE INTEREST EXPENSES, THE RATIO
OF EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A
SHARES, 1.40% FOR 1996, 1997, AND 1998; WITH RESPECT TO CLASS B SHARES, 2.10%
FOR 1996, 1997, AND 1998; AND WITH RESPECT TO CLASS C SHARES, 2.10% FOR 1996,
1997, AND 1998. IF LIMITED MATURITY GOVERNMENT HAD NOT BORNE INTEREST EXPENSES,
THE RATIO OF EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO
CLASS A SHARES, 1.42% (ANNUALIZED) FOR 1992, 1.33% FOR 1993, 1.20% FOR 1994,
1.41% FOR 1995, 1.58% FOR 1996, 1.65% FOR 1997, AND 1.64% FOR 1998; WITH
RESPECT TO CLASS B SHARES, 2.10% (ANNUALIZED) FOR 1992, 2.07% FOR 1993, 1.91%
FOR 1994, 2.11% FOR 1995, 2.30% FOR 1996, 2.39% FOR 1997, AND 2.35% FOR 1998;
WITH RESPECT TO CLASS C SHARES, 1.58% (ANNUALIZED), FOR 1993, 1.89% FOR 1994,
2.10% FOR 1995, 2.29% FOR 1996, 2.37% FOR 1997, AND 2.33% FOR 1998. IF MORTGAGE
SECURITIES INCOME FUND HAD NOT BORNE INTEREST EXPENSE THE RATIO OF EXPENSES TO
AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES .97% FOR
1994, 1.03% FOR 1995, 1.03% FOR 1996, 1.07% FOR 1997, AND 1.11% FOR 1998; WITH
RESPECT TO CLASS B SHARES, 1.68% FOR 1994, 1.74% FOR 1995, 1.74% FOR 1996,
1.78% FOR 1997, AND 1.82% FOR 1998; WITH RESPECT TO CLASS C SHARES 1.69% FOR
1994, 1.73% FOR 1995, 1.73% FOR 1996, 1.77% FOR 1997, AND 1.80% FOR 1998.
(F) INCLUDES INTEREST EXPENSES. IF MULTI-MARKET STRATEGY HAD NOT BORNE
INTEREST EXPENSES OR LOAN FEES, THE RATIO OF EXPENSES TO AVERAGE NET ASSETS
WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 1.33% (ANNUALIZED) FOR 1991,
1.33% FOR 1992, 1.40% FOR 1993, 1.30% FOR 1994, 1.55% FOR 1995, AND 1.60% FOR
1996; WITH RESPECT TO CLASS B SHARES, 2.05% (ANNUALIZED) FOR 1991, 2.05% FOR
1992, 2.11% FOR 1993, 2.01% FOR 1994, 2.22% FOR 1995, AND 2.31% FOR 1996; WITH
RESPECT TO CLASS C SHARES, 2.11% (ANNUALIZED) FOR 1993, 1.99% FOR 1994, 2.24%
FOR 1995, AND 2.30% FOR 1996. IF NORTH AMERICAN GOVERNMENT INCOME HAD NOT BORNE
INTEREST EXPENSES, THE RATIO OF EXPENSES (NET OF INTEREST EXPENSES) TO AVERAGE
NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 1.66% (ANNUALIZED)
FOR 1992, 1.33% FOR 1993, 1.37% FOR 1994, 1.51% FOR 1995, 1.41% FOR 1996, 1.38%
FOR 1997, AND 1.31% FOR 1998; WITH RESPECT TO CLASS B SHARES, 2.35%
(ANNUALIZED) FOR 1992, 2.04% FOR 1993, 2.07% FOR 1994, 2.22% FOR 1995, 2.12%
FOR 1996, 2.09% FOR 1997, AND 2.02% FOR 1998; AND WITH RESPECT TO CLASS C
SHARES, 2.04% (ANNUALIZED) FOR 1993, 2.06% FOR 1994, 2.21% FOR 1995, 2.12% FOR
1996, 2.08% FOR 1997, AND 2.01% FOR 1998.
(G) INCLUDES LOAN FEES. IF MULTI-MARKET STRATEGY HAD NOT INCURRED LOAN FEES,
THE RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES, 11.65% (ANNUALIZED) FOR 1991, 11.78% FOR 1992 AND
9.73% FOR 1993; WITH RESPECT TO CLASS B SHARES, 10.88% (ANNUALIZED) FOR 1991,
11.02% FOR 1992 AND 8.99% FOR 1993; AND WITH RESPECT TO CLASS C SHARES, 7.50%
(ANNUALIZED) FOR 1993.
(H) BASED ON AVERAGE SHARES OUTSTANDING.
(I) AMOUNTS DO NOT REFLECT THE IMPACT OF EXPENSE OFFSET ARRANGEMENT WITH THE
TRANSFER AGENT. TAKING INTO ACCOUNT SUCH EXPENSE OFFSET ARRANGEMENTS, THE RATIO
OF EXPENSES TO AVERAGE NET ASSETS, ABSENT THE ASSUMPTION AND/OR
WAIVER/REIMBURSEMENT OF EXPENSES FOR MULTI-MARKET STRATEGY THE RATIO OF
EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES
1.57% FOR 1997, WITH RESPECT TO CLASS B SHARES 2.28% FOR 1997 AND WITH RESPECT
TO CLASS C SHARES 2.27% FOR 1997. FOR SHORT-TERM U.S. GOVERNMENT THE RATIO OF
EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES
1.82% FOR 1998, WITH RESPECT TO CLASS B SHARES 2.55% FOR 1998 AND WITH RESPECT
TO CLASS C SHARES 2.55% FOR 1998.
14
GLOSSARY
_______________________________________________________________________________
The following terms are frequently used in this Prospectus. Many of these terms
are explained in greater detail under "Description of the Funds--Additional
Investment Practices" and in Appendix A.
BONDS are fixed, floating and variable rate debt obligations.
DEBT SECURITIES are bonds, debentures, notes, bills and repurchase agreements.
FIXED-INCOME SECURITIES are debt securities, convertible securities and
preferred stocks and include floating rate and variable rate instruments.
Fixed-income securities may be rated (or if unrated, for purposes of the Funds'
investment policies may be determined by Alliance to be of equivalent quality
to those rated) TRIPLE-A (Aaa or AAA), HIGH QUALITY (Aa or AA or above), HIGH
GRADE (A or above) or INVESTMENT GRADE (Baa or BBB or above) by, as the case
may be, Moody's, S&P, Duff & Phelps or Fitch, or may be lower-rated securities,
as defined below. In the case of "split-rated" fixed-income securities (i.e.,
securities assigned non-equivalent credit quality ratings, such as Baa by
Moody's but BB by S&P, or, to take another example, Ba by Moody's and BB by S&P
but B by Fitch), a Fund will use the rating deemed by Alliance to be the most
appropriate under the circumstances.
LOWER-RATED SECURITIES are fixed-income securities rated Ba or BB or below, or
determined by Alliance to be of equivalent quality, and are commonly referred
to as "junk bonds."
EQUITY SECURITIES are common and preferred stocks, securities convertible into
common and preferred stocks, and rights and warrants to subscribe for the
purchase of common and preferred stocks.
CONVERTIBLE SECURITIES are bonds, debentures, corporate notes and preferred
stocks that are convertible into common and preferred stock.
U.S. GOVERNMENT SECURITIES are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. These securities include
securities backed by the full faith and credit of the United States, those
supported by the right of the issuer to borrow from the U.S. Treasury and those
backed only by the credit of the issuing agency itself. The first category
includes U.S. TREASURY SECURITIES (which are U.S. Treasury bills, notes and
bonds) and certificates issued by GNMA (see below). U.S. Government securities
not backed by the full faith and credit of the United States include
certificates issued by FNMA and FHLMC (see below).
MORTGAGE-RELATED SECURITIES are pools of mortgage loans that are assembled for
sale to investors (such as mutual funds) by various governmental,
government-related and private organizations. These securities include:
ARMS, which are adjustable-rate mortgage securities;
SMRS, which are stripped mortgage-related securities;
CMOS, which are collateralized mortgage obligations;
GNMA CERTIFICATES, which are securities issued by the Government National
Mortgage Association;
FNMA CERTIFICATES, which are securities issued by the Federal National
Mortgage Association; and
FHLMC CERTIFICATES, which are securities issued by the Federal Home Loan
Mortgage Corporation.
INTEREST-ONLY or IO securities are debt securities that receive only the
interest payments on an underlying debt that has been structured to have two
classes, one of which is the IO class and the other of which is the
PRINCIPAL-ONLY or PO class, which class receives only the principal payments on
the underlying debt obligation. POs are similar to, and are sometimes referred
to as, ZERO COUPON SECURITIES, which are debt securities issued without
interest coupons.
FOREIGN GOVERNMENT SECURITIES are securities issued or guaranteed, as to
payment of principal and interest, by a foreign government or any of its
political subdivisions, authorities, agencies or instrumentalities.
SOVEREIGN DEBT OBLIGATIONS are foreign government debt securities, loan
participations between foreign governments and financial institutions and
interests in entities organized and operated for the purpose of restructuring
the investment characteristics of foreign government securities.
WORLD BANK is the commonly used name for the International Bank for
Reconstruction and Development.
LIBOR is the London Interbank Offered Rate.
NRSRO is a nationally recognized securities rating organization.
MOODY'S is Moody's Investors Service, Inc.
S&P is Standard & Poor's Ratings Services.
DUFF & PHELPS is Duff & Phelps Credit Rating Co.
FITCH is Fitch IBCA, Inc.
PRIME COMMERCIAL PAPER is commercial paper rated Prime-1 or higher by Moody's,
A-1 or higher by S&P, Fitch-1 by Fitch or Duff 1 by Duff & Phelps. HIGHER
QUALITY COMMERCIAL PAPER is commercial paper rated at least Prime-2 by Moody's,
A-2 by S&P, Fitch-2 by Fitch or Duff 2 by Duff & Phelps.
QUALIFYING BANK DEPOSITS are certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of banks having total assets of more than $1
billion and which are members of the Federal Deposit Insurance Corporation.
RULE 144A SECURITIES are securities that may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "SECURITIES ACT").
1940 ACT is the Investment Company Act of 1940, as amended.
CODE is the Internal Revenue Code of 1986, as amended.
COMMISSION is the Securities and Exchange Commission.
EXCHANGE is the New York Stock Exchange.
15
DESCRIPTION OF THE FUNDS
_______________________________________________________________________________
Except as noted, (i) the Funds' investment objectives are "fundamental" and
cannot be changed without a shareholder vote, and (ii) the Funds' investment
policies are not fundamental and thus can be changed without a shareholder
vote. No Fund will change a non-fundamental objective or policy without
notifying its shareholders. There is no guarantee that any Fund will achieve
its investment objective.
INVESTMENT OBJECTIVES AND POLICIES
U.S. GOVERNMENT FUNDS
The U.S. Government Funds are diversified investment companies that have been
designed to offer investors high current income consistent with preservation of
capital by investing primarily in U.S. Government securities.
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
Alliance Short-Term U.S. Government Fund ("Short-Term U.S. Government") seeks
high current income consistent with preservation of capital by investing
primarily in a portfolio of U.S. Government securities. Under normal
circumstances, the Fund maintains an average dollar-weighted portfolio maturity
of not more than three years and invests at least 65% of its total assets in
U.S. Government securities and repurchase agreements and forward commitments
relating to U.S. Government securities. In periods of rising interest rates the
Fund may, to the extent it invests in mortgage-related securities, be subject
to the risk that its average dollar-weighted portfolio maturity may be extended
as a result of lower than anticipated prepayment rates. See "Additional
Investment Practices--Mortgage-Related Securities." The Fund's investment
objective is not fundamental.
In addition to investing in U.S. Government securities, the Fund may invest a
portion of its assets in securities of non-governmental issuers. Although these
investments will be of high quality at the time of purchase, they generally
involve higher levels of credit risk than do U.S. Government securities, as
well as the risk (present with all fixed-income securities) of fluctuations in
value as interest rates change. The Fund will not be obligated to dispose of
any security whose credit quality falls below high quality.
The Fund may also (i) invest in certain SMRS, (ii) invest in variable, floating
and inverse floating rate instruments, (iii) make short sales "against the
box," (iv) enter into various hedging transactions, such as interest rate
swaps, caps and floors, (v) enter into reverse repurchase agreements, (vi)
purchase and sell futures contracts for hedging purposes, (vii) purchase and
sell call and put options on futures contracts or on securities, for hedging
purposes or to earn additional income, (viii) make secured loans of portfolio
securities, (ix) enter into repurchase agreements, and (x) purchase securities
for future delivery. The Fund may not invest more than 5% of its total assets
in securities the disposition of which is restricted under Federal securities
laws (excluding, to the extent permitted by applicable law, Rule 144A
securities). For additional information on the use, risks and costs of these
practices, see "Additional Investment Practices."
U.S. GOVERNMENT PORTFOLIO
U.S. Government Portfolio ("U.S. Government") seeks as high a level of current
income as is consistent with safety of principal. As a matter of fundamental
policy, the Fund pursues its objective by investing solely in U.S. Government
securities that are backed by the full faith and credit of the U.S. Government.
These include U.S. Treasury securities, including zero coupon Treasury
securities, and GNMA certificates, including certain SMRS and variable and
floating rate instruments. The average weighted maturity of the Fund's
portfolio of U.S. Government securities is expected to vary between one year or
less and 30 years. For additional information on the use, risks and cost of
these practices, see "Additional Investment Practices." The Fund's investment
objective is not fundamental.
The Board of Directors of the Fund has approved, and has recommended to
shareholders for their approval, changes to the U.S. Government Portfolio's
investment objective and policies. If approved by shareholders, the foregoing
paragraph describing the U.S. Government Portfolio's investment objective and
policies shall be replaced in its entirety by the following two paragraphs:
U.S. Government Portfolio ("U.S. Government") is a diversified investment
company that seeks a high level of current income that is consistent with
prudent investment risk. As a matter of fundamental policy the Fund pursues its
objective by investing at least 65% of the value of its total assets in U.S.
Government securities and repurchase agreements and forward contracts relating
to U.S. Government securities. The Fund may invest the remaining 35% of the
value of its total assets in non-U.S. Government mortgage-related and
asset-backed securities. The Fund will not invest in any security rated below
BBB or Baa. The Fund may invest in unrated securities of equivalent quality to
the rated securities in which it may invest, as determined by Alliance. The
Fund expects, but is not required, to dispose of securities that are downgraded
below BBB and Baa or, if unrated, are determined by Alliance to have undergone
similar credit quality deterioration subsequent to their purchase. See "Risk
Considerations--Securities Ratings."
The Fund may also (i) enter into repurchase agreements and reverse repurchase
agreements, forward contracts, and dollar rolls, (ii) enter into various
hedging transactions, such as interest rate swaps, caps and floors, (iii)
purchase and sell futures contracts for hedging purposes, and (iv) purchase
call and put options on futures contracts or on securities for hedging
purposes. For additional information on the use, risks and costs of these
practices, see "Additional Investment Practices."
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
Alliance Limited Maturity Government Fund, Inc. ("Limited Maturity Government")
seeks the highest level of current income, consistent with low volatility of
net asset value. As a
16
matter of fundamental policy, the Fund normally has at least 65% of the value
of its total assets invested in U.S. Government securities, including
mortgage-related securities, and repurchase agreements relating to U.S.
Government securities. For a description of these securities, see "Additional
Investment Practices."
In pursuing its investment objective and policies, the Fund takes advantage of
a wide range of maturities of debt securities and adjusts the dollar-weighted
average maturity of its portfolio from time to time, depending on its
assessment of relative yields on securities of different maturities and the
expected effect of future changes in interest rates on the market value of the
Fund's portfolio. At all times, however, each security held by the Fund has
either a remaining maturity of not more than ten years or a duration not
exceeding that of a ten-year Treasury note. Duration is a measure that relates
the price volatility of a security to changes in interest rates. The duration
of a debt security is the weighted average term to maturity, expressed in
years, of the present value of all future cash flows, including coupon payments
and principal repayments. Thus, by definition, duration is always less than or
equal to full maturity.
The Fund believes that because of the nature of its assets, it is not exposed
to any material risk of loss as a result of default on its portfolio
securities. The Fund is, however, exposed to the risk that the prices of such
securities will fluctuate, in some cases significantly, as interest rates
change.
The Fund may invest up to 35% of its total assets in (i) high quality
asset-backed securities, including mortgage-related securities that are not
U.S. Government securities, (ii) Treasury securities issued by private
corporate issuers, (iii) certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of domestic and foreign banks having total
assets of more than $1 billion, (iv) higher quality commercial paper or, if not
rated, issued by companies that have high quality debt issues outstanding and
(v) high quality debt securities of corporate issuers.
The Fund may also (i) enter into futures contracts and purchase and write
options on futures contracts, (ii) enter into forward commitments for the
purchase or sale of securities, (iii) enter into interest rate swaps, caps and
floors, (iv) invest in Eurodollar instruments, (v) purchase and write put and
call options on foreign currencies, (vi) invest in variable, floating and
inverse floating rate instruments, (vii) enter into repurchase agreements
pertaining to the types of securities in which it invests, (viii) use reverse
repurchase agreements and dollar rolls and (ix) make secured loans of its
portfolio securities. For additional information on the use, risks and costs of
these investment practices, see "Additional Investment Practices."
The Fund may invest up to 15% of the value of its total assets in debt
securities denominated in U.S. Dollars or in foreign currencies and issued or
guaranteed by foreign governments or issued by foreign non-governmental
issuers, provided that such foreign debt securities are of high quality. The
percentage of the Fund's assets invested in foreign debt securities will vary
and its portfolio of foreign debt securities may include those of a number of
foreign countries or, depending upon market conditions, those of a single
country. See "Risk Considerations--Foreign Investment."
MORTGAGE FUND
ALLIANCE MORTGAGE SECURITIES INCOME FUND
Alliance Mortgage Securities Income Fund, Inc. ("Mortgage Securities Income")
is a diversified investment company that seeks a high level of current income
to the extent consistent with prudent investment risk. The Fund invests
primarily in a diversified portfolio of mortgage-related securities, including
CMOs, and, as a matter of fundamental policy, maintains at least 65% of its
total assets in mortgage-related securities.
The Fund expects that governmental, government-related or private entities may
create mortgage loan pools offering pass-through investments in addition to
those described in this Prospectus. The mortgages underlying these securities
may be instruments whose principal or interest payments may vary or whose terms
to maturity may differ from customary long-term fixed-rate mortgages. As new
types of mortgage-related securities are developed and offered to investors,
the Fund will consider making investments in such new types of securities. The
Fund may invest up to 20% of its total assets in lower-rated mortgage-related
securities. See "Risk Considerations--Securities Ratings" and "--Investment in
Lower-Rated Fixed-Income Securities." The average weighted maturity of the
Fund's portfolio of fixed-income securities is expected to vary between two and
ten years.
The Fund may invest up to 35% of the value of its total assets in (i) U.S.
Government securities, (ii) qualifying bank deposits, (iii) prime commercial
paper or, if not rated, issued by companies which have an outstanding high
quality debt issue, (iv) high grade debt securities secured by mortgages on
commercial real estate or residential rental properties, and (v) high grade
asset-backed securities.
The Fund may also (i) invest in repurchase agreements pertaining to the types
of securities in which it invests, (ii) enter into forward commitments for the
purchase or sale of securities, (iii) purchase put and call options written by
others and write covered put and call options on the types of securities in
which the Fund may invest for hedging purposes, (iv) enter into interest rate
swaps, caps and floors, (v) enter into interest rate futures contracts, (vi)
invest in variable floating and inverse floating rate instruments, and (vii)
lend portfolio securities. The Fund will not invest in illiquid securities if,
as a result, more than 10% of its total assets would be illiquid. For
additional information on the use, risk and costs of these practices, see
"Additional Investment Practices."
MULTI-MARKET FUND
ALLIANCE MULTI-MARKET STRATEGY TRUST
Alliance Multi-Market Strategy Trust, Inc. ("Multi-Market Strategy") is a
non-diversified investment company that has been designed to offer investors a
higher yield than a money market fund and less fluctuation in net asset value
than a
17
longer-term bond fund. The Fund seeks the highest level of current income,
consistent with what Alliance considers to be prudent investment risk, that is
available from a portfolio of high quality debt securities having remaining
maturities of not more than five years. The Fund seeks high current yields by
investing in a portfolio of debt securities denominated in the U.S. Dollar and
selected foreign currencies. The Fund seeks investment opportunities in
foreign, as well as domestic, securities markets. The Fund normally expects to
maintain at least 70% of its assets in debt securities denominated in foreign
currencies.
In pursuing its investment objective, the Fund seeks to minimize credit risk
and fluctuations in net asset value by investing only in short-term debt
securities. Normally, a high proportion of the Fund's portfolio consists of
money market instruments. Alliance actively manages the Fund's portfolio in
accordance with a multi-market investment strategy, allocating the Fund's
investments among securities denominated in the U.S. Dollar and the currencies
of a number of foreign countries and, within each such country, among different
types of debt securities. Alliance adjusts the Fund's exposure to each currency
such that the percentage of assets invested in securities of a particular
country or denominated in a particular currency varies in accordance with
Alliance's assessment of the relative yield and appreciation potential of such
securities and the relative strength of a country's currency. Fundamental
economic strength, credit quality and interest rate trends are the principal
factors considered by Alliance in determining whether to increase or decrease
the emphasis placed upon a particular type of security or industry sector
within a Fund's investment portfolio. The Fund does not invest more than 25% of
its net assets in debt securities denominated in a single currency other than
the U.S. Dollar.
The returns available from short-term foreign currency-denominated debt
instruments can be adversely affected by changes in exchange rates. Alliance
believes that the use of foreign currency hedging techniques, including
"cross-hedges" (see "Additional Investment Practices--Forward Foreign Currency
Exchange Contracts"), can help protect against declines in the U.S. Dollar
value of income available for distribution to shareholders and declines in the
net asset value of the Fund's shares resulting from adverse changes in currency
exchange rates. For example, the return available from securities denominated
in a particular foreign currency would diminish in the event the value of the
U.S. Dollar increased against such currency. Such a decline could be partially
or completely offset by an increase in value of a cross-hedge involving a
forward exchange contract to sell a different foreign currency, where such
contract is available on terms more advantageous to the Fund than a contract to
sell the currency in which the position being hedged is denominated. It is
Alliance's belief that cross-hedges can therefore provide significant
protection of net asset value in the event of a general rise in the U.S. Dollar
against foreign currencies. However, a cross-hedge cannot protect against
exchange rate risks perfectly, and if Alliance is incorrect in its judgment of
future exchange rate relationships, the Fund could be in a less advantageous
position than if such a hedge had not been established.
The Fund invests in debt securities denominated in the currencies of countries
whose governments are considered stable by Alliance. In addition to the U.S.
Dollar, such currencies include, among others, the Australian Dollar, Austrian
Schilling, British Pound Sterling, Canadian Dollar, Danish Krone, Dutch
Guilder, French Franc, Irish Pound, Italian Lira, Japanese Yen, Mexican Peso,
New Zealand Dollar, Norwegian Krone, Spanish Peseta, Swedish Krona, Swiss Franc
and German Mark. The Fund expects to invest in debt securities denominated in
the Euro.
An issuer of debt securities purchased by the Fund may be domiciled in a
country other than the country in whose currency the instrument is denominated.
In addition, the Fund may purchase debt securities (sometimes referred to as
"linked" securities) that are denominated in one currency while the principal
amounts of, and value of interest payments on, such securities are determined
with reference to another currency.
The Fund may invest in debt securities issued by supranational organizations
including the World Bank, which was chartered to finance development projects
in developing member countries; the European Union; the European Coal and Steel
Community, which is an economic union of various European nations' steel and
coal industries; and the Asian Development Bank, which is an international
development bank established to lend funds, promote investment and provide
technical assistance to member nations in the Asian and Pacific regions.
The Fund seeks to minimize investment risk by limiting its portfolio
investments to debt securities of high quality. Accordingly, the Fund's
portfolio securities will consist of (i) U.S. Government securities, (ii) high
quality foreign government securities, (iii) obligations issued by
supranational entities and corporate debt securities having a high quality
rating, (iv) certificates of deposit and bankers' acceptances issued or
guaranteed by, or time deposits maintained at, banks (including foreign
branches of foreign banks) having total assets of more than $500 million, and
determined by Alliance to be of high quality, and (v) prime commercial paper or
unrated commercial paper determined by Alliance to be of equivalent quality and
issued by U.S. or foreign companies having outstanding high quality debt
securities.
As a matter of fundamental policy, the Fund concentrates at least 25% of its
total assets in debt instruments issued by domestic and foreign companies
engaged in the banking industry, including bank holding companies. Such
investments may include certificates of deposit, time deposits, bankers'
acceptances, and obligations issued by bank holding companies, as well as
repurchase agreements entered into with banks (as distinct from non-banks) in
accordance with the policies set forth with respect to the Funds in "Additional
Investment Practices--Repurchase Agreements." See "Risk
Considerations--Investment in the Banking Industry."
18
The Fund may also (i) invest in indexed commercial paper, (ii) enter into
futures contracts and purchase and write options on futures contracts, (iii)
purchase and write put and call options on foreign currencies, (iv) purchase or
sell forward foreign currency exchange contracts, (v) enter into interest rate
swaps, caps and floors, (vi) invest in variable, floating and inverse floating
rate instruments, (vii) make secured loans of its portfolio securities, and
(viii) enter into repurchase agreements. The Fund will not invest in illiquid
securities if, as a result, more than 10% of its assets would be so invested.
For additional information on the use, risks and costs of these practices, see
"Additional Investment Practices."
GLOBAL BOND FUNDS
The Global Bond Funds are non-diversified investment companies that have been
designed to offer investors a high level of current income through investments
primarily in foreign government securities.
ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST
Alliance North American Government Income Trust, Inc. ("North American
Government Income") seeks the highest level of current income, consistent with
what Alliance considers to be prudent investment risk, that is available from a
portfolio of debt securities issued or guaranteed by the United States, Canada
and Mexico, their political subdivisions (including Canadian provinces but
excluding states of the United States), agencies, instrumentalities or
authorities ("Government securities"). The Fund invests in investment grade
securities denominated in the U.S. Dollar, the Canadian Dollar and the Mexican
Peso and expects to maintain at least 25% of its assets in securities
denominated in the U.S. Dollar. In addition, the Fund may invest up to 25% of
its total assets in debt securities issued by governmental entities of
Argentina ("Argentine Government securities"). The Fund expects that it will
not retain a debt security which is down graded below BBB or Baa, or, if
unrated, determined by Alliance to have undergone similar credit quality
deterioration, subsequent to purchase by the Fund. There may be circumstances,
however, such as the downgrading to below investment grade of all of the
securities of a governmental issuer in one of the countries in which the Fund
has substantial investments, under which the Fund, after considering all the
circumstances, would conclude that it is in the best interests of the
shareholders to retain its holdings in securities of that issuer. The average
weighted maturity of the Fund's portfolio of fixed-income securities is
expected to vary between one year or less and 30 years.
Alliance believes that the increasingly integrated economic relationship among
the United States, Canada and Mexico, characterized by the reduction and
projected elimination of most barriers to free trade among the three nations
and the growing coordination of their fiscal and monetary policies, will over
the long term benefit the economic performance of all three countries and
promote greater correlation of currency fluctuation among the U.S. and Canadian
Dollars and the Mexican Peso. See, however, Appendix B and the Fund's Statement
of Additional Information with respect to the current state of the Mexican
economy.
Alliance will actively manage the Fund's assets in relation to market
conditions and general economic conditions and adjust the Fund's investments in
an effort to best enable the Fund to achieve its investment objective. Thus,
the percentage of the Fund's assets invested in a particular country or
denominated in a particular currency will vary in accordance with Alliance's
assessment of the relative yield and appreciation potential of such securities
and the relationship of the country's currency to the U.S. Dollar. The Fund
invests at least, and normally substantially more than, 65% of its total assets
in Government securities. To the extent that its assets are not invested in
Government securities, however, the Fund may invest the balance of its total
assets in investment grade debt securities issued by the governments of
countries located in Central and South America or any of their political
subdivisions, agencies, instrumentalities or authorities, provided that such
securities are denominated in their local currencies. The Fund will not invest
more than 10% of its total assets in debt securities issued by the governmental
entities of any one such country, except that the Fund may invest up to 25% of
its total assets in Argentine Government securities. The Fund will normally
invest at least 65% of its total assets in income-producing securities. For a
general description of Canada, Mexico and Argentina, see Appendix B and the
Fund's Statement of Additional Information.
Canadian Government securities include the sovereign debt of Canada or any of
its provinces and Government of Canada bonds and Government of Canada Treasury
bills. Government of Canada Treasury bills are debt obligations with maturities
of less than one year. A new issue of Government of Canada bonds frequently
consists of several different bonds with maturities ranging from one to 25
years.
All Canadian provinces have outstanding bond issues and several provinces also
guarantee bond issues of provincial authorities, agents and Crown corporations.
Each new issue yield is based upon a spread from an outstanding Government of
Canada issue of comparable term and coupon. Many Canadian municipalities,
municipal financial authorities and Crown corporations raise funds through the
bond market in order to finance capital expenditures. Unlike U.S. municipal
securities, which have special tax status, Canadian municipal securities have
the same tax status as other Canadian Government securities and trade similarly
to such securities. The Canadian municipal market may be less liquid than the
provincial bond market.
Canadian Government securities in which the Fund may invest include a modified
pass-through vehicle issued pursuant to the program established under the
National Housing Act of Canada. Certificates issued pursuant to this program
benefit from the guarantee of the Canada Mortgage and Housing Corporation, a
federal Crown corporation that is (except for certain limited purposes) an
agency of the Government of Canada whose guarantee is an unconditional
obligation of the Government of Canada in most circumstances (similar to that
of GNMA in the United States).
19
Mexican Government securities denominated and payable in the Mexican Peso
include (i) Cetes, which are book-entry securities sold directly by the Mexican
Government on a discount basis and with maturities that range from seven to 364
days, (ii) Bonds, which are long-term development bonds issued directly by the
Mexican Government with a minimum term of 364 days, and (iii) Ajustabonos,
which are adjustable-rate bonds with a minimum three-year term issued directly
by the Mexican Government with the face amount adjusted each quarter by the
quarterly inflation rate.
The Fund may invest up to 25% of its total assets in Argentine Government
securities that are denominated and payable in the Argentine Peso. Argentine
Government securities include (i) Bonos del Tesoro ("BOTE"), which are
obligations of the Argentine Treasury, and (ii) Bonos de Consolidacion
Economica ("BOCON"), which are economic consolidation bonds issued directly by
the Argentine Government with maturities of up to ten years. Although not all
Argentine Government securities are rated investment grade quality by S&P,
Moody's, Duff & Phelps or Fitch, Alliance believes that there are unrated
Argentine Government securities that are of investment grade quality.
The Fund may also (i) enter into futures contracts and purchase and write
options on futures contracts for hedging purposes, (ii) purchase and write put
and call options on foreign currencies, (iii) purchase or sell forward foreign
currency exchange contracts, (iv) write covered put and call options and
purchase put and call options on U.S. Government and foreign government
securities traded on U.S. and foreign securities exchanges, and write put and
call options for cross-hedging purposes, (v) enter into interest rate swaps,
caps and floors, (vi) enter into forward commitments for the purchase or sale
of securities, (vii) invest in variable, floating and inverse floating rate
instruments, (viii) make secured loans of its portfolio securities, and (ix)
enter into repurchase agreements. The Fund will not invest in illiquid
securities if, as a result, 10% of its net assets would be so invested. For
additional information on the use, risks and costs of these practices, see
"Additional Investment Practices." The Fund also maintains borrowings of
approximately one-third of its total assets less liabilities (other than the
amount borrowed). See "Risk Considerations--Effects of Borrowing."
ALLIANCE GLOBAL DOLLAR GOVERNMENT FUND
Alliance Global Dollar Government Fund, Inc. ("Global Dollar Government") seeks
primarily a high level of current income, and secondarily capital appreciation.
In seeking to achieve these objectives, the Fund invests at least 65% of its
total assets in sovereign debt obligations. The Fund's investments in sovereign
debt obligations will emphasize obligations of a type customarily referred to
as "Brady Bonds" that are issued as part of debt restructurings and that are
collateralized in full as to principal due at maturity by zero coupon U.S.
Government securities ("collateralized Brady Bonds"). See "Additional
Investment Practices--Brady Bonds" and "Risk Considerations--Sovereign Debt
Obligations." The Fund may also invest up to 35% of its total assets in U.S.
and non-U.S. corporate fixed-income securities. See "Risk Considerations--U.S.
Corporate Fixed-Income Securities." The Fund will limit its investments in
sovereign debt obligations and U.S. and non-U.S. corporate fixed-income
securities to U.S. Dollar-denominated securities. Alliance expects that, based
upon current market conditions, the Fund's portfolio of U.S. fixed-income
securities will have an average maturity range of approximately nine to 15
years and the Fund's portfolio of non-U.S. fixed-income securities will have an
average maturity range of approximately 15 to 25 years. Alliance anticipates
that the Fund's portfolio of sovereign debt obligations will have a longer
average maturity.
Substantially all of the Fund's assets will be invested in lower-rated
securities, which may include securities having the lowest rating for
non-subordinated debt instruments (i.e., rated C by Moody's or CCC or lower by
S&P, Duff & Phelps and Fitch) and unrated securities of comparable investment
quality. These securities are considered to have extremely poor prospects of
ever attaining any real investment standing, to have a current identifiable
vulnerability to default, to be unlikely to have the capacity to pay interest
and repay principal when due in the event of adverse business, financial or
economic conditions, and/or to be in default or not current in the payment of
interest or principal. For a description of bond ratings, see Appendix A. The
Fund may also invest in investment grade securities. Unrated securities will be
considered for investment by the Fund when Alliance believes that the financial
condition of the issuers of such obligations and the protection afforded by the
terms of the obligations themselves limit the risk to the Fund to a degree
comparable to that of rated securities which are consistent with the Fund's
investment objectives and policies. As of August 31, 1998, the percentages of
the Fund's assets invested in securities rated (or considered by Alliance to be
of equivalent quality to securities rated) in particular rating categories were
5% in A and above, 3% in Baa or BBB 50% in Ba or BB, 22% in B, 3% in CC, 1% in
C and 18% in non-rated. See "Risk Considerations--Securities Ratings,"
"--Investment in Fixed-Income Securities Rated Baa and BBB," "--Investment in
Lower-Rated Fixed-Income Securities" and Appendix A.
With respect to its investments in sovereign debt obligations and non-U.S.
corporate fixed-income securities, the Fund will emphasize investments in
countries that are considered at the time of purchase to be emerging or
developing countries by the World Bank. A substantial part of the Fund's
investment focus is expected to be in securities or obligations of Argentina,
Brazil, Mexico, Morocco, the Philippines, Russia and Venezuela because these
countries are now, or are expected by Alliance at a future date to be, the
principal participants in debt restructuring programs (including, in the case
of Argentina, Mexico, the Philippines and Venezuela, issuers of currently
outstanding Brady Bonds) that, in Alliance's opinion, will provide the most
attractive investment opportunities for the Fund. Alliance anticipates that
other countries that will provide investment opportunities for the Fund
include, among others, Bolivia, Costa Rica, the Dominican Republic, Ecuador,
Jordan, Nigeria, Panama, Peru, Poland, Thailand, Turkey and Uruguay. See
"Additional Investment Practices--Brady Bonds."
20
The Fund may invest up to 30% of its total assets in the sovereign debt
obligations and corporate fixed-income securities of issuers in any one of
Argentina, Brazil, Mexico, Morocco, the Philippines, Russia or Venezuela, each
of which is an emerging market country, and the Fund will limit investments in
the sovereign debt obligations of each such country (or of any other single
foreign country) to less than 25% of its total assets. The Fund expects that it
will not invest more than 10% of its total assets in the sovereign debt
obligations and corporate fixed-income securities of issuers in any other
single foreign country and is not required to invest any minimum amount of its
assets in the securities or obligations of issuers located in any particular
country.
A substantial portion of the Fund's investments will be in (i) securities which
were initially issued at discounts from their face values ("Discount
Obligations") and (ii) securities purchased by the Fund at a price less than
their stated face amount or, in the case of Discount Obligations, at a price
less than their issue price plus the portion of "original issue discount"
previously accrued thereon, i.e., purchased at a "market discount."
The Fund may also (i) invest in structured securities, (ii) invest in fixed and
floating rate loans that are arranged through private negotiations between an
issuer of sovereign debt obligations and one or more financial institutions and
in participations in and assignments of these types of loans, (iii) invest in
other investment companies, (iv) invest in warrants, (v) enter into interest
rate swaps, caps and floors, (vi) enter into forward commitments for the
purchase or sale of securities, (vii) make secured loans of its portfolio
securities, (viii) enter into repurchase agreements pertaining to the types of
securities in which it invests, (ix) use reverse repurchase agreements and
dollar rolls, (x) enter into standby commitment agreements, (xi) make short
sales of securities or maintain a short position, (xii) write put and call
options on securities of the types in which it is permitted to invest and write
call options for cross-hedging purposes, (xiii) purchase and sell
exchange-traded options on any securities index composed of the types of
securities in which it may invest, and (xiv) invest in variable, floating and
inverse floating rate instruments. The Fund may also at any time, with respect
to up to 35% of its total assets, temporarily invest funds awaiting
reinvestment or held for reserves for dividends and other distributions to
shareholders in U.S. Dollar-denominated money market instruments. For
additional information on the use, risks and costs of these practices, see
"Additional Investment Practices." While the Fund does not currently intend to
do so, it reserves the right to borrow an amount not to exceed one-third of the
Fund's assets less liabilities (other than the amount borrowed). See "Risk
Considerations--Effects of Borrowing."
ALLIANCE GLOBAL STRATEGIC INCOME TRUST
Alliance Global Strategic Income Trust, Inc. ("Global Strategic Income") is a
non-diversified investment company that seeks primarily a high level of current
income and secondarily capital appreciation. The Fund pursues its investment
objectives by investing primarily in a portfolio of fixed-income securities of
U.S. and non-U.S. companies and U.S. Government and foreign government
securities and supranational entities, including lower-rated securities. The
Fund may also use derivative instruments to attempt to enhance income. The
average weighted maturity of the Fund's portfolio of fixed-income securities is
expected to vary between five years and 30 years in accordance with Alliance's
changing perceptions of the relative attractiveness of various maturity ranges.
Under normal market conditions, at least 65% of the value of the Fund's total
assets will be invested in the fixed-income securities of issuers located in at
least three countries, one of which may be the United States. No more than 25%
of the value of its total assets, however, will be invested in the securities
of any one foreign government. U.S. Government securities in which the Fund may
invest include mortgage-related securities and zero coupon securities.
Fixed-income securities in which the Fund may invest include preferred stock,
mortgage-related and other asset-backed securities, and zero coupon securities.
The Fund may also invest in rights and warrants (for debt securities or for
equity securities that are acquired in connection with debt instruments), and
loan participations and assignments.
The Fund will maintain at least 65% of the value of its total assets in
investment grade securities and may maintain not more than 35% of the value of
its total assets in lower-rated securities. See "Risk
Considerations--Securities Ratings" and "--Investment in Lower-Rated
Fixed-Income Securities." Unrated securities will be considered for investment
by the Fund when Alliance believes that the financial condition of the issuers
of such obligations and the protection afforded by the terms of the obligations
themselves limit the risk to the Fund to a degree comparable to that of rated
securities which are consistent with the Fund's investment objectives and
policies. Lower-rated securities in which the Fund may invest include Brady
Bonds and fixed-income securities of issuers located in emerging markets. There
is no minimum rating requirement applicable to the Fund's investments in
lower-rated fixed-income securities.
The Fund may also: (i) invest in foreign currencies, (ii) purchase and write
put and call options on securities and foreign currencies, (iii) purchase or
sell forward foreign exchange contracts, (iv) invest in variable, floating and
inverse floating rate instruments, (v) invest in indexed commercial paper, (vi)
invest in structured securities, (vii) lend portfolio securities amounting to
not more than 25% of its total assets, (viii) enter into repurchase agreements
pertaining to the types of securities in which it invests, (ix) use reverse
repurchase agreements and dollar rolls, (x) purchase and sell securities on a
forward commitment basis, (xi) enter into standby commitments, (xii) 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 common stock, and purchase and write options on futures
contracts, (xiii) invest in Eurodollar instruments, (xiv) enter into interest
rate swaps, caps and floors, and (xv) make
21
short sales of securities or maintain a short position. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices" and "Risk Considerations." The Fund may
borrow in order to purchase securities or make other investments, although it
currently intends to limit its ability to borrow to an amount not to exceed 25%
of its total assets. See "Risk Considerations--Effects of Borrowing."
CORPORATE BOND FUNDS
CORPORATE BOND PORTFOLIO
Corporate Bond Portfolio ("Corporate Bond") is a diversified investment company
that seeks primarily to maximize income over the long term consistent with
providing reasonable safety in the value of each shareholder's investment, and
secondarily to increase its capital through appreciation of its investments in
order to preserve and, if possible, increase the purchasing power of each
shareholder's investment. In pursuing these objectives, the Fund's policy is to
invest in readily marketable securities which give promise of relatively
attractive yields, but which do not involve substantial risk of loss of
capital. The Fund follows a policy of maintaining at least 65% of its net
assets invested in debt securities. Such objectives and policies cannot be
changed without the approval of the shareholders. Although the Fund also
follows a policy of maintaining at least 65% of its total assets invested in
corporate bonds, it is permitted to invest in securities of non-corporate
issuers.
The Fund follows an investment strategy which in certain respects can be
regarded as more aggressive than the strategies of many other funds investing
primarily in corporate bonds. In this regard, the Fund's investment portfolio
normally tends to have a relatively long average maturity and duration, and to
place significant emphasis on both foreign corporate and sovereign debt
obligations and corporate bonds that are expected to benefit from improvement
in their issuers' credit fundamentals. Consequently, in recent years the Fund
frequently has experienced greater net asset value volatility than most other
corporate bond funds. Prospective investors in the Fund should therefore be
prepared to accept the degree of volatility associated with its investment
strategy. See "Risk Considerations."
There is no minimum rating requirement applicable to the Fund's investments in
fixed-income securities, except the Fund expects that it will not retain a
security that is downgraded below B, or if unrated, determined by Alliance to
have undergone similar credit quality deterioration subsequent to purchase.
Currently, the Fund believes its objectives and policies may best be
implemented by investing at least 65% of its total assets in fixed-income
securities considered investment grade or higher. The remainder of the Fund's
assets may be invested in lower-rated fixed-income securities. See "Risk
Considerations--Securities Ratings," "--Investment in Fixed-Income Securities
Rated Baa and BBB," "--Investment in Lower-Rated Fixed-Income Securities" and
Appendix A. During the fiscal year ended June 30, 1998, on a weighted average
basis, the percentages of the Fund's assets invested in securities rated (or
considered by Alliance to be of equivalent quality to securities rated) in
particular rating categories were 24% in A and above, 51% in Baa or BBB, 22% in
Ba or BB, 3% in B, 1% in CC, 1% in CCC and 1% in non rated securities.
The Fund may invest up to 50% of the value of its total assets in foreign debt
securities which will consist primarily of corporate fixed-income securities
and sovereign debt obligations. Not more than 15% of the Fund's total assets
may be invested in sovereign debt obligations in the form of foreign
government loan participations and assignments, which may be lower rated and
considered to be predominantly speculative as regards the issuer's capacity to
pay interest and repay principal. All of the Fund's investments, whether
foreign or domestic, are U.S. Dollar-denominated.
Within the foregoing limitations, the Fund has complete flexibility as to the
types of securities in which it will invest and the relative proportions
thereof, and the Fund plans to vary the proportions of its holdings of long-
and short-term fixed-income securities and of equity securities in order to
reflect its assessment of prospective cyclical changes even if such action may
adversely affect current income. However, substantially all of the Fund's
investments will be income producing. The average weighted maturity of the
Fund's portfolio of fixed-income securities is expected to vary between one
year or less and 30 years.
The Fund may also (i) invest in structured securities, (ii) invest in fixed and
floating rate loans that are arranged through private negotiations between an
issuer of sovereign debt obligations and one or more financial institutions and
in participations in and assignments of these type of loans, (iii) for hedging
purposes, purchase put and call options written by others and write covered put
and call options on the types of securities in which the Fund may invest, (iv)
for hedging purposes, enter into various hedging transactions, such as interest
rate swaps, caps and floors, (v) invest in variable, floating and inverse
floating rate instruments, (vi) invest in zero coupon and pay-in-kind
securities, and (vii) invest in CMOs and multi-class pass-through
mortgage-related securities. As a matter of fundamental policy, the Fund will
not purchase illiquid securities. For additional information on the use, risks
and costs of these practices, see "Additional Investment Practices."
ALLIANCE HIGH YIELD FUND
Alliance High Yield Fund, Inc. ("High Yield") is a diversified management
investment company that seeks primarily to achieve high total return by
maximizing current income and, to the extent consistent with that objective,
capital appreciation. The Fund pursues this objective by investing primarily in
a diversified mix of high yield, below investment grade fixed-income securities
involving greater volatility of price and risk of principal and income than
higher quality fixed-income securities. The below investment grade debt
securities in which the Fund invests are known as "junk bonds." The Fund is
managed to maximize current income by taking advantage of market developments,
yield disparities and variations in the creditworthiness of issuers. The Fund
uses various strategies in attempting to achieve its objective.
22
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in high yield fixed-income securities rated below investment grade by
two or more NRSROs (i.e., rated lower than Baa by Moody's or lower than BBB by
S&P) or unrated but deemed by Alliance to be equivalent to such lower-rated
securities. The Fund will not, however, invest more than 10% of its total
assets in (i) fixed-income securities which are rated lower than B3 or B- or
their equivalents by two or more NRSROs or if unrated are of equivalent quality
as determined by Alliance, and (ii) money market instruments of any entity
which has an outstanding issue of unsecured debt that is rated lower than B3 or
B- or their equivalents by two or more NRSROs or if unrated is of equivalent
quality as determined by Alliance.
As of August 31, 1998, on a weighted average basis, the percentages of the
Fund's assets invested in securities rated (or considered by Alliance to be of
equivalent quality to securities rated) in particular rating categories were 5%
in A and above, 4% in Ba or BB, 73% in B, 5% in CCC and 13% in unrated
securities. The Fund did not invest in securities rated below CCC by each of
Moody's, S&P, Duff & Phelps and Fitch or, if not rated, considered by Alliance
to be of equivalent quality to securities so rated.
Certain of the Fund's investments may be in fixed-income securities which
provide high current yields because of risks other than credit. For example,
the Fund may invest in securities which have prepayment risks, and non-U.S.
dollar denominated foreign securities, which have currency risks.
See Appendix A, "Bond Ratings," for a description of each rating category. In
the event that any securities held by the Fund fall below those ratings, the
Fund will not be obligated to dispose of such securities and may continue to
hold such securities if, in the opinion of Alliance, such investment is
considered appropriate under the circumstances.
A portion of the Fund's assets may be invested in foreign securities, and the
Fund may buy and sell foreign currencies principally for the purpose of
preserving the value of foreign securities or in anticipation of purchasing
foreign securities. See "Risk Considerations--Foreign Investment" and
"--Currency Considerations."
In addition, and although not to be emphasized, in furtherance of its
investment objective, the Fund may (i) invest in mortgage-backed and
asset-backed securities, (ii) enter into repurchase agreements, (iii) invest in
loan participations and assignments of loans to corporate, governmental, or
other borrowers originally made by institutional lenders or lending syndicates,
(iv) enter into forward commitments for the purchase or sale of securities and
purchase and sell securities on a when-issued or delayed delivery basis, (v)
write covered put and call options on fixed-income securities, securities
indices and foreign currencies and purchase put or call options on fixed-income
securities, securities indices and foreign curencies, (vi) purchase and sell
futures contracts and related options on debt securities and on indices of debt
securities, (vii) enter into contracts for the purchase or sale of a specific
currency for hedging purposes only, and (viii) lend portfolio securities. For
additional information on the uses, risks and costs of these practices, see
"Additional Investment Practices."
In addition to the foregoing, the Fund may from time to time make investments
in (i) U.S. Government securities, (ii) certificates of deposit, bankers'
acceptances, bank notes, time deposits and interest bearing savings deposits
issued or guaranteed by certain domestic and foreign banks, (iii) commercial
paper (rated at least A-1 by S&P or Prime-1 by Moody's or, if not rated, issued
by domestic or foreign companies having high quality outstanding debt
securities) and participation interests in loans extended by banks to such
companies, (iv) corporate debt obligations with remaining maturities of less
than one year rated at least high quality as well as corporate debt obligations
rated at least high grade provided the corporation also has outstanding an
issue of commercial paper rated at least A-1 by S&P or Prime-1 Moody's, and (v)
floating rate or master demand notes.
ADDITIONAL INVESTMENT PRACTICES
Some or all of the Funds may engage in the following investment practices to
the extent described in this Prospectus. See the Statement of Additional
Information of each Fund for a further discussion of the uses, risks and costs
of engaging in these practices.
DERIVATIVES. The Funds may use derivatives in furtherance of their investment
objectives. Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. These
assets, rates, and indices may include bonds, stocks, mortgages, commodities,
interest rates, currency exchange rates, bond indices and stock indices.
Derivatives can be used to earn income or protect against risk, or both. For
example, one party with unwanted risk may agree to pass that risk to another
party who is willing to accept the risk, the second party being motivated, for
example, by the desire either to earn income in the form of a fee or premium
from the first party, or to reduce its own unwanted risk by attempting to pass
all or part of that risk to the first party.
Derivatives can be used by investors such as the Funds to earn income and
enhance returns, to hedge or adjust the risk profile of a portfolio, and either
to replace more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. Each of the Funds is permitted to use
derivatives for one or more of these purposes, although most of the Funds
generally use derivatives primarily as direct investments in order to enhance
yields and broaden portfolio diversification. Each of these uses entails
greater risk than if derivatives were used solely for hedging purposes.
Derivatives are a valuable tool which, when used properly, can provide
significant benefit to Fund shareholders. A Fund may take a significant
position in those derivatives that are within its investment policies if, in
Alliance's judgement, this represents the most effective response to current or
anticipated market conditions. MULTI-MARKET STRATEGY, HIGH YIELD and GLOBAL
STRATEGIC INCOME, in particular, generally make extensive use of carefully
selected forwards and other derivatives to achieve the currency hedging
23
that is an integral part of their investment strategy. Alliance's use of
derivatives is subject to continuous risk assessment and control from the
standpoint of each Fund's investment objectives and policies.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments--options, futures,
forwards and swaps--from which virtually any type of derivative transaction can
be created.
OPTIONS--An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a premium
payment or fee, gives the option holder (the buyer) the right but not the
obligation to buy or sell the underlying asset (or settle for cash an amount
based on an underlying asset, rate or index) at a specified price (the exercise
price) during a period of time or on a specified date. A call option entitles
the holder to purchase, and a put option entitles the holder to sell, the
underlying asset (or settle for cash an amount based on an underlying asset,
rate or index). Likewise, when an option is exercised the writer of the option
is obligated to sell (in the case of a call option) or to purchase (in the case
of a put option) the underlying asset (or settle for cash an amount based on an
underlying asset, rate or index).
FUTURES--A futures contract is an agreement that obligates the buyer to buy
and the seller to sell a specified quantity of an underlying asset (or settle
for cash the value of a contract based on an underlying asset, rate or index)
at a specific price on the contract maturity date. Futures contracts are
standardized, exchange-traded instruments and are fungible (i.e., considered to
be perfect substitutes for each other). This fungibility allows futures
contracts to be readily offset or cancelled through the acquisition of equal
but opposite positions, which is the primary method in which futures contracts
are liquidated. A cash-settled futures contract does not require physical
delivery of the underlying asset but instead is settled for cash equal to the
difference between the values of the contract on the date it is entered into
and its maturity date.
FORWARDS--A forward contract is an obligation by one party to buy, and the
other party to sell, a specific quantity of an underlying commodity or other
tangible asset for an agreed upon price at a future date. Forward contracts are
customized, privately negotiated agreements designed to satisfy the objectives
of each party. A forward contract usually results in the delivery of the
underlying asset upon maturity of the contract in return for the agreed upon
payment.
SWAPS--A swap is a customized, privately negotiated agreement that obligates
two parties to exchange a series of cash flows at specified intervals (payment
dates) based upon or calculated by reference to changes in specified prices or
rates (interest rates in the case of interest rate swaps, currency exchange
rates in the case of currency swaps) for a specified amount of an underlying
asset (the "notional" principal amount). The payment flows are netted against
each other, with the difference being paid by one party to the other. Except
for currency swaps, the notional principal amount is used solely to calculate
the payment streams but is not exchanged. With respect to currency swaps,
actual principal amounts of currencies may be exchanged by the counterparties
at the initiation, and again upon the termination, of the transaction.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. See "Indexed Commercial Paper"
and "Structured Securities" below. The term "derivative" is also sometimes used
to describe securities involving rights to a portion of the cash flows from an
underlying pool of mortgages or other assets from which payments are passed
through to the owner of, or that collateralize, the securities. These
securities are described below under "Mortgage-Related Securities" and "Other
Asset-Backed Securities."
Derivatives involve risks different from, and, in certain cases, greater than,
the risks presented by more traditional investments. Following is a general
discussion of important risk factors and issues concerning the use of
derivatives that investors should understand before investing in a Fund.
MARKET RISK--This is the general risk attendant to all investments that the
value of a particular investment will change in a way detrimental to the Fund's
interest.
MANAGEMENT RISK--Derivative products are highly specialized instruments that
require investment techniques and risk analyses different from those associated
with stocks and bonds. The use of a derivative requires an understanding not
only of the underlying instrument but also of the derivative itself, without
the benefit of observing the performance of the derivative under all possible
market conditions. In particular, the use and complexity of derivatives require
the maintenance of adequate controls to monitor the transactions entered into,
the ability to assess the risk that a derivative adds to a Fund's portfolio,
and the ability to forecast price, interest rate or currency exchange rate
movements correctly.
CREDIT RISK--This is the risk that a loss may be sustained by a Fund as a
result of the failure of another party to a derivative (usually referred to as
a "counterparty") to comply with the terms of the derivative contract. The
credit risk for exchange-traded derivatives is generally less than for
privately negotiated derivatives, since the clearing house, which is the issuer
or counterparty to each exchange-traded derivative, provides a guarantee of
performance. This guarantee is supported by a daily payment system (i.e.,
24
margin requirements) operated by the clearing house in order to reduce overall
credit risk. For privately negotiated derivatives, there is no similar clearing
agency guarantee. Therefore, the Funds consider the creditworthiness of each
counterparty to a privately negotiated derivative in evaluating potential
credit risk.
LIQUIDITY RISK--Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many privately
negotiated derivatives), it may not be possible to initiate a transaction or
liquidate a position at an advantageous price.
LEVERAGE RISK--Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can result
in a loss substantially greater than the amount invested in the derivative
itself. In the case of swaps, the risk of loss generally is related to a
notional principal amount, even if the parties have not made any initial
investment. Certain derivatives have the potential for unlimited loss,
regardless of the size of the initial investment.
OTHER RISKS--Other risks in using derivatives include the risk of mispricing
or improper valuation of derivatives and the inability of derivatives to
correlate perfectly with underlying assets, rates and indices. Many
derivatives, in particular privately negotiated derivatives, are complex and
often valued subjectively. Improper valuations can result in increased cash
payment requirements to counterparties or a loss of value to a Fund.
Derivatives do not always perfectly or even highly correlate or track the value
of the assets, rates or indices they are designed to closely track.
Consequently, a Fund's use of derivatives may not always be an effective means
of, and sometimes could be counterproductive to, furthering the Fund's
investment objective.
DERIVATIVES USED BY THE FUNDS. Following is a description of specific
derivatives currently used by one or more of the Funds.
OPTIONS ON SECURITIES. In purchasing an option on securities, a Fund would be
in a position to realize a gain if, during the option period, the price of the
underlying securities increased (in the case of a call) or decreased (in the
case of a put) by an amount in excess of the premium paid; otherwise the Fund
would experience a loss not greater than the premium paid for the option. Thus,
a Fund would realize a loss if the price of the underlying security declined or
remained the same (in the case of a call) or increased or remained the same (in
the case of a put) or otherwise did not increase (in the case of a put) or
decrease (in the case of a call) by more than the amount of the premium. If a
put or call option purchased by a Fund were permitted to expire without being
sold or exercised, its premium would represent a loss to the Fund.
A Fund may write a put or call option in return for a premium, which is
retained by the Fund whether or not the option is exercised. Except with
respect to uncovered call options written for cross-hedging purposes, none of
the Funds will write uncovered call or put options on securities. A call option
written by a Fund is "covered" if the Fund owns the underlying security, has an
absolute and immediate right to acquire that security upon conversion or
exchange of another security it holds, or holds a call option on the underlying
security with an exercise price equal to or less than that of the call option
it has written. A put option written by a Fund is covered if the Fund holds a
put option on the underlying securities with an exercise price equal to or
greater than that of the put option it has written.
The risk involved in writing an uncovered put option is that there could be a
decrease in the market value of the underlying securities. If this occurred, a
Fund could be obligated to purchase the underlying security at a higher price
than its current market value. Conversely, the risk involved in writing an
uncovered call option is that there could be an increase in the market value of
the underlying security, and a Fund could be obligated to acquire the
underlying security at its current price and sell it at a lower price. The risk
of loss from writing an uncovered put option is limited to the exercise price
of the option, whereas the risk of loss from writing an uncovered call option
is potentially unlimited.
A Fund may write a call option on a security that it does not own in order to
hedge against a decline in the value of a security that it owns or has the
right to acquire, a technique referred to as "cross-hedging." A Fund would
write a call option for cross-hedging purposes, instead of writing a covered
call option, when the premium to be received from the cross-hedge transaction
exceeds that to be received from writing a covered call option, while at the
same time achieving the desired hedge. The correlation risk involved in
cross-hedging may be greater than the correlation risk involved with other
hedging strategies.
SHORT-TERM U.S. GOVERNMENT, MORTGAGE SECURITIES INCOME, NORTH AMERICAN
GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT, GLOBAL STRATEGIC INCOME, CORPORATE
BOND and HIGH YIELD generally purchase or write privately negotiated options on
securities. A Fund that does so will effect such transactions only with
investment dealers and other financial institutions (such as commercial banks
or savings and loan institutions) deemed creditworthy by Alliance. Alliance has
adopted procedures for monitoring the creditworthiness of such counterparties.
Privately negotiated options purchased or written by a Fund may be illiquid,
and it may not be possible for the Fund to effect a closing transaction at an
advantageous time. See "Illiquid Securities" below. Neither MORTGAGE
SECURITIES INCOME nor CORPORATE BOND will purchase an option on a security if,
immediately thereafter, the aggregate cost of all outstanding options purchased
by such Fund would exceed 2% of the Fund's total assets. Nor will either such
Fund write an option if, immediately thereafter, the aggregate value of the
Fund's portfolio securities subject to outstanding options would exceed 15% of
the Fund's total assets.
OPTIONS ON SECURITIES INDICES. An option on a securities index is similar to an
option on a security except that, rather than taking or making delivery of a
security at a specified price, an
25
option on a securities index gives the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of the chosen
index is greater than (in the case of a call) or less than (in the case of a
put) the exercise price of the option.
OPTIONS ON FOREIGN CURRENCIES. A Fund invests in options on foreign currencies
that are privately negotiated or traded on U.S. or foreign exchanges for the
purpose of protecting against declines in the U.S. Dollar value of foreign
currency denominated securities held by a Fund and against increases in the
U.S. Dollar cost of securities to be acquired. The purchase of an option on a
foreign currency may constitute an effective hedge against fluctuations in
exchange rates, although if rates move adversely, a Fund may forfeit the entire
amount of the premium plus related transaction costs.
RIGHTS AND WARRANTS. GLOBAL DOLLAR GOVERNMENT may invest in warrants, and
GLOBAL STRATEGIC INCOME may invest in rights and warrants, which are option
securities permitting their holders to subscribe for other securities. GLOBAL
DOLLAR GOVERNMENT may invest in warrants, and GLOBAL STRATEGIC INCOME may
invest in rights and warrants, for debt securities or for equity securities
that are acquired in connection with debt instruments. Rights are similar to
warrants except that they have a substantially shorter duration. Rights and
warrants do not carry with them dividend or voting rights with respect to the
underlying securities, or any rights in the assets of the issuer. As a result,
an investment in rights and warrants may be considered more speculative than
certain other types of investments. In addition, the value of a right or a
warrant does not necessarily change with the value of the underlying
securities, and a right or a warrant ceases to have value if it is not
exercised prior to its expiration date. GLOBAL STRATEGIC INCOME may invest up
to 20% of its total assets in rights and warrants.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Futures contracts that a
Fund may buy and sell may include futures contracts on fixed-income or other
securities or foreign currencies, and contracts based on interest rates or
financial indices, including any index of U.S. Government securities, foreign
government securities or corporate debt securities.
Options on futures contracts are options that call for the delivery of futures
contracts upon exercise. Options on futures contracts written or purchased by a
Fund will be traded on U.S. or foreign exchanges and, except with respect to
SHORT-TERM U.S. GOVERNMENT and GLOBAL STRATEGIC INCOME, will be used only for
hedging purposes.
LIMITED MATURITY GOVERNMENT, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT
INCOME and GLOBAL STRATEGIC INCOME will not enter into a futures contract or
write or purchase an option on a futures contract if immediately thereafter the
market values of the outstanding futures contracts of the Fund and the
currencies and futures contracts subject to outstanding options written by the
Fund would exceed 50% of its total assets. MORTGAGE SECURITIES INCOME will not
write or purchase options on futures contracts. Nor will LIMITED MATURITY
GOVERNMENT, MORTGAGE SECURITIES INCOME, MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME or GLOBAL STRATEGIC INCOME enter into a futures contract or,
if otherwise permitted, write or purchase an option on a futures contract, if
immediately thereafter the aggregate of initial margin deposits on all the
outstanding futures contracts of the Fund and premiums paid on outstanding
options on futures contracts would exceed 5% of the market value of the total
assets of the Fund. In addition, MORTGAGE SECURITIES INCOME and GLOBAL
STRATEGIC INCOME will not enter into any futures contract (i) other than one on
fixed-income securities or based on interest rates, or (ii) if immediately
thereafter the sum of the then aggregate futures market prices of financial
instruments required to be delivered under open futures contract sales and the
aggregate futures market prices of instruments required to be delivered under
open futures contract purchases would exceed 30% of the value of the Fund's
total assets.
HIGH YIELD will not purchase or sell futures contracts or options on futures
contracts unless either (i) the futures contracts or options thereon are for
"bona fide hedging" purposes (as that term is defined under the Commodities
Futures Trading Commission regulations) or (ii) if for other purposes, the sum
of amounts of initial margin deposits and premiums required to establish
non-hedging positions would not exceed 5% of the Fund's liquidation value.
EURODOLLAR INSTRUMENTS. Eurodollar instruments are essentially U.S.
Dollar-denominated futures contracts or options thereon that are linked to
LIBOR. Eurodollar futures contracts enable purchasers to obtain a fixed rate
for the lending of funds and sellers to obtain a fixed rate for borrowings.
LIMITED MATURITY GOVERNMENT and GLOBAL STRATEGIC INCOME intend to use
Eurodollar futures contracts and options thereon to hedge against changes in
LIBOR (to which many short-term borrowings and floating rate securities in
which each Fund invests are linked).
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Each Fund that purchases or sells
forward foreign currency exchange contracts ("forward contracts") attempts to
minimize the risk to it from adverse changes in the relationship between the
U.S. Dollar and other currencies. A Fund may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S. Dollar price
of the security (a "transaction hedge"). When a Fund believes that a foreign
currency may suffer a substantial decline against the U.S. Dollar, it may
enter into a forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency, or when the Fund believes that the U.S.
Dollar may suffer a substantial decline against a foreign currency, it may
enter into a forward purchase contract to buy that foreign currency for a
fixed dollar amount (a "position hedge"). Instead of entering into a position
hedge, a Fund may, in the alternative, enter into a forward contract to sell a
different foreign currency for a fixed U.S. Dollar amount where the Fund
believes that the U.S. Dollar value of the currency to be sold pursuant to the
forward contract will fall whenever there is a
26
decline in the U.S. Dollar value of the currency in which portfolio securities
of the Fund are denominated (a "cross-hedge").
FORWARD COMMITMENTS. Forward commitments are forward contracts for the purchase
or sale of securities, including purchases on a "when-issued" basis or
purchases or sales on a "delayed delivery" basis. In some cases, a forward
commitment may be conditioned upon the occurrence of a subsequent event, such
as approval and consummation of a merger, corporate reorganization or debt
restructuring or approval of a proposed financing by appropriate authorities
(i.e., a "when, as and if issued" trade).
When forward commitments with respect to fixed-income securities are
negotiated, the price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but payment for and delivery of the securities
take place at a later date. Normally, the settlement date occurs within two
months after the transaction, but settlements beyond two months may be
negotiated. Securities purchased or sold under a forward commitment are subject
to market fluctuation, and no interest or dividends accrues to the purchaser
prior to the settlement date. At the time a Fund enters into a forward
commitment, it records the transaction and thereafter reflects the value of the
security purchased or, if a sale, the proceeds to be received, in determining
its net asset value. Any unrealized appreciation or depreciation reflected in
such valuation would be canceled if the required conditions did not occur and
the trade were canceled.
The use of forward commitments helps a Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling bond
prices. In periods of falling interest rates and rising bond prices, a Fund
might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. No forward commitments will be made by
LIMITED MATURITY GOVERNMENT, NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR
GOVERNMENT or GLOBAL STRATEGIC INCOME if, as a result, the Fund's aggregate
forward commitments under such transactions would be more than 25% of the total
assets of GLOBAL STRATEGIC INCOME and 30% of the total assets of each of the
other Funds.
A Fund's right to receive or deliver a security under a forward commitment may
be sold prior to the settlement date. The Funds enter into forward commitments,
however, only with the intention of actually receiving securities or delivering
them, as the case may be. If a Fund, however, chooses to dispose of the right
to acquire a when-issued security prior to its acquisition or dispose of its
right to deliver or receive against a forward commitment, it may realize a gain
or incur a loss.
INTEREST RATE TRANSACTIONS (SWAPS, CAPS AND FLOORS). Each Fund that may enter
into interest rate swap, cap or floor transactions expects to do so primarily
for hedging purposes, which may include preserving a return or spread on a
particular investment or portion of its portfolio or protecting against an
increase in the price of securities the Fund anticipates purchasing at a later
date. The Funds do not intend to use these transactions in a speculative manner.
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments) computed based on a
contractually-based principal (or "notional") amount. Interest rate swaps are
entered into on a net basis (i.e., the two payment streams are netted out, with
the Fund receiving or paying, as the case may be, only the net amount of the
two payments). Interest rate caps and floors are similar to options in that the
purchase of an interest rate cap or floor entitles the purchaser, to the extent
that a specified index exceeds (in the case of a cap) or falls below (in the
case of a floor) a predetermined interest rate, to receive payments of interest
on a notional amount from the party selling the interest rate cap or floor. A
Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or liabilities.
There is no limit on the amount of interest rate transactions that may be
entered into by a Fund that is permitted to enter into such transactions.
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and GLOBAL STRATEGIC
INCOME may enter into interest rate swaps involving payments in the same
currency or in different currencies. SHORT-TERM U.S. GOVERNMENT, LIMITED
MATURITY GOVERNMENT, MORTGAGE SECURITIES INCOME, GLOBAL DOLLAR GOVERNMENT,
GLOBAL STRATEGIC INCOME and CORPORATE BOND will not enter into an interest rate
swap, cap or floor transaction unless the unsecured senior debt or the
claims-paying ability of the other party thereto is then rated in the highest
rating category of at least one NRSRO. Each of MULTI-MARKET STRATEGY, NORTH
AMERICAN GOVERNMENT INCOME and GLOBAL STRATEGIC INCOME will enter into interest
rate swap, cap or floor transactions with its respective custodian, and with
other counterparties, but only if: (i) for transactions with maturities under
one year, such other counterparty has outstanding prime commercial paper; or
(ii) for transactions with maturities greater than one year, the counterparty
has high quality debt securities outstanding.
The swap market has grown substantially in recent years, with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become well established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions do not involve the delivery of securities or
other underlying assets or principal. Accordingly, unless there is a
counterparty default, the risk of loss to a Fund from interest rate
transactions is limited to the net amount of interest payments that the Fund is
contractually obligated to make.
27
STANDBY COMMITMENT AGREEMENTS. Standby commitment agreements are similar to put
options that commit a Fund, for a stated period of time, to purchase a stated
amount of a security that may be issued and sold to the Fund at the option of
the issuer. The price and coupon of the security are fixed at the time of the
commitment. At the time of entering into the agreement, the Fund is paid a
commitment fee regardless of whether the security ultimately is issued. The
Funds will enter into such agreements only for the purpose of investing in the
security underlying the commitment at a yield and price considered advantageous
and unavailable on a firm commitment basis. No Fund will enter into a standby
commitment with a remaining term in excess of 45 days. The Funds will limit
their investments in standby commitments so that the aggregate purchase price
of the securities subject to the commitments does not exceed 20% or 25% with
respect to GLOBAL STRATEGIC INCOME, of their respective assets.
There is no guarantee that the security subject to a standby commitment will be
issued. In addition, the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
is at the option of the issuer, a Fund will bear the risk of capital loss in
the event the value of the security declines and may not benefit from an
appreciation in the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Fund.
INDEXED COMMERCIAL PAPER. Indexed commercial paper may have its principal
linked to changes in foreign currency exchange rates whereby its principal
amount is adjusted upwards or downwards (but not below zero) at maturity to
reflect changes in the referenced exchange rate. Each Fund that invests in such
commercial paper may do so without limitation. A Fund will receive interest and
principal payments on such commercial paper in the currency in which such
commercial paper is denominated, but the amount of principal payable by the
issuer at maturity will change in proportion to the change (if any) in the
exchange rate between the two specified currencies between the date the
instrument is issued and the date the instrument matures. While such commercial
paper entails the risk of loss of principal, the potential for realizing gains
as a result of changes in foreign currency exchange rates enables a Fund to
hedge (or cross-hedge) against a decline in the U.S. Dollar value of
investments denominated in foreign currencies while providing an attractive
money market rate of return. A Fund will purchase such commercial paper for
hedging purposes only, not for speculation.
U.S. GOVERNMENT SECURITIES. U.S. Government securities may be backed by the
full faith and credit of the United States, supported only by the right of the
issuer to borrow from the U.S. Treasury or backed only by the credit of the
issuing agency itself. These securities include:
(i) the following U.S. Treasury securities, which are backed by the full faith
and credit of the United States and differ only in their interest rates,
maturities and times of issuance: U.S. Treasury bills (maturities of one year
or less with no interest paid and hence issued at a discount and repaid at full
face value upon maturity), U.S. Treasury notes (maturities of one to ten years
with interest payable every six months) and U.S. Treasury bonds (generally
maturities of greater than ten years with interest payable every six months);
(ii) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are supported by the full faith and credit of the U.S.
Government, such as securities issued by GNMA, the Farmers Home Administration,
the Department of Housing and Urban Development, the Export-Import Bank, the
General Services Administration and the Small Business Administration; and
(iii) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are not supported by the full faith and credit of the
U.S. Government, such as securities issued by FNMA and FHLMC, and governmental
CMOs.
The maturities of the U.S. Government securities listed in paragraphs (i) and
(ii) above usually range from three months to 30 years. Such securities, except
GNMA certificates, normally provide for periodic payments of interest in fixed
amounts with principal payments at maturity or specified call dates. For
information regarding GNMA, FNMA and FHLMC certificates and CMOs, see
"Mortgage-Related Securities" below.
U.S. Government securities also include zero coupon securities and
principal-only securities and certain SMRS. In addition, other U.S. Government
agencies and instrumentalities have issued stripped securities that are similar
to SMRS. Such securities include those that are issued with an IO class and a
PO class. See "Mortgage-Related Securities" and "Zero Coupon and Principal-Only
Securities" below. Although these stripped securities are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, these securities were only recently developed. As a result,
established trading markets have not yet developed and, accordingly, these
securities may be illiquid.
Guarantees of securities by the U.S. Government or its agencies or
instrumentalities guarantee only the payment of principal and interest on the
securities, and do not guarantee the securities' yield or value or the yield or
value of the shares of a Fund that holds the securities.
U.S. Government securities are considered among the safest of fixed-income
investments. As a result, however, their yields are generally lower than the
yields available from other fixed-income securities.
MORTGAGE-RELATED SECURITIES. The mortgage-related securities in which a Fund
may invest typically are securities representing interests in pools of mortgage
loans made to home owners. The mortgage loan pools may be assembled for sale to
investors (such as a Fund) by governmental or private organizations.
Mortgage-related securities issued by GNMA are
28
backed by the full faith and credit of the United States; those issued by FNMA
and FHLMC are not so backed. Mortgage-related securities bear interest at
either a fixed rate or an adjustable rate determined by reference to an index
rate. Mortgage-related securities frequently provide for monthly payments that
consist of both interest and principal, unlike more traditional debt
securities, which normally do not provide for periodic repayments of principal.
Securities representing interests in pools created by private issuers generally
offer a higher rate of interest than securities representing interests in pools
created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. However, private
issuers sometimes obtain committed loan facilities, lines of credit, letters of
credit, surety bonds or other forms of liquidity and credit enhancement to
support the timely payment of interest and principal with respect to their
securities if the borrowers on the underlying mortgages fail to make their
mortgage payments. The ratings of such non-governmental securities are
generally dependent upon the ratings of the providers of such liquidity and
credit support and would be adversely affected if the rating of such an
enhancer were downgraded. A Fund may buy mortgage-related securities without
credit enhancement if the securities meet the Fund's investment standards.
One type of mortgage-related security is of the "pass-through" variety. The
holder of a pass-through security is considered to own an undivided beneficial
interest in the underlying pool of mortgage loans and receives a pro rata share
of the monthly payments made by the borrowers on their mortgage loans, net of
any fees paid to the issuer or guarantor of the securities. Prepayments of
mortgages resulting from the sale, refinancing or foreclosure of the underlying
properties are also paid to the holders of these securities, which, as
discussed below, frequently causes these securities to experience significantly
greater price and yield volatility than experienced by traditional fixed-income
securities. Some mortgage-related securities, such as securities issued by
GNMA, are referred to as "modified pass-through" securities. The holders of
these securities are entitled to the full and timely payment of principal and
interest, net of certain fees, regardless of whether payments are actually made
on the underlying mortgages.
Another form of mortgage-related security is a "pay-through" security, which is
a debt obligation of the issuer secured by a pool of mortgage loans pledged as
collateral that is legally required to be paid by the issuer, regardless of
whether payments are actually made on the underlying mortgages. Collateralized
mortgage obligations (CMOs) are the predominant type of "pay-through"
mortgage-related security. In a CMO, a series of bonds or certificates is
issued in multiple classes. Each class of a CMO, often referred to as a
"tranche," is issued at a specific coupon rate and has a stated maturity or
final distribution date. Principal prepayments on collateral underlying a CMO
may cause one or more tranches of the CMO to be retired substantially earlier
than the stated maturities or final distribution dates of the collateral. The
principal and interest on the underlying mortgages may be allocated among
several classes of a series of a CMO in many ways. In a common structure,
payments of principal, including any principal prepayments, on the underlying
mortgages are applied to the classes of the series of a CMO in the order of
their respective stated maturities or final distribution dates, so that no
payment of principal will be made on any class of a CMO until all other classes
having an earlier stated maturity or final distribution date have been paid in
full. One or more tranches of a CMO may have coupon rates that reset
periodically, or "float," at a specified increment over an index such as LIBOR.
Floating-rate CMOs may be backed by fixed or adjustable rate mortgages. To
date, fixed-rate mortgages have been more commonly utilized for this purpose.
Floating-rate CMOs are typically issued with lifetime caps on the coupon rate
thereon. These caps, similar to the caps on adjustable-rate mortgages described
below, represent a ceiling beyond which the coupon rate on a floating-rate CMO
may not be increased regardless of increases in the interest rate index to
which the floating-rate CMO is tied. The collateral securing the CMOs may
consist of a pool of mortgages, but may also consist of mortgage-backed bonds
or pass-through securities. CMOs may be issued by a U.S. Government
instrumentality or agency or by a private issuer. Although payment of the
principal of, and interest on, the underlying collateral securing privately
issued CMOs may be guaranteed by GNMA, FNMA or FHLMC, these CMOs represent
obligations solely of the private issuer and are not insured or guaranteed by
GNMA, FNMA, FHLMC, any other governmental agency or any other person or entity.
Another type of mortgage-related security, known as adjustable-rate mortgage
securities (ARMS), bears interest at a rate determined by reference to a
predetermined interest rate or index. There are two main categories of rates or
indices: (i) rates based on the yield on U.S. Treasury securities and (ii)
indices derived from a calculated measure such as a cost of funds index or a
moving average of mortgage rates. Some rates and indices closely mirror changes
in market interest rate levels, while others tend to lag changes in market rate
levels and tend to be somewhat less volatile.
ARMS may be secured by fixed-rate mortgages or adjustable-rate mortgages. ARMS
secured by fixed-rate mortgages generally have lifetime caps on the coupon
rates of the securities. To the extent that general interest rates increase
faster than the interest rates on the ARMS, these ARMS will decline in value.
The adjustable-rate mortgages that secure ARMS will frequently have caps that
limit the maximum amount by which the interest rate or the monthly principal
and interest payments on the mortgages may increase. These payment caps can
result in negative amortization (i.e., an increase in the balance of the
mortgage loan). Furthermore, since many adjustable-rate mortgages only reset on
an annual basis, the values of ARMS tend to fluctuate to the extent that
changes in prevailing interest rates are not immediately reflected in the
interest rates payable on the underlying adjustable-rate mortgages.
29
Stripped mortgage-related securities (SMRS) are mortgage-related securities
that are usually structured with two classes of securities collateralized by a
pool of mortgages or a pool of mortgaged-backed bonds or pass-through
securities, with each class receiving different proportions of the principal
and interest payments from the underlying assets. A common type of SMRS has one
class of interest-only securities (IOs) receiving all of the interest payments
from the underlying assets; while the other class of securities, principal-only
securities (POs), receives all of the principal payments from the underlying
assets. IOs and POs are extremely sensitive to interest rate changes and are
more volatile than mortgage-related securities that are not stripped. IOs tend
to decrease in value as interest rates decrease, while POs generally increase
in value as interest rates decrease. If prepayments of the underlying mortgages
are greater than anticipated, the amount of interest earned on the overall pool
will decrease due to the decreasing principal balance of the assets. Changes in
the values of IOs and POs can be substantial and occur quickly, such as
occurred in the first half of 1994 when the value of many POs dropped
precipitously due to increases in interest rates. For this reason, none of the
Funds relies on IOs and POs as the principal means of furthering its investment
objective.
The value of mortgage-related securities is affected by a number of factors.
Unlike traditional debt securities, which have fixed maturity dates,
mortgage-related securities may be paid earlier than expected as a result of
prepayments of underlying mortgages. Such prepayments generally occur during
periods of falling mortgage interest rates. If property owners make unscheduled
prepayments of their mortgage loans, these prepayments will result in the early
payment of the applicable mortgage-related securities. In that event, a Fund
may be unable to invest the proceeds from the early payment of the
mortgage-related securities in investments that provide as high a yield as the
mortgage-related securities. Early payments associated with mortgage-related
securities cause these securities to experience significantly greater price and
yield volatility than is experienced by traditional fixed-income securities.
The occurrence of mortgage prepayments is affected by the level of general
interest rates, general economic conditions and other social and demographic
factors. During periods of falling interest rates, the rate of mortgage
prepayments tends to increase, thereby tending to decrease the life of
mortgage-related securities. Conversely, during periods of rising interest
rates, a reduction in prepayments may increase the effective life of
mortgage-related securities, subjecting them to greater risk of decline in
market value in response to rising interest rates. If the life of a
mortgage-related security is inaccurately predicted, a Fund may not be able to
realize the rate of return it expected.
Although the market for mortgage-related securities is becoming increasingly
liquid, those issued by certain private organizations may not be readily
marketable. In particular, the secondary markets for CMOs, IOs and POs may be
more volatile and less liquid than those for other mortgage-related securities,
thereby potentially limiting a Fund's ability to buy or sell those securities
at any particular time.
As with fixed-income securities generally, the value of mortgage-related
securities can also be adversely affected by increases in general interest
rates relative to the yield provided by such securities. Such an adverse effect
is especially possible with fixed-rate mortgage securities. If the yield
available on other investments rises above the yield of the fixed-rate mortgage
securities as a result of general increases in interest rate levels, the value
of the mortgage-related securities will decline. Although the negative effect
could be lessened if the mortgage-related securities were to be paid earlier
(thus permitting a Fund to reinvest the prepayment proceeds in investments
yielding the higher current interest rate), as described above the rates of
mortgage prepayments and early payments of mortgage-related securities
generally tend to decline during a period of rising interest rates.
Although the values of ARMS may not be affected as much as the values of
fixed-rate mortgage securities by rising interest rates, ARMS may still decline
in value as a result of rising interest rates. Although, as described above,
the yields on ARMS vary with changes in the applicable interest rate or index,
there is often a lag between increases in general interest rates and increases
in the yield on ARMS as a result of relatively infrequent interest rate reset
dates. In addition, adjustable-rate mortgages and ARMS often have interest rate
or payment caps that limit the ability of the adjustable-rate mortgages or ARMS
to fully reflect increases in the general level of interest rates.
OTHER ASSET-BACKED SECURITIES. The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card
receivables, home equity loans, equipment leases and trade receivables, are
being securitized in structures similar to the structures used in mortgage
securitizations. These asset-backed securities are subject to risks associated
with changes in interest rates and prepayment of underlying obligations similar
to the risks of investment in mortgage-related securities discussed above.
Each type of asset-backed security also entails unique risks depending on the
type of assets involved and the legal structure used. For example, credit card
receivables are generally unsecured obligations of the credit card holder and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
There have also been proposals to cap the interest rate that a credit card
issuer may charge. In some transactions, the value of the asset-backed security
is dependent on the performance of a third party acting as credit enhancer or
servicer. Furthermore, in some transactions (such as those involving the
securitization of vehicle loans or leases) it may be administratively
burdensome
30
to perfect the interest of the security issuer in the underlying collateral and
the underlying collateral may become damaged or stolen.
ZERO COUPON AND PRINCIPAL-ONLY SECURITIES. Zero coupon securities and
principal-only (PO) securities are debt securities that have been issued
without interest coupons or stripped of their unmatured interest coupons, and
include receipts or certificates representing interests in such stripped debt
obligations and coupons. Such a security pays no interest to its holder during
its life. Its value to an investor consists of the difference between its face
value at the time of maturity and the price for which it was acquired, which is
generally an amount significantly less than its face value. Such securities
usually trade at a deep discount from their face or par value and are subject
to greater fluctuations in market value in response to changing interest rates
than debt obligations of comparable maturities and credit quality that make
current distributions of interest. On the other hand, because there are no
periodic interest payments to be reinvested prior to maturity, these securities
eliminate reinvestment risk and "lock in" a rate of return to maturity.
Zero coupon Treasury securities are U.S. Treasury bills issued without interest
coupons. Principal-only Treasury securities are U.S. Treasury notes and bonds
that have been stripped of their unmatured interest coupons, and receipts or
certificates representing interests in such stripped debt obligations.
Currently the only U.S. Treasury security issued without coupons is the
Treasury bill. Although the U.S. Treasury does not itself issue Treasury notes
and bonds without coupons, under the U.S. Treasury STRIPS program interest and
principal payments on certain long-term Treasury securities may be maintained
separately in the Federal Reserve book entry system and may be separately
traded and owned. In addition, in the last few years a number of banks and
brokerage firms have separated ("stripped") the principal portions from the
coupon portions of U.S. Treasury bonds and notes and sold them separately in
the form of receipts or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a custodial or
trust account). The staff of the Commission has indicated that, in its view,
these receipts or certificates should be considered as securities issued by the
bank or brokerage firm involved and, therefore, should not be included in a
Fund's categorization of U.S. Government securities. The Funds disagree with
the staff's position but will not treat such securities as U.S. Government
securities until final resolution of the issue.
Current federal tax law requires that a holder (such as a Fund) of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the holder receives no interest
payment in cash on the security during the year. As a result, in order to make
the distributions necessary for a Fund not to be subject to federal income or
excise taxes, the Fund might be required to pay out as an income distribution
each year an amount, obtained by liquidation of portfolio securities or
borrowings if necessary, greater than the total amount of cash that the Fund
has actually received as interest during the year. Each Fund believes, however,
that it is highly unlikely that it would be necessary to liquidate portfolio
securities or borrow money in order to make such required distributions or to
meet its investment objective. For a discussion of the tax treatment of zero
coupon Treasury securities, see "Dividends, Distributions and Taxes--Zero
Coupon Treasury Securities" in the Statement of Additional Information of each
Fund that is permitted to invest in such securities.
GLOBAL STRATEGIC INCOME and CORPORATE BOND may also invest in "pay-in-kind"
debentures (i.e., debt obligations the interest on which may be paid in the
form of obligations of the same type rather than cash), which have
characteristics similar to zero coupon securities.
VARIABLE, FLOATING AND INVERSE FLOATING RATE INSTRUMENTS. Fixed-income
securities may have fixed, variable or floating rates of interest. Variable and
floating rate securities pay interest at rates that are adjusted periodically,
according to a specified formula. A "variable" interest rate adjusts at
predetermined intervals (e.g., daily, weekly or monthly), while a "floating"
interest rate adjusts whenever a specified benchmark rate (such as the bank
prime lending rate) changes.
A Fund may invest in fixed-income securities that pay interest at a coupon rate
equal to a base rate, plus additional interest for a certain period of time if
short-term interest rates rise above a predetermined level or "cap." The amount
of such an additional interest payment typically is calculated under a formula
based on a short-term interest rate index multiplied by a designated factor.
Leveraged inverse floating rate debt instruments are sometimes known as inverse
floaters. The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the magnitude of the
change in the index rate of interest. The higher degree of leverage inherent in
inverse floaters is associated with greater volatility in market value, such
that, during periods of rising interest rates, the market values of inverse
floaters will tend to decrease more rapidly than those of fixed rate securities.
STRUCTURED SECURITIES. Structured securities in which GLOBAL DOLLAR GOVERNMENT,
GLOBAL STRATEGIC INCOME and CORPORATE BOND may invest represent interests in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of sovereign debt obligations, with respect to
GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME, or foreign government
securities, with respect to CORPORATE BOND. This type of restructuring involves
the deposit with or purchase by an entity, such as a corporation or trust, of
specified instruments (such as commercial bank loans or Brady Bonds) and the
issuance by that entity of one or more classes of structured securities backed
by, or representing interests in, the underlying instruments. The cash flow on
the underlying instruments may be apportioned among the newly issued
31
structured securities to create securities with different investment
characteristics such as varying maturities, payment priorities and interest
rate provisions, and the extent of the payments made with respect to structured
securities is dependent on the extent of the cash flow on the underlying
instruments. Because structured securities typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments. Structured securities of a given class may be either
subordinated or unsubordinated to the right of payment of another class.
Subordinated structured securities typically have higher yields and present
greater risks than unsubordinated structured securities. GLOBAL DOLLAR
GOVERNMENT may invest up to 25% of its total assets, and GLOBAL STRATEGIC
INCOME and CORPORATE BOND may invest without limit, in these types of
structured securities.
LOAN PARTICIPATIONS AND ASSIGNMENTS. A Fund's investments in loans are expected
in most instances to be in the form of participations in loans and assignments
of all or a portion of loans from third parties. A Fund's investment in loan
participations typically will result in the Fund having a contractual
relationship only with the lender and not with the borrower. A Fund will
acquire participations only if the lender interpositioned between the Fund and
the borrower is a lender having total assets of more than $25 billion and whose
senior unsecured debt is rated investment grade or higher. When a Fund
purchases a loan assignment from a lender it will acquire direct rights against
the borrower on the loan. Because loan assignments are arranged through private
negotiations between potential assignees and potential assignors, however, the
rights and obligations acquired by a Fund as the purchaser of an assignment may
differ from, and be more limited than, those held by the assigning lender.
The assignability of certain sovereign debt obligations, with respect to GLOBAL
DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME, or foreign government
securities, with respect to CORPORATE BOND and HIGH YIELD, is restricted by the
governing documentation as to the nature of the assignee such that the only way
in which the Fund may acquire an interest in a loan is through a participation
and not an assignment. A Fund may have difficulty disposing of assignments and
participations because to do so it will have to assign such securities to a
third party. Because there may not be a liquid market for such investments,
they can probably be sold only to a limited number of institutional investors.
The lack of a liquid secondary market may have an adverse effect on the value
of such investments and a Fund's ability to dispose of particular
participations and assignments when necessary to meet its liquidity needs in
response to a specific economic event such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary market for
participations and assignments also may make it more difficult for the Fund to
assign a value to these investments for purposes of valuing the Fund's
portfolio and calculating its net asset value.
GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME may invest up to 25%, and
CORPORATE BOND may invest up to 15%, of their total assets, in loan
participations and assignments. The government that is the borrower on the loan
will be considered by a Fund to be the issuer of a loan participation or
assignment for purposes of its fundamental investment policy that it may not
invest 25% or more of its total assets in securities of issuers conducting
their principal business activities in the same industry (i.e., foreign
government).
BRADY BONDS. Brady Bonds are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection
with debt restructurings under a plan introduced by former U.S. Secretary of
the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been
issued only recently, and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various currencies
(although most are U.S. Dollar-denominated) and they are actively traded in the
over-the-counter secondary market.
U.S. Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations that
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments based on the applicable interest rate at that time and is adjusted at
regular intervals thereafter. Certain Brady Bonds are entitled to "value
recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Brady
Bonds are often viewed as having up to four valuation components: (i)
collateralized repayment of principal at final maturity, (ii) collateralized
interest payments, (iii) uncollateralized interest payments, and (iv) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
CONVERTIBLE SECURITIES. Convertible securities include bonds, debentures,
corporate notes and preferred stocks that are convertible into common stock.
Prior to conversion, convertible securities have the same general
characteristics as non-convertible debt securities, which provide a stable
stream of income with generally higher yields than those of equity securities
of the same or similar issuers. The price of a
32
convertible security will normally vary with changes in the price of the
underlying equity security, although the higher yield tends to make the
convertible security less volatile than the underlying equity security. As with
debt securities, the market value of convertible securities tends to decrease
as interest rates rise and increase as interest rates decline. While
convertible securities generally offer lower interest or dividend yields than
non-convertible debt securities of similar quality, they enable investors to
benefit from increases in the market price of the underlying common stock.
Convertible debt securities that are rated Baa or lower by Moody's or BBB or
lower by S&P, Duff & Phelps or Fitch and comparable unrated securities may
share some or all of the risks of debt securities with those ratings. For a
description of these risks, see "Risk Considerations--Investment in Lower-Rated
Fixed-Income Securities."
SHORT SALES. A short sale is effected by selling a security that a Fund does
not own, or if the Fund owns the security, is not to be delivered upon
consummation of the sale. A short sale is "against the box" if a Fund owns or
has the right to obtain without payment securities identical to those sold
short. SHORT-TERM U.S. GOVERNMENT and GLOBAL DOLLAR GOVERNMENT each may make
short sales only against the box and only for the purpose of deferring
realization of gain or loss for U.S. federal income tax purposes. In addition,
each of these Funds may not make a short sale if, as a result, more than 10% of
net assets (taken at market value), with respect to GLOBAL DOLLAR GOVERNMENT,
and 10% of total assets, with respect to SHORT-TERM U.S. GOVERNMENT, would be
held as collateral for short sales.
GLOBAL STRATEGIC INCOME may make a short sale in anticipation that the market
price of that security will decline. When the Fund makes a short sale of a
security that it does not own, it must borrow from a broker-dealer the security
sold short and deliver the security to the broker-dealer upon conclusion of the
short sale. The Fund may be required to pay a fee to borrow particular
securities and is often obligated to pay over any payments received on such
borrowed securities. The Fund's obligation to replace the borrowed security
will be secured by collateral deposited with a broker-dealer qualified as a
custodian. Depending on the arrangements the Fund makes with the broker-dealer
from which it borrowed the security regarding remittance of any payments
received by the Fund on such security, the Fund may or may not receive any
payments (e.g., dividends or interest) on its collateral deposited with the
broker-dealer.
In order to defer realization of gain or loss for U.S. federal income tax
purposes, GLOBAL STRATEGIC INCOME may also make short sales "against the box"
of securities which are eligible for such deferal. The Fund may not make a
short sale, if as a result, more than 25% of its total assets would be held as
collateral for short sales.
If the price of the security sold short increases between the time of the short
sale and the time a Fund replaces the borrowed security, the Fund will incur a
loss; conversely, if the price declines, the Fund will realize a short-term
capital gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above. Although a Fund's gain is limited to the
price at which it sold the security short, its potential loss is theoretically
unlimited.
REPURCHASE AGREEMENTS. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an agreed-upon
future date, normally a day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed-upon interest rate for the period
the buyer's money is invested in the security. Such agreements permit a Fund to
keep all of its assets at work while retaining "overnight" flexibility in
pursuit of investments of a longer-term nature. A Fund requires continual
maintenance of collateral in an amount equal to, or in excess of, the resale
price. If a vendor defaults on its repurchase obligation, a Fund would suffer a
loss to the extent that the proceeds from the sale of the collateral were less
than the repurchase price. If a vendor goes bankrupt, a Fund might be delayed
in, or prevented from, selling the collateral for its benefit. There is no
percentage restriction on any Fund's ability to enter into repurchase
agreements, except that SHORT-TERM U.S. GOVERNMENT may enter into repurchase
agreements on not more than 25% of its total assets. The Funds may enter into
repurchase agreements with member banks of the Federal Reserve System or
"primary dealers" (as designated by the Federal Reserve Bank of New York),
although LIMITED MATURITY GOVERNMENT, MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME and GLOBAL DOLLAR GOVERNMENT currently enter into repurchase
agreements only with their custodians and such primary dealers.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. Reverse repurchase agreements
involve sales by a Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed price. During
the reverse repurchase agreement period, the Fund continues to receive
principal and interest payments on these securities. Generally, the effect of
such a transaction is that a Fund can recover all or most of the cash invested
in the portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are advantageous only if the
interest cost to a Fund of the reverse repurchase transaction is less than the
cost of otherwise obtaining the cash.
Dollar rolls involve sales by a Fund of securities for delivery in the current
month and the Fund's simultaneously contracting to repurchase substantially
similar (same type and coupon) securities on a specified future date. During
the roll period, a Fund forgoes principal and interest paid on the securities.
A Fund is compensated by the difference between the current sales price and the
lower forward price for the future purchase (often referred to as the "drop")
as well as by the interest earned on the cash proceeds of the initial sale.
33
Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities a Fund is obligated to repurchase under the agreement
may decline below the repurchase price. In the event the buyer of securities
under a reverse repurchase agreement or dollar roll files for bankruptcy or
becomes insolvent, a Fund's use of the proceeds of the agreement may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
Reverse repurchase agreements and dollar rolls are speculative techniques and
are considered borrowings by the Funds. SHORT-TERM U.S. GOVERNMENT may enter
into reverse repurchase agreements with commercial banks and registered
broker-dealers in order to increase income, in an amount up to 33-1/3% of its
total assets. Under normal circumstances, LIMITED MATURITY GOVERNMENT does not
expect to engage in reverse repurchase agreements and dollar rolls with respect
to greater than 50% of its total assets. Reverse repurchase agreements and
dollar rolls together with any borrowings by GLOBAL DOLLAR GOVERNMENT will not
exceed 33% of its total assets less liabilities (other than amounts borrowed).
GLOBAL STRATEGIC INCOME may enter into reverse repurchase agreements with
commercial banks and registered broker-dealers in order to increase income, in
an amount up to 25% of its total assets. Reverse repurchase agreements and
dollar rolls together with any borrowings by GLOBAL STRATEGIC INCOME will not
exceed 25% of its total assets. See "Risk Considerations--Effects of Borrowing."
LOANS OF PORTFOLIO SECURITIES. A Fund may make secured loans of portfolio
securities to brokers, dealers and financial institutions, provided that cash,
liquid high grade debt securities or bank letters of credit equal to at least
100% of the market value of the securities loaned is deposited and maintained
by the borrower with the Fund. The risks in lending portfolio securities, as
with other secured extensions of credit, consist of possible loss of rights in
the collateral should the borrower fail financially. In determining whether to
lend securities to a particular borrower, Alliance will consider all relevant
facts and circumstances, including the creditworthiness of the borrower. While
securities are on loan, the borrower will pay the Fund any income earned
thereon and the Fund may invest any cash collateral in portfolio securities,
thereby earning additional income, or receive an agreed-upon amount of income
from a borrower who has delivered equivalent collateral. Each Fund will have
the right to regain record ownership of loaned securities or equivalent
securities in order to exercise ownership rights such as voting rights,
subscription rights and rights to dividends, interest or distributions. A Fund
may pay reasonable finders', administrative and custodial fees in connection
with a loan. A Fund will not lend portfolio securities in excess of 50%, with
respect to HIGH YIELD, 25%, with respect to SHORT-TERM U.S. GOVERNMENT and
GLOBAL STRATEGIC INCOME, and 20%, with respect to each of LIMITED MATURITY
GOVERNMENT, MORTGAGE SECURITIES INCOME, MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME and GLOBAL DOLLAR GOVERNMENT, of its total assets, nor will a
Fund lend portfolio securities to any officer, director, employee or affiliate
of the Fund or Alliance.
ILLIQUID SECURITIES. Subject to any more restrictive applicable investment
policies, none of the Funds will maintain more than 15% of its net assets in
illiquid securities. Illiquid securities generally include (i) direct
placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
when trading in the security is suspended or, in the case of unlisted
securities, when market makers do not exist or will not entertain bids or
offers), including many currency swaps and any assets used to cover currency
swaps, (ii) over-the-counter options and assets used to cover over-the-counter
options, and (iii) repurchase agreements not terminable within seven days. Rule
144A securities that have legal or contractual restrictions on resale but have
a readily available market are not deemed illiquid. Alliance will monitor the
liquidity of each Fund's Rule 144A portfolio securities under the supervision
of the Directors of that Fund. A Fund that invests in illiquid securities may
not be able to sell such securities and may not be able to realize their full
value upon sale.
INVESTMENT IN OTHER INVESTMENT COMPANIES. GLOBAL DOLLAR GOVERNMENT may invest
in other investment companies whose investment objectives and policies are
consistent with those of the Fund. Under the 1940 Act, the Fund may invest not
more than 10% of its total assets in securities of other investment companies.
In addition, under the 1940 Act the Fund may not own more than 3% of the total
outstanding voting stock of any investment company and not more than 5% of the
value of the Fund's total assets may be invested in the securities of any
investment company. If the Fund acquired shares in investment companies,
shareholders would bear both their proportionate share of expenses in the Fund
(including management and advisory fees) and, indirectly, the expenses of such
investment companies (including management and advisory fees).
FUTURE DEVELOPMENTS. A Fund may, following written notice to its shareholders,
take advantage of other investment practices that are not currently
contemplated for use by the Fund, or are not available but may yet be
developed, to the extent such investment practices are consistent with the
Fund's investment objective and legally permissible for the Fund. Such
investment practices, if they arise, may involve risks that are different from
or exceed those involved in the practices described above.
DEFENSIVE POSITION. For temporary defensive purposes, each Fund may invest in
certain types of short-term, liquid, high grade or high quality (depending on
the Fund) debt securities. These securities may include U.S. Government
securities, qualifying bank deposits, money market instruments, prime
commercial paper and other types of short-term debt securities, including notes
and bonds. For Funds that may invest in foreign countries, such securities may
also include short-term, foreign-currency denominated securities of the type
mentioned above issued by foreign governmental entities, companies and
supranational organizations. For a complete description of the types of
securities in which a Fund may invest while in a temporary defensive position,
see the Fund's Statement of Additional Information.
PORTFOLIO TURNOVER. Portfolio turnover rates are set forth under "Financial
Highlights." These rates of portfolio turnover are greater than those of most
other investment companies. A high rate of portfolio turnover involves
correspondingly greater brokerage and other expenses than a lower rate, which
must be borne by the Fund and its shareholders. High portfolio turnover also
may result in the realization of substantial net short-term capital gains. See
"Dividends, Distributions and Taxes" in each Fund's Statement of Additional
Information.
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
Each Fund has adopted certain fundamental investment policies listed below,
which may not be changed without the approval of its shareholders. Additional
investment restrictions with respect to a Fund are set forth in its Statement
of Additional Information.
SHORT-TERM U.S. GOVERNMENT may not (i) invest more than 5% of its total assets
in the securities of any one issuer (other than U.S. Government securities and
repurchase agreements relating thereto), although up to 25% of the Fund's total
assets may be invested without regard to this restriction, or (ii) invest 25%
or more of its total assets in the securities of any one industry.
U.S. GOVERNMENT may not (i) borrow money except from banks for temporary or
emergency purposes and then only in an amount not exceeding 5% of the value of
its total assets at the time the borrowing is made, (ii) make loans to other
persons, (iii) effect a short sale of any security, (iv) purchase securities on
margin, but it may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities, or (v) write, purchase or sell
puts, calls or combinations thereof.
LIMITED MATURITY GOVERNMENT may not (i) invest more than 5% of its total assets
in the securities of any one issuer or own more than 10% of the outstanding
voting securities of such issuer (other than U.S. Government securities),
except that up to 25% of the value of the Fund's total assets may be invested
without regard to the 5% and 10% limitations, (ii) invest 25% or more of its
total assets in securities of companies engaged principally in any one
industry, except that this restriction does not apply to investments in the
mortgage and mortgage-financed industry (in which more than 25% of the value of
the Fund's total assets will, except for temporary defensive positions, be
invested) or U.S. Government securities, (iii) borrow money except from banks
for emergency or temporary purposes in an amount not exceeding 5% of the value
of the total assets of the Fund, except that the Fund may engage in reverse
repurchase agreements and dollar rolls in an amount up to 50% of the Fund's
total assets, and (iv) pledge, hypothecate, mortgage or otherwise encumber its
assets, except to secure permitted borrowings.
MORTGAGE SECURITIES INCOME may not (i) invest more than 5% of the value of its
total assets in the securities of any one issuer (other than U.S. Government
securities), except that up to 25% of the value of the Fund's total assets may
be invested without regard to this limitation, (ii) invest more than 25% of the
value of its total assets in the securities of issuers conducting their
principal business activities in a single industry, except that this limitation
shall not apply to investments in the mortgage and mortgage-financed industry
(in which more than 25% of the value of the Fund's total assets will, except
for temporary defensive positions, be invested) or U.S. Government securities,
(iii) borrow money except from banks for temporary or emergency purposes,
including the meeting of redemption requests which might require the untimely
disposition of securities, borrowing in the aggregate may not exceed 15%, and
borrowing for purposes other than meeting redemptions may not exceed 5% of the
value of the Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the borrowing is
made, outstanding borrowings in excess of 5% of the value of the Fund's total
assets will be repaid before any subsequent investments are made, (iv) pledge,
hypothecate, mortgage or otherwise encumber its assets, except in an amount of
not more than 15% of the value of its total assets to secure borrowings for
temporary or emergency purposes and except as provided in (vi) below, provided,
however, that this limitation does not apply to deposits made in connection
with the entering into and holding of interest rate futures contracts, (v)
invest more than 10% of the value of its total assets in the aggregate in
illiquid securities or other illiquid investments and repurchase agreements
maturing in more than seven days, or (vi) lend its portfolio securities if
immediately after such a loan more than 20% of the value of the Fund's total
assets would be subject to such loans.
MULTI-MARKET STRATEGY may not (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry other than the
banking industry, except that this restriction does not apply to U.S.
Government securities, (ii) borrow money, except the Fund may, in accordance
with provisions of the 1940 Act, (a) borrow from a bank, if after such
borrowing, there is asset coverage of at least 300% as defined in the 1940 Act,
and (b) borrow for temporary or emergency purposes in an amount not exceeding
5% of the value of the total assets of the Fund, or (iii) pledge, hypothecate,
mortgage or otherwise encumber its assets, except to secure permitted
borrowings.
NORTH AMERICAN GOVERNMENT INCOME may not (i) invest 25% or more of its total
assets in securities of companies engaged principally in any one industry
except that this restriction does not apply to U.S. Government securities, (ii)
borrow money, except that the Fund may, in accordance with provisions of the
1940 Act, (a) borrow from a bank, if after such borrowing, there is asset
coverage of at least 300% as defined in the 1940 Act, and (b) borrow for
temporary or emergency purposes in an amount not exceeding 5% of the value of
the total assets of the Fund, or (iii) pledge, hypothecate, mortgage or
otherwise encumber its assets, except to secure permitted borrowings.
35
GLOBAL DOLLAR GOVERNMENT may not (i) invest 25% or more of its total assets in
the securities of issuers conducting their principal business activities in any
one industry, except that this restriction does not apply to U.S. Government
securities, (ii) purchase more than 10% of any class of the voting securities
of any one issuer, (iii) borrow money, except the Fund may, in accordance with
provisions of the 1940 Act, (a) borrow from a bank, if after such borrowing,
there is asset coverage of at least 300% as defined in the 1940 Act, (b) borrow
for temporary or emergency purposes in an amount not exceeding 5% of the value
of the total assets of the Fund, and (c) enter into reverse repurchase
agreements and dollar rolls, (iv) pledge, hypothecate, mortgage or otherwise
encumber its assets, except to secure permitted borrowings, or (v) purchase a
security if, as a result (unless the security is acquired pursuant to a plan of
reorganization or an offer of exchange), the Fund would own more than 3% of the
total outstanding voting stock of any investment company or more than 5% of the
value of the Fund's net assets would be invested in securities of any one or
more investment companies.
GLOBAL STRATEGIC INCOME may not (i) borrow money, except the Fund may, in
accordance with provisions of the 1940 Act, (a) borrow from a bank, if after
such borrowing there is asset coverage of at least 300% as defined in the 1940
Act, (b) borrow for temporary or emergency purposes in an amount not exceeding
5% of the value of the total assets of the Fund, and (c) enter into reverse
repurchase agreements and dollar rolls, or (ii) pledge, hypothecate, mortgage
or otherwise encumber its assets, except to secure permitted borrowings.
CORPORATE BOND may not (i) invest more than 5% of its total assets in the
securities of any one issuer other than U.S. Government securities, or (ii) own
more than 10% of the outstanding voting securities of any issuer.
HIGH YIELD may not (i) invest in any one industry if that investment would make
the Fund's holding in that industry exceed 25% of the Fund's total assets and
(ii) will not make an investment unless, when considering all its other
investments, 75% of the value of its assets would consist of cash, cash items,
U.S. Government Securities, securities of other investment companies and other
securities.
RISK CONSIDERATIONS
FIXED-INCOME SECURITIES. The value of each Fund's shares will fluctuate with
the value of its investments. The value of each Fund's investments will change
as the general level of interest rates fluctuates. During periods of falling
interest rates, the values of a Fund's securities will generally rise, although
if falling interest rates are viewed as a precursor to a recession, the values
of a Fund's securities may fall along with interest rates. Conversely, during
periods of rising interest rates, the values of a Fund's securities will
generally decline. Changes in interest rates have a greater effect on
fixed-income securities with longer maturities and durations than those with
shorter maturities and durations.
In seeking to achieve a Fund's investment objective, there will be times, such
as during periods of rising interest rates, when depreciation and realization
of capital losses on securities in a Fund's portfolio will be unavoidable.
Moreover, medium- and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market conditions. Such
fluctuations after a security is acquired do not affect the cash income
received from that security but will be reflected in the net asset value of a
Fund.
U.S. CORPORATE FIXED-INCOME SECURITIES. The U.S. corporate fixed-income
securities in which GLOBAL DOLLAR GOVERNMENT and HIGH YIELD invest may include
securities issued in connection with corporate restructurings such as takeovers
or leveraged buyouts, which may pose particular risks. Securities issued to
finance corporate restructurings may have special credit risks due to the
highly leveraged conditions of the issuer. In addition, such issuers may lose
experienced management as a result of the restructuring. Furthermore, the
market price of such securities may be more volatile to the extent that
expected benefits from the restructuring do not materialize. The Funds may also
invest in U.S. corporate fixed-income securities that are not current in the
payment of interest or principal or are in default, so long as Alliance
believes such investment is consistent with the Fund's investment objectives.
The Funds' rights with respect to defaults on such securities will be subject
to applicable U.S. bankruptcy, moratorium and other similar laws.
FOREIGN INVESTMENT. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, a Fund whose investment portfolio includes such
securities may experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in securities of U.S. companies.
These markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States. Securities registration,
custody and settlements may in some instances be subject to delays and legal
and administrative uncertainties. Furthermore, foreign investment in the
securities markets of certain foreign countries is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
investment in certain securities and may increase the cost and expenses of a
Fund. In addition, the repatriation of investment income, capital or the
proceeds of sales of securities from certain of the countries is controlled
under regulations, including in some cases the need for certain advance
government notification or authority, and if a deterioration occurs in a
country's balance of payments, the country could impose temporary restrictions
on foreign capital remittances. A Fund could also be adversely affected by
delays in, or a refusal to grant, any required governmental approval for
repatriation, as well as by the application to it of other restrictions on
investment. Investing in local markets may
36
require a Fund to adopt special procedures or seek local governmental approvals
or other actions, any of which may involve additional costs to a Fund. The
liquidity of a Fund's investments in any country in which any of these factors
exists could be affected, and Alliance will monitor the effect of any such
factor or factors on a Fund's investments. Furthermore, transaction costs
including brokerage commissions for transactions both on and off the securities
exchanges in many foreign countries are generally higher than in the U.S.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements and timely disclosure of information. The reporting, accounting
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects, and less information
may be available to investors in foreign securities than to investors in U.S.
securities. Substantially less information is publicly available about certain
non-U.S. issuers than is available about most U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability or diplomatic
developments could affect adversely the economy of a foreign country or the
Fund's investments in that country. In the event of nationalization,
expropriation or other confiscation, a Fund could lose its entire investment in
securities in the country involved. In addition, laws in foreign countries
governing business organizations, bankruptcy and insolvency may provide less
protection to security holders such as the Fund than that provided by U.S. laws.
Alliance believes that, except for currency fluctuations between the U.S.
Dollar and the Canadian Dollar, the matters described above are not likely to
have a material adverse effect on NORTH AMERICAN GOVERNMENT INCOME'S
investments in the securities of Canadian issuers or investments denominated in
Canadian Dollars. The factors described above are more likely to have a
material adverse effect on the Fund's investments in the securities of Mexican
and other non-Canadian foreign issuers, including investments in securities
denominated in Mexican Pesos or other non-Canadian foreign currencies. If not
hedged, however, currency fluctuations could affect the unrealized appreciation
and depreciation of Canadian Government securities as expressed in U.S. Dollars.
CURRENCY CONSIDERATIONS. Those Funds that invest some portion of their assets
in securities denominated in, and receive revenues in, foreign currencies will
be adversely affected by reductions in the value of those currencies relative
to the U.S. Dollar. These changes will affect a Fund's net assets,
distributions and income. If the value of the foreign currencies in which a
Fund receives income falls relative to the U.S. Dollar between receipt of the
income and the making of Fund distributions, a Fund may be required to
liquidate securities in order to make distributions if the Fund has
insufficient cash in U.S. Dollars to meet the distribution requirements that
the Fund must satisfy to qualify as a regulated investment company for federal
income tax purposes. Similarly, if an exchange rate declines between the time a
Fund incurs expenses in U.S. Dollars and the time cash expenses are paid, the
amount of the currency required to be converted into U.S. Dollars in order to
pay expenses in U.S. Dollars could be greater than the equivalent amount of
such expenses in the currency at the time they were incurred. In light of these
risks, a Fund may engage in certain currency hedging transactions, which
themselves involve certain special risks. See "Additional Investment Practices"
above.
SOVEREIGN DEBT OBLIGATIONS. No established secondary markets may exist for many
of the sovereign debt obligations in which GLOBAL DOLLAR GOVERNMENT and GLOBAL
STRATEGIC INCOME will invest. Reduced secondary market liquidity may have an
adverse effect on the market price and a Fund's ability to dispose of
particular instruments when necessary to meet its liquidity requirements or in
response to specific economic events such as a deterioration in the
creditworthiness of the issuer. Reduced secondary market liquidity for certain
sovereign debt obligations may also make it more difficult for a Fund to obtain
accurate market quotations for the purpose of valuing its portfolio. Market
quotations are generally available on many sovereign debt obligations only from
a limited number of dealers and may not necessarily represent firm bids of
those dealers or prices for actual sales.
By investing in sovereign debt obligations, the Funds will be exposed to the
direct or indirect consequences of political, social and economic changes in
various countries. Political changes in a country may affect the willingness of
a foreign government to make or provide for timely payments of its obligations.
The country's economic status, as reflected, among other things, in its
inflation rate, the amount of its external debt and its gross domestic product,
will also affect the government's ability to honor its obligations.
The sovereign debt obligations in which the Funds will invest in many cases
pertain to countries that are among the world's largest debtors to commercial
banks, foreign governments, international financial organizations and other
financial institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by
negotiating new or amended credit agreements or converting outstanding
principal and unpaid interest to Brady Bonds, and obtaining new credit to
finance interest payments. Certain governments have not been able to make
payments of interest on or principal of sovereign debt obligations as those
payments have come due. Obligations arising from past restructuring
37
agreements may affect the economic performance and political and social
stability of those issuers.
The ability of governments to make timely payments on their obligations is
likely to be influenced strongly by the issuer's balance of payments, including
export performance, and its access to international credits and investments. To
the extent that a country receives payment for its exports in currencies other
than dollars, its ability to make debt payments denominated in dollars could be
adversely affected. To the extent that a country develops a trade deficit, it
will need to depend on continuing loans from foreign governments, multi-lateral
organizations or private commercial banks, aid payments from foreign
governments and on inflows of foreign investment. The access of a country to
these forms of external funding may not be certain, and a withdrawal of
external funding could adversely affect the capacity of a government to make
payments on its obligations. In addition, the cost of servicing debt
obligations can be affected by a change in international interest rates since
the majority of these obligations carry interest rates that are adjusted
periodically based upon international rates.
The Funds are permitted to invest in sovereign debt obligations that are not
current in the payment of interest or principal or are in default so long as
Alliance believes it to be consistent with the Funds' investment objectives.
The Funds may have limited legal recourse in the event of a default with
respect to certain sovereign debt obligations it holds. For example, remedies
from defaults on certain sovereign debt obligations, unlike those on private
debt, must, in some cases, be pursued in the courts of the defaulting party
itself. Legal recourse therefore may be significantly diminished. Bankruptcy,
moratorium and other similar laws applicable to issuers of sovereign debt
obligations may be substantially different from those applicable to issuers of
private debt obligations. The political context, expressed as the willingness
of an issuer of sovereign debt obligations to meet the terms of the debt
obligation, for example, is of considerable importance. In addition, no
assurance can be given that the holders of commercial bank debt will not
contest payments to the holders of securities issued by foreign governments in
the event of default under commercial bank loan agreements.
EFFECTS OF BORROWING. A Fund's loan agreements provide for additional
borrowings and for repayments and reborrowings from time to time, and each Fund
that may borrow expects to effect borrowings and repayments at such times and
in such amounts as will maintain investment leverage in an amount approximately
equal to its borrowing target. The loan agreements provide for a selection of
interest rates that are based on the bank's short-term funding costs in the
U.S. and London markets.
Borrowings by a Fund result in leveraging of the Fund's shares of common stock.
Utilization of leverage, which is usually considered speculative, however,
involves certain risks to a Fund's shareholders. These include a higher
volatility of the net asset value of a Fund's shares of common stock and the
relatively greater effect on the net asset value of the shares. So long as a
Fund is able to realize a net return on its investment portfolio that is higher
than the interest expense paid on borrowings, the effect of leverage will be to
cause the Fund's shareholders to realize a higher current net investment income
than if the Fund were not leveraged. On the other hand, interest rates on U.S.
Dollar-denominated and foreign currency-denominated obligations change from
time to time as does their relationship to each other, depending upon such
factors as supply and demand forces, monetary and tax policies within each
country and investor expectations. Changes in such factors could cause the
relationship between such rates to change so that rates on U.S.
Dollar-denominated obligations may substantially increase relative to the
foreign currency-denominated obligations in which the Fund may be invested. To
the extent that the interest expense on borrowings approaches the net return on
a Fund's investment portfolio, the benefit of leverage to the Fund's
shareholders will be reduced, and if the interest expense on borrowings were to
exceed the net return to shareholders, a Fund's use of leverage would result in
a lower rate of return than if a Fund were not leveraged. Similarly, the effect
of leverage in a declining market could be a greater decrease in net asset
value per share than if the Fund were not leveraged. In an extreme case if a
Fund's current investment income were not sufficient to meet the interest
expense on borrowings, it could be necessary for the Fund to liquidate certain
of its investments, thereby reducing the net asset value of a Fund's shares.
In the event of an increase in rates on U.S. Government securities or other
changed market conditions, to the point where leverage by MULTI-MARKET
STRATEGY, GLOBAL STRATEGIC INCOME or NORTH AMERICAN GOVERNMENT INCOME could
adversely affect the Funds' shareholders, as noted above, or in anticipation
of such changes, each Fund may increase the percentage of its investment
portfolio invested in U.S. Government securities, which would tend to offset
the negative impact of leverage on Fund shareholders. Each Fund may also
reduce the degree to which it is leveraged by repaying amounts borrowed.
Under the 1940 Act, a Fund is not permitted to borrow unless immediately after
such borrowing there is "asset coverage," as that term is defined and used in
the 1940 Act, of at least 300% for all borrowings of the Fund. In addition,
under the 1940 Act, in the event asset coverage falls below 300%, a Fund must
within three days reduce the amount of its borrowing to such an extent that the
asset coverage of its borrowings is at least 300%. Assuming, for example,
outstanding borrowings representing not more than one-third of a Fund's total
assets less liabilities (other than such borrowings), the asset coverage of the
Fund's portfolio would be 300%; while outstanding borrowings representing 25%
of the Fund's total assets less liabilities (other than such borrowings), the
asset coverage of the Fund's portfolio would be 400%. A Fund will maintain
asset coverage of outstanding borrowings of at least 300% and if necessary
will, to the extent possible, reduce the amounts borrowed by making repayments
38
from time to time in order to do so. Such repayments could require a Fund to
sell portfolio securities at times considered disadvantageous by Alliance and
such sales could cause the Fund to incur related transaction costs and to
realize taxable gains.
Each of MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, GLOBAL
STRATEGIC INCOME and GLOBAL DOLLAR GOVERNMENT may borrow to repurchase its
shares or to meet redemption requests. In addition, each Fund may borrow for
temporary purposes (including the purposes mentioned in the preceding sentence)
in an amount not exceeding 5% of the value of the assets of the Fund.
Borrowings for temporary purposes are not subject to the 300% asset average
limit described above. See "Certain Fundamental Investment Policies."
SHORT-TERM U.S. GOVERNMENT, LIMITED MATURITY GOVERNMENT, MULTI-MARKET STRATEGY,
NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC
INCOME may also borrow through the use of reverse repurchase agreements, and
GLOBAL DOLLAR GOVERNMENT, LIMITED MATURITY GOVERNMENT and GLOBAL STRATEGIC
INCOME also through the use of dollar rolls to the extent permitted by the 1940
Act. See "Investment Objectives and Policies--Reverse Repurchase Agreements and
Dollar Rolls."
INVESTMENT IN THE BANKING INDUSTRY. Due to its investment policies with respect
to investments in the banking industry, MULTI-MARKET STRATEGY will have greater
exposure to the risk factors which are characteristic of such investments. In
particular, the value of and investment return on the Fund's shares will be
affected by economic or regulatory developments in or related to the banking
industry. Sustained increases in interest rates can adversely affect the
availability and cost of funds for a bank's lending activities, and a
deterioration in general economic conditions could increase the exposure to
credit losses. The banking industry is also subject to the effects of the
concentration of loan portfolios in particular businesses such as real estate,
energy, agriculture or high technology-related companies; competition within
those industries as well as with other types of financial institutions; and
national and local governmental regulation. In addition, the Fund's investments
in commercial banks located in several foreign countries are subject to
additional risks due to the combination in such banks of commercial banking and
diversified securities activities. As discussed above, however, the Fund will
seek to minimize their exposure to such risks by investing only in debt
securities which are determined to be of high quality.
SECURITIES RATINGS. The ratings of fixed-income securities by S&P, Moody's,
Duff & Phelps and Fitch are a generally accepted barometer of credit risk. They
are, however, subject to certain limitations from an investor's standpoint. The
rating of an issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is frequently a lag
between the time a rating is assigned and the time it is updated. In addition,
there may be varying degrees of difference in credit risk of securities within
each rating category.
INVESTMENT IN FIXED-INCOME SECURITIES RATED BAA AND BBB. Securities rated Baa
or BBB are considered to have speculative characteristics and share some of the
same characteristics as lower-rated securities, as described below. Sustained
periods of deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to pay interest and
repay principal than in the case of higher-rated securities.
INVESTMENT IN LOWER-RATED FIXED-INCOME SECURITIES. Lower-rated securities are
subject to greater risk of loss of principal and interest than higher-rated
securities. They are also generally considered to be subject to greater market
risk than higher-rated securities, and the capacity of issuers of lower-rated
securities to pay interest and repay principal is more likely to weaken than is
that of issuers of higher-rated securities in times of deteriorating economic
conditions or rising interest rates. In addition, lower-rated securities may be
more susceptible to real or perceived adverse economic conditions than
investment grade securities. Securities rated Ba or BB are judged to have
speculative elements or to be predominantly speculative with respect to the
issuer's ability to pay interest and repay principal. Securities rated B are
judged to have highly speculative elements or to be predominantly speculative.
Such securities may have small assurance of interest and principal payments.
Securities rated Baa by Moody's are also judged to have speculative
characteristics.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, a Fund may experience difficulty
in valuing such securities and, in turn, the Fund's assets.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political
conditions. However, there can be no assurance that losses will not occur.
Since the risk of default is higher for lower-rated securities, Alliance's
research and credit analysis are a correspondingly more important aspect of its
program for managing a Fund's securities than would be the case if a Fund did
not invest in lower-rated securities. In considering investments for the Fund,
Alliance will attempt to identify those high-yielding securities whose
financial condition is adequate to meet future obligations, has improved, or is
expected to improve in the future. Alliance's analysis focuses on relative
values based on such factors as interest or dividend coverage, asset coverage,
earnings prospects, and the experience and managerial strength of the issuer.
NON-RATED SECURITIES. Non-rated securities will also be considered for
investment by NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT,
GLOBAL STRATEGIC INCOME, CORPORATE BOND and HIGH YIELD when Alliance believes
that the financial condition of the issuers of such securities, or the
protection afforded by the terms of the securities themselves,
39
limits the risk to the Fund to a degree comparable to that of rated securities
which are consistent with the Fund's objective and policies.
NON-DIVERSIFIED STATUS. Each of MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME is a
"non-diversified" investment company, which means the Fund is not limited in
the proportion of its assets that may be invested in the securities of a single
issuer. However, each Fund intends to conduct its operations so as to qualify
to be taxed as a "regulated investment company" for purposes of the Code, which
will relieve the Fund of any liability for federal income tax to the extent its
earnings are distributed to shareholders. See "Dividends, Distributions and
Taxes" in each Fund's Statement of Additional Information. To so qualify, among
other requirements, each Fund will limit its investments so that, at the close
of each quarter of the taxable year, (i) not more than 25% of the Fund's total
assets will be invested in the securities of a single issuer, and (ii) with
respect to 50% of its total assets, not more than 5% of its total assets will
be invested in the securities of a single issuer and the Fund will not own more
than 10% of the outstanding voting securities of a single issuer. A Fund's
investments in U.S. Government securities are not subject to these limitations.
Because each of MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, GLOBAL
DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME is a non-diversified investment
company, it may invest in a smaller number of individual issuers than a
diversified investment company, and an investment in such Fund may, under
certain circumstances, present greater risk to an investor than an investment
in a diversified investment company.
Foreign government securities are not treated like U.S. Government securities
for purposes of the diversification tests described in the preceding paragraph,
but instead are subject to these tests in the same manner as the securities of
non-governmental issuers. In this regard sovereign debt obligations issued by
different issuers located in the same country are often treated as issued by a
single issuer for purposes of these diversification tests. Certain issuers of
structured securities and loan participations may be treated as separate
issuers for the purposes of these tests. Accordingly, in order to meet the
diversification tests and thereby maintain its status as a regulated investment
company, each of GLOBAL STRATEGIC INCOME and NORTH AMERICAN GOVERNMENT INCOME
will be required to diversify its portfolio of foreign government securities in
a manner which would not be necessary if the Fund had made similar investments
in U.S. Government securities.
YEAR 2000 AND EURO. Many computer systems and applications in use today process
transactions using two-digit date fields for the year of the transaction,
rather than the full four digits. If these systems are not modified or
replaced, transactions occurring after 1999 could be processed as year "1900",
which could result in processing inaccuracies and computer system failures.
This is commonly known as the Year 2000 problem. In addition to the Year 2000
problem, the European Economic and Monetary Union has established a single
currency, the Euro Currency ("Euro") that will replace the national currency of
certain European countries effective January 1, 1999. Computer systems and
applications must be adapted in order to be able to process Euro sensitive
information accurately beginning in 1999. Should any of the computer systems
employed by the Funds' major service providers fail to process Year 2000 or
Euro related information properly, that could have a significant negative
impact on the Funds' operations and the services that are provided to the
Funds' shareholders. In addition, to the extent that the operations of issuers
of securities held by the Funds are impaired by the Year 2000 problem or the
Euro, or prices of securities held by the Funds decline as a result of real or
perceived problems relating to the Year 2000 or the Euro, the value of the
Funds' shares may be materially affected.
With respect to the Year 2000, the Funds have been advised that the Adviser,
Principal Underwriter and Transfer Agent (collectively, "Alliance") began to
address the Year 2000 issue several years ago in connection with the
replacement or upgrading of certain computer systems and applications. During
1997, Alliance began a formal Year 2000 initiative, which established a
structured and coordinated process to deal with the Year 2000 issue. Alliance
reports that it has completed its assessment of the Year 2000 issues on its
domestic and international computer systems and applications. Currently,
management of Alliance expects that the required modifications for the majority
of its significant systems and applications that will be in use on January 1,
2000, will be completed and tested by the end of 1998. Full integration testing
of these systems and testing of interfaces with third-party suppliers will
continue through 1999. At this time, management of Alliance believes that the
costs associated with resolving this issue will not have a material adverse
effect on its operations or on its ability to provide the level of services it
currently provides to the Funds.
With respect to the Euro, the Funds have been advised that Alliance has
established a project team to assess changes that will be required in
connection with the introduction of the Euro. Alliance reports that its project
team has assessed all systems, including those developed or managed internally,
as well as those provided by vendors, in order to determine the modifications
that will be required to process accurately transactions denominated in Euro
after 1998. At this time, management of Alliance expects that the required
modifications for the introduction of the Euro will be completed and tested
before the end of 1998. Management of Alliance believes that the costs
associated with resolving this issue will not have a material adverse effect on
its operations or on its ability to provide the level of services it currently
provides to the Funds.
The Funds and Alliance have been advised by the Funds' Custodians that they are
also in the process of reviewing their systems with the same goals. As of the
date of this prospectus, the Funds and Alliance have no reason to believe that
the Custodians will be unable to achieve these goals.
40
PURCHASE AND SALE OF SHARES
_______________________________________________________________________________
HOW TO BUY SHARES
You can purchase shares of any of the Funds at a price based on the next
calculated net asset value after receipt of a proper purchase order either
through broker-dealers, banks or other financial intermediaries, or directly
through Alliance Fund Distributors, Inc. ("AFD"), each Fund's principal
underwriter. The minimum initial investment in each Fund (whether by cash or
through exchange from another Alliance Mutual Fund) is $250. The minimum for
subsequent investments in each Fund is $50. Investments of $25 or more are
allowed under the automatic investment program of each Fund. Share certificates
are issued only upon request. See the Subscription Application and Statements
of Additional Information for more information.
Existing shareholders may make subsequent purchases by electronic funds
transfer if they have completed the appropriate section of the Subscription
Application or the Shareholder Options form obtained from Alliance Fund
Services, Inc. ("AFS"), each Fund's registrar, transfer agent and dividend
disbursing agent. Telephone purchase orders can be made by calling 800-221-5672
and may not exceed $500,000.
Each Fund offers three classes of shares through this Prospectus, Class A,
Class B and Class C. The Funds may refuse any order to purchase shares. In this
regard, the Funds reserve the right to restrict purchases of Fund shares
(including through exchanges) when they appear to evidence a pattern of
frequent purchases and sales made in response to short-term considerations.
CLASS A SHARES--INITIAL SALES CHARGE ALTERNATIVE
You can purchase Class A shares at net asset value plus an initial sales
charge, as follows:
Initial Sales Charge
as % of Commission to
Net Amount as % of Dealer/Agent as %
Amount Purchased Invested Offering Price of Offering Price
- -------------------------------------------------------------------------------
Less than $100,000 4.44% 4.25% 4.00%
$100,000 to less
than $250,000 3.36 3.25 3.00
$250,000 to less
than $500,000 2.30 2.25 2.00
$500,000 to less
than $1,000,000 1.78 1.75 1.50
On purchases of $1,000,000 or more, you pay no initial sales charge but may pay
a contingent deferred sales charge ("CDSC") equal to 1% of the lesser of net
asset value at the time of redemption or original cost if you redeem within one
year; Alliance may pay the dealer or agent a fee of up to 1% of the dollar
amount purchased. Certain purchases of Class A shares may qualify for reduced
or eliminated sales charges in accordance with a Fund's Combined Purchase
Privilege, Cumulative Quantity Discount, Statement of Intention, Privilege for
Certain Retirement Plans, Reinstatement Privilege and Sales at Net Asset Value
programs. Consult the Subscription Application and Statements of Additional
Information.
CLASS B SHARES--DEFERRED SALES CHARGE ALTERNATIVE
You can purchase Class B shares at net asset value without an initial sales
charge. A Fund will thus receive the full amount of your purchase. However, you
may pay a CDSC if you redeem shares within three years (four years in the case
of GLOBAL STRATEGIC INCOME and HIGH YIELD) after purchase. The amount of the
CDSC (expressed as a percentage of the lesser of the current net asset value or
original cost) will vary according to the number of years from the purchase of
Class B shares until the redemption of those shares.
The amount of the CDSC for Class B shares for each Fund is as set forth below.
Class B shares of a Fund purchased prior to the date of this Prospectus may be
subject to a different CDSC schedule, which was disclosed in the Fund's
prospectus in use at the time of purchase and is set forth in the Fund's
current Statement of Additional Information.
GLOBAL STRATEGIC INCOME and HIGH YIELD:
- ---------------------------------------
Year Since Purchase CDSC
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth and thereafter None
ALL OTHER FUNDS:
- ---------------------------------------
Year Since Purchase CDSC
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
Class B shares are subject to higher distribution fees than Class A shares for
a period of six years, eight years in the case of GLOBAL STRATEGIC INCOME and
HIGH YIELD (after which they convert to Class A shares). The higher fees mean a
higher expense ratio, so Class B shares pay correspondingly lower dividends and
may have a lower net asset value than Class A shares.
CLASS C SHARES--ASSET-BASED SALES CHARGE ALTERNATIVE
You can purchase Class C shares at net asset value without any initial sales
charge. A Fund will thus receive the full amount of your purchase, and, if you
hold your shares for one year or more, you will receive the entire net asset
value of your shares upon redemption. Class C shares incur higher distribution
fees than Class A shares and do not convert to any other class of shares of the
Fund. The higher fees mean a higher expense ratio, so Class C shares pay
correspondingly lower dividends and may have a lower net asset value than Class
A shares.
Class C shares redeemed within one year of purchase will be subject to a CDSC
equal to 1% of the lesser of their original cost or net asset value at the time
of redemption.
APPLICATION OF THE CDSC
Shares obtained from dividend or distribution reinvestment are not subject to
the CDSC. The CDSC is deducted from the amount of the redemption and is paid to
AFD. The CDSC will be
41
waived on redemptions of shares following the death or disability of a
shareholder, to meet the requirements of certain qualified retirement plans or
pursuant to a monthly, bimonthly or quarterly systematic withdrawal plan. See
the Statements of Additional Information.
HOW THE FUNDS VALUE THEIR SHARES
The net asset value of each class of shares of a Fund is calculated by dividing
the value of the Fund's net assets allocable to that class by the outstanding
shares of that class. Shares are valued each day the Exchange is open as of the
close of regular trading (currently 4:00 p.m. Eastern time). The securities in
a Fund are valued at their current market value determined on the basis of
market quotations or, if such quotations are not readily available, such other
methods as the Fund's Directors or Trustees believe accurately reflect fair
market value.
EMPLOYEE BENEFIT PLANS
Certain employee benefit plans, including employer-sponsored tax-qualified
401(k) plans and other defined contribution retirement plans ("Employee Benefit
Plans"), may establish requirements as to the purchase, sale or exchange of
shares of the Funds, including maximum and minimum initial investment
requirements, that are different from those described in this Prospectus.
Employee Benefit Plans may also not offer all classes of shares of the Funds.
In order to enable participants investing through Employee Benefit Plans to
purchase shares of the Funds, the maximum and minimum investment amounts may be
different for shares purchased through Employee Benefit Plans from those
described in this Prospectus. In addition, the Class A, Class B and Class C
CDSC may be waived for investments made through Employee Benefit Plans.
GENERAL
The decision as to which class of shares is most beneficial to you depends on
the amount and intended length of your investment. If you are making a large
investment, thus qualifying for a reduced sales charge, you might consider
Class A shares. If you are making a smaller investment, you might consider
Class B shares because 100% of your purchase is invested immediately. If you
are unsure of the length of your investment, you might consider Class C shares
because there is no initial sales charge and, as long as the shares are held
for one year or more, no CDSC. Consult your financial agent. Dealers and agents
may receive differing compensation for selling Class A, Class B or Class C
shares. There is no size limit on purchases of Class A shares. The maximum
purchase of Class B shares is $250,000. The maximum purchase of Class C shares
is $1,000,000.
GLOBAL STRATEGIC INCOME and HIGH YIELD offer a fourth class of shares, Advisor
Class shares, by means of separate prospectuses. Advisor Class shares may be
purchased and held solely by (i) accounts established under a fee-based program
sponsored and maintained by a registered broker-dealer or other financial
intermediary and approved by AFD, (ii) a self-directed defined contribution
employee benefit plan (e.g., a 401(k) plan) that has at least 1,000
participants or $25 million in assets and (iii) certain other categories of
investors described in the prospectuses for the Advisor Class, including
investment advisory clients of, and certain other persons associated with,
Alliance and its affiliates or the Funds. Advisor Class shares are offered
without any initial sales charge or CDSC and without an ongoing distribution
fee and are expected, therefore, to have different performance than Class A,
Class B or Class C shares. You may obtain more information about Advisor Class
shares by contacting AFS at 800-221-5672 or by contacting your financial
representative.
A transaction, service, administrative or other similar fee may be charged by
your broker-dealer, agent, financial intermediary or other financial
representative with respect to the purchase, sale or exchange of Class A, Class
B or Class C shares made through such financial representative. Such financial
intermediaries may also impose requirements with respect to the purchase, sale
or exchange of shares that are different from, or in addition to, those imposed
by a Fund, including requirements as to the minimum initial and subsequent
investment amounts.
In addition to the discount or commission paid to dealers or agents, AFD from
time to time pays additional cash or other incentives to dealers or agents,
including EQ Financial Consultants Inc., an affiliate of AFD, in connection
with the sale of shares of the Funds. Such additional amounts may be utilized,
in whole or in part, in some cases together with other revenues of such dealers
or agents, to provide additional compensation to registered representatives who
sell shares of the Funds. On some occasions, such cash or other incentives will
be conditioned upon the sale of a specified minimum dollar amount of the shares
of a Fund and/or other Alliance Mutual Funds during a specific period of time.
Such incentives may take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel by persons associated with a
dealer or agent and their immediate family members to urban or resort locations
within or outside the United States. Such dealer or agent may elect to receive
cash incentives of equivalent amount in lieu of such payments.
HOW TO SELL SHARES
You may "redeem" your shares (i.e., sell your shares in a Fund to the Fund) on
any day the Exchange is open, either directly or through your financial
intermediary. The price you will receive is the net asset value (less any
applicable CDSC) next calculated after the Fund receives your request in proper
form. Proceeds generally will be sent to you within seven days. However, for
shares recently purchased by check or electronic funds transfer, a Fund will
not send proceeds until it is reasonably satisfied that the check or electronic
funds transfer has been collected (which may take up to 15 days).
SELLING SHARES THROUGH YOUR BROKER
Your broker must receive your request before 4:00 p.m. Eastern time, and your
broker must transmit your request to the Fund by 5:00 p.m. Eastern time, for
you to receive that
42
day's net asset value (less any applicable CDSC). Your broker is responsible
for furnishing all necessary documentation to a Fund and may charge you for
this service.
SELLING SHARES DIRECTLY TO A FUND
Send a signed letter of instruction or stock power form to AFS, along with
certificates, if any, that represent the shares you want to sell. For your
protection, signatures must be guaranteed by a bank, a member firm of a
national stock exchange or other eligible guarantor institution. Stock power
forms are available from your financial intermediary, AFS and many commercial
banks. Additional documentation is required for the sale of shares by
corporations, intermediaries, fiduciaries and surviving joint owners. For
details contact:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672.
Telephone redemption requests must be made by 4:00 p.m. Eastern time on a Fund
business day in order to receive that day's net asset value, and, except for
certain omnibus accounts, may be made only once per day. A shareholder who has
completed the appropriate section of the Subscription Application, or the
Shareholder Options form obtained from AFS, can elect to have the proceeds of
his or her redemption sent to his or her bank via an electronic funds transfer.
Proceeds of telephone redemptions also may be sent by check to a shareholder's
address of record. Redemption requests by electronic funds transfer may not
exceed $100,000 and redemption requests by check may not exceed $50,000.
Telephone redemption is not available for shares held in nominees or "street
name" accounts or retirement plan accounts or shares held by a shareholder who
has changed his or her address of record within the previous 30 calendar days.
GENERAL
The sale of shares is a taxable transaction for federal tax purposes. Under
unusual circumstances, a Fund may suspend redemptions or postpone payment for
up to seven days or longer, as permitted by federal securities law. The Funds
reserve the right to close an account that through redemption has remained
below $200 for 90 days. Shareholders will receive 60 days' written notice to
increase the account value before the account is closed.
During drastic economic or market developments, you might have difficulty
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it fails to do so. Dealers and
agents may charge a commission for handling telephonic requests. The telephone
service may be suspended or terminated at any time without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS's toll-free number, 800-221-5672. Some
services are described in the attached Subscription Application. A shareholder
manual explaining all available services will be provided upon request. To
request a shareholder manual, call 800-227-4618.
HOW TO EXCHANGE SHARES
You may exchange your shares of any Fund for shares of the same class of other
Alliance Mutual Funds (including AFD Exchange Reserves, a money market fund
managed by Alliance). Exchanges of shares are made at the net asset values next
determined, without sales or service charges. Exchanges may be made by
telephone or written request. Telephone exchange requests must be received by
AFS by 4:00 p.m. Eastern time on a Fund business day in order to receive that
day's net asset value.
Shares will continue to age without regard to exchanges for the purpose of
determining the CDSC, if any, upon redemption and, in the case of Class B
shares, for the purpose of conversion to Class A shares. After an exchange,
your Class B shares will automatically convert to Class A shares in accordance
with the conversion schedule applicable to the Class B shares of the Alliance
Mutual Fund you originally purchased for cash ("original shares"). When
redemption occurs, the CDSC applicable to the original shares is applied.
Please read carefully the prospectus of the mutual fund into which you are
exchanging before submitting the request. Call AFS at 800-221-5672 to exchange
uncertificated shares. An exchange is a taxable capital transaction for federal
tax purposes. The exchange service may be changed, suspended, or terminated on
60 days' written notice.
MANAGEMENT OF THE FUNDS
_______________________________________________________________________________
ADVISER
Alliance, which is a Delaware limited partnership with principal offices at
1345 Avenue of the Americas, New York, New York 10105, has been retained under
an advisory agreement (the "Advisory Agreement") to provide investment advice
and, in general, to conduct the management and investment program of each Fund,
subject to the general supervision and control of the Directors or Trustees of
the Fund.
Alliance is a leading international investment manager supervising client
accounts with assets as of June 30, 1998 totaling more than $262 billion (of
which approximately $107 billion represented the assets of investment
companies). Alliance's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies, foundations
and endowment funds. The 58 registered investment companies managed by Alliance
comprising 123 separate investment portfolios currently have over three million
shareholder accounts. As of June 30, 1998,
43
Alliance was retained as an investment manager for employee benefit plan assets
of 32 of the Fortune 100 companies.
Alliance Capital Management Corporation ("ACMC"), the sole general partner of,
and the owner of a 1% general partnership interest in, Alliance, is an indirect
wholly-owned subsidiary of The Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies in the United
States, which is a wholly-owned subsidiary of The Equitable Companies
Incorporated, a holding company controlled by AXA-UAP, a French insurance
holding company. Certain information concerning the ownership and control of
Equitable by AXA-UAP is set forth in each Fund's Statement of Additional
Information under "Management of the Fund."
The following table lists the person or persons who are primarily responsible
for the day-to-day management of each Fund's portfolio, the length of time that
each person has been primarily responsible, and each person's principal
occupation during the past five years.
Principal occupation
Employee; time period; during the past
Fund title with ACMC five years
- -------------------------------------------------------------------------------
Short-Term U.S. Patricia J. Young since 1995 Associated with
Government -Senior Vice President Alliance.
Jeffrey S. Phlegar since 1997 Associated with
-Senior Vice President Alliance.
U.S. Government Wayne D. Lyski since 1983 Associated with
-Executive Vice President Alliance.
Patricia J. Young since 1997 (see above)
-(see above)
Jeffrey S. Phlegar (see above)
since 1997-(see above)
Limited Maturity Patricia J. Young (see above)
Government since inception-(see above)
Jeffrey S. Phlegar (see above)
since 1997-(see above)
Mortgage Securities Patricia J. Young since (see above)
Income 1992-(see above)
Jeffrey S. Phlegar (see above)
since 1997-(see above)
Multi-Market Strategy Douglas J. Peebles since Associated with
inception-Senior Vice Alliance.
President
North American Wayne D. Lyski since inception (see above)
Government Income -(see above)
Global Dollar Wayne D. Lyski since inception (see above)
Government -(see above)
Global Strategic Wayne D. Lyski since inception (see above)
Income -(see above)
Douglas J. Peebles since (see above)
inception-(see above)
Corporate Bond Wayne D. Lyski since (see above)
1987-(see above)
Paul J. DeNoon since Associated with
January 1992-Vice Alliance.
President
High Yield Wayne C. Tappe Associated with
since 1991-Senior Alliance.
Vice President
Nelson Jantzen Associated with
since 1991-Senior Alliance.
Vice President
PERFORMANCE OF A SIMILARLY MANAGED PORTFOLIO
Alliance is the investment adviser of a portfolio (the "Historical Portfolio")
of a registered investment company, sold only to separate accounts of insurance
companies in connection with variable life insurance contracts and variable
annuities certificates and contracts (the "Contracts"), that has substantially
the same investment objective and policies and has been managed in accordance
with essentially the same investment strategies and techniques as those of HIGH
YIELD. See "Description of the Funds." Alliance since July 22, 1993, and prior
thereto, Equitable Capital Management Corporation, whose advisory business
Alliance acquired on that date, have served as investment adviser to the
Historical Portfolio since its inception in 1987. Wayne C. Tappe, who together
with Nelson Jantzen is primarily responsible for the day-to-day management of
HIGH YIELD, has been the person principally responsible for the day-to-day
management of the Historical Portfolio since 1995.
The following tables set forth performance results for the Historical Portfolio
since its inception (January 2, 1987), together with those of HIGH YIELD and
the Lipper High Current Yield Mutual Funds Average as a comparative benchmark.
As of September 30, 1998, the assets in the Historical Portfolio totalled
approximately $ million.
The performance data do not reflect account charges applicable to the Contracts
or imposed at the insurance company separate account level, which, if
reflected, would lower the performance of the Historical Portfolio. In
addition, the performance data do not reflect the Fund's higher expenses,
which, if reflected, would lower the performance of the Historical Portfolio.
The performance data have not been adjusted for corporate or individual taxes,
if any, payable with respect to the Historical Portfolio. The rates of return
shown for the Historical Portfolio are not an estimate or guarantee of future
investment performance of the Fund.
The Lipper High Current Yield Mutual Funds Average is a survey of the
performance of a large number of mutual funds the investment objective of each
of which is similar to that of the Fund. Nonetheless, the investment policies
pursued by Funds in the survey may differ from those of HIGH YIELD and the
Historical Portfolio. This survey is published by Lipper Analytical Services,
Inc. ("Lipper"), a firm recognized for its reporting of performance of actively
managed funds. According to Lipper, performance data are presented net of
investment management fees, operating expenses and, for funds with Rule 12b-1
plans, asset-based sales charges.
44
The performance results presented below are based on percent changes in net
asset values of the Historical Portfolio with dividends and capital gains
reinvested. Cumulative rates of return reflect performance over a stated period
of time. Annualized rates of return represent the rate of growth that would
have produced the corresponding cumulative return had performance been constant
over the entire period.
ANNUALIZED RATES OF RETURN
PERIODS ENDED SEPTEMBER 30, 1998
- -------------------------------------------------------------------------------
PORTFOLIO/BENCHMARK 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
- -------------------------------------------------------------------------------
Historical Portfolio (4.84)% 12.39% 11.13% 11.20% 10.58%
Lipper High Current Yield
Mutual Funds Average (1.77) 8.23 7.78 9.18 8.85
High Yield 8.34**
CUMULATIVE RATES OF RETURN
PERIODS ENDING SEPTEMBER 30, 1998
- -------------------------------------------------------------------------------
PORTFOLIO/BENCHMARK 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
- -------------------------------------------------------------------------------
Historical Portfolio (4.84)% 41.95% 69.47% 189.20% 226.05%
Lipper High Current Yield
Mutual Funds Average (1.77) 26.86 45.69 142.21 172.92
* JANUARY 2, 1987
** RATE OF RETURN IS ANNUALIZED, FOR CLASS A SHARES, ASSUMING IMPOSITION OF THE
MAXIMUM 4.25% SALES CHARGE. THE FUND COMMENCED OPERATIONS ON APRIL 22, 1997.
EXPENSES OF HIGH YIELD
In addition to the payments to Alliance under its Advisory Agreement, HIGH
YIELD pays certain other costs, including (i) custody, transfer and dividend
disbursing expenses, (ii) fees of the Directors who are not affiliated with
Alliance, (iii) legal and auditing expenses, (iv) clerical, accounting and
other office costs, (v) costs of printing the Fund's prospectuses and
shareholder reports, (vi) costs of maintaining the Fund's existence, (vii)
interest charges, taxes, brokerage fees and commissions, (viii) costs of
stationary and supplies, (ix) expenses and fees related to registration and
filing with the Commission and with state regulatory authorities, and (x) upon
the approval of the Board of Directors, costs of personnel of Alliance or its
affiliates rendering clerical, accounting and other office services and (xi)
such promotional, shareholder servicing and other expenses as may be
contemplated by the Distribution Services Agreement, described below.
DISTRIBUTION SERVICES AGREEMENTS
Rule 12b-1 adopted by the Commission under the 1940 Act permits an investment
company to pay expenses associated with the distribution of its shares in
accordance with a duly adopted plan. Each Fund has adopted one or more "Rule
12b-1 plans" (for each Fund, a "Plan") and has entered into a Distribution
Services Agreement (the "Agreement") with AFD. Pursuant to its Plan, a Fund
pays to AFD a Rule 12b-1 distribution services fee, which may not exceed an
annual rate of .30% (.50% with respect to SHORT-TERM U.S. GOVERNMENT) of the
Fund's aggregate average daily net assets attributable to the Class A shares,
1.00% of the Fund's aggregate average daily net assets attributable to the
Class B shares and 1.00% of the Fund's aggregate average daily net assets
attributable to the Class C shares, for distribution expenses. The Trustees of
SHORT-TERM U.S. GOVERNMENT currently limit payments with respect to Class A
shares under the Plan to .30% of the Fund's aggregate average daily net assets
attributable to Class A shares. The Plans provide that a portion of the
distribution services fee in an amount not to exceed .25% of the aggregate
average daily net assets of each Fund attributable to each class of shares
constitutes a service fee used for personal service and/or the maintenance of
shareholder accounts.
The Plans provide that AFD will use the distribution services fee received from
a Fund in its entirety for payments (i) to compensate broker-dealers or other
persons for providing distribution assistance, (ii) to otherwise promote the
sale of shares of the Fund and (iii) to compensate broker-dealers, depository
institutions and other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's shareholders. In this
regard, some payments under the Plans are used to compensate financial
intermediaries with trail or maintenance commissions in an amount equal to
.25%, annualized, with respect to Class A shares and Class B shares, and 1.00%,
annualized, with respect to Class C shares, of the assets maintained in a Fund
by their customers. Distribution services fees received from the Funds, except
SHORT-TERM U.S. GOVERNMENT, with respect to Class A shares will not be used to
pay any interest expenses, carrying charges or other financing costs or
allocation of overhead of AFD. Distribution services fees received from the
Funds, with respect to Class B and Class C shares, may be used for these
purposes. The Plans also provide that Alliance may use its own resources to
finance the distribution of each Fund's shares.
The Funds are not obligated under the Plans to pay any distribution services
fee in excess of the amounts set forth above. Except as noted below for
SHORT-TERM U.S. GOVERNMENT, with respect to Class A shares of each Fund,
distribution expenses accrued by AFD in one fiscal year may not be paid from
distribution services fees received from the Fund in subsequent fiscal years.
AFD's compensation with respect to Class B and Class C shares under the Plans
of the other Funds is directly tied to the expenses incurred by AFD. Actual
distribution expenses for Class B and Class C shares for any given year,
however, will probably exceed the distribution services fees payable under the
applicable Plan with respect to the class involved and, in the case of Class B
and Class C shares, payments received from CDSCs. The excess will be carried
forward by AFD and reimbursed from distribution services fees payable under the
Plan with respect to the class involved and, in the case of Class B and Class C
shares, payments subsequently received through CDSCs, so long as the Plan is in
effect. Since AFD's compensation under the Plan of SHORT-TERM U.S. GOVERNMENT
is not directly tied to its expenses incurred, the amount of compensation
received by it during any year may be more or less than its actual expenses.
Unreimbursed distribution expenses incurred as of the end of each Fund's most
recently completed fiscal year, and carried
45
over for reimbursement in future years in respect of the Class B and Class C
shares for all Funds (except SHORT-TERM U.S. GOVERNMENT), were, as of that
time, as follows:
Amount of Unreimbursed Distribution Expenses
(As % of Net Assets of Class)
--------------------------------------------
Class B Class C
- -------------------------------------------------------------------------------
U.S. Government $ 7,204,946 (1.85%) $ 4,179,954 (3.65%)
Limited Maturity Government $ 356,382 (.56%) $ 2,860,904 (8.09%)
Mortgage Securities Income $10,423,667 (2.53%) $ 2,946,979 (9.52%)
Multi-Market Strategy $ 9,474,320 (4.15%) $ 553,610 (43.71%)
North American Government Income $36,319,865 (2.02%) $ 4,072,381
Global Dollar Government $ 4,281,388 (5.37%) $ 860,038 (3.63%)
Corporate Bond $13,555,599 (2.66%) $ 2,876,562 (1.13%)
Global Strategic Income $ 994,542 (9.91%) $ 188,869 (7.41%)
High Yield $11,190,075 (4.15%) $ 523,224 (1.08%)
The Plans are in compliance with rules of the National Association of
Securities Dealers, Inc. which effectively limit the annual asset-based sales
charges and service fees that a mutual fund may pay on a class of shares to
.75% and .25%, respectively, of the average annual net assets attributable to
that class. The rules also limit the aggregate of all front-end, deferred and
asset-based sales charges imposed with respect to a class of shares by a mutual
fund that also charges a service fee to 6.25% of cumulative gross sales of
shares of that class, plus interest at the prime rate plus 1% per annum.
The Glass-Steagall Act and other applicable laws may limit the ability of a
bank or other depository institution to become an underwriter or distributor of
securities. However, in the opinion of the Funds' management, based on the
advice of counsel, these laws do not prohibit such depository institutions from
providing services for investment companies such as the administrative,
accounting and other services referred to in the Agreements. In the event that
a change in these laws prevented a bank from providing such services, it is
expected that other service arrangements would be made and that shareholders
would not be adversely affected. The State of Texas requires that shares of a
Fund may be sold in that state only by dealers or other financial institutions
that are registered there as broker-dealers.
DIVIDENDS, DISTRIBUTIONS AND TAXES
_______________________________________________________________________________
DIVIDENDS AND DISTRIBUTIONS
Dividends on shares of a Fund will be declared on each Fund business day from
the Fund's net investment income. Dividends on shares for Saturdays, Sundays
and holidays will be declared on the previous business day. Each Fund pays
dividends on its shares after the close of business on the twentieth day of
each month or, if such day is not a business day, the first business day
thereafter. At your election (which you may change at least 30 days prior to
the record date for a particular dividend or distribution), dividends and
distributions are paid in cash or reinvested without charge in additional
shares of the same class having an aggregate net asset value as of the payment
date of the dividend or distribution equal to the cash amount thereof.
If you receive an income dividend or capital gains distribution in cash you
may, within 120 days following the date of its payment, reinvest the dividend
or distribution in additional shares of that Fund without charge by returning
to Alliance, with appropriate instructions, the check representing such
dividend or distribution. Thereafter, unless you otherwise specify, you will be
deemed to have elected to reinvest all subsequent dividends and distributions
in shares of that Fund.
Cash dividends can be paid by check or, if the shareholder so elects,
electronically via the ACH network. There is no sales or other charge in
connection with the reinvestment of dividends and capital gains distributions.
Dividends paid by a Fund, if any, with respect to Class A, Class B and Class C
shares will be calculated in the same manner at the same time on the same day
and will be in the same amount, except that the higher distribution services
fees applicable to Class B and Class C shares, and any incremental transfer
agency costs relating to Class B shares, will be borne exclusively by the class
to which they relate.
While it is the intention of each Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and timing of any such dividend or distribution must
necessarily depend upon the realization by such Fund of income and capital
gains from investments. There is no fixed dividend rate, and there can be no
assurance that a Fund will pay any dividends or realize any capital gains.
If you buy shares just before a Fund deducts a distribution from its net asset
value, you will pay the full price for the shares and then receive a portion of
the price back as a taxable distribution.
FOREIGN INCOME TAXES
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. To the extent that
any Fund is liable for foreign income taxes withheld at the source, each Fund
intends, if possible, to operate so as to meet the requirements of the Code to
"pass through" to the Fund's shareholders credits or deductions for foreign
income taxes paid, but there can be no assurance that any Fund will be able to
do so. Furthermore, a shareholder's ability to claim a foreign tax credit or
deduction in respect of foreign taxes paid by a Fund may be subject to certain
limitations (including a holding period limitation) imposed by the Code, as a
result of which a shareholder may not be permitted to claim a full credit or
deduction for the amount of such taxes.
U.S. FEDERAL INCOME TAXES
Each Fund intends to qualify to be taxed as a "regulated investment company"
under the Code. So long as a Fund distributes at least 90% of its income,
qualification as a
46
regulated investment company relieves that Fund of Federal income taxes on that
part of its taxable income, including net capital gain, which it pays out to
its shareholders. Dividends out of net ordinary income and distributions of net
short-term capital gains are taxable to the recipient shareholders as ordinary
income. The investment objectives of the Funds are such that only a small
portion, if any, of a Fund's distributions is expected to qualify for the
dividends-received deduction for corporate shareholders. In addition, corporate
shareholders who receive qualifying distributions must meet the holding-period
requirements in the Code in order to take the dividends-received deduction.
Distributions of net capital gain (i.e., the excess of net long-term capital
gain over net short-term capital loss) are taxable as long-term capital gain,
regardless of how long a shareholder has held shares in a Fund. Distributions
of net capital gain may be taxable at different rates depending on the length
of time a Fund holds its assets.
Under current federal tax law, the amount of an income dividend or capital
gains distribution declared by a Fund during October, November or December of a
year to shareholders of record as of a specified date in such a month that is
paid during January of the following year is includable in the prior year's
taxable income of shareholders that are calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of a Fund will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder, although in effect
a return of capital to that particular shareholder, would be taxable to him or
her as described above. Any loss realized on the sale of shares held six months
or less will be a long-term capital loss to the extent of any distributions of
net capital gain received by the shareholder with respect to such shares.
A dividend or capital gains distribution with respect to shares of a Fund held
by a tax-deferred or qualified plan, such as an individual retirement account,
403(b)(7) retirement plan or corporate pension or profit-sharing plan,
generally will not be taxable to the plan. Distributions from such plans will
be taxable to individual participants under applicable tax rules without regard
to the character of the income earned by the qualified plan.
A Fund will be required to withhold 31% of any payments made to a shareholder
if the shareholder has not provided a certified taxpayer identification number
to the Fund, or the Secretary of the Treasury notifies a Fund that a
shareholder has not reported all interest and dividend income required to be
shown on the shareholder's federal income tax return.
Under certain circumstances, if a Fund realizes losses (e.g., from fluctuations
in currency exchange rates) after paying a dividend, all or a portion of the
dividend may subsequently be characterized as a return of capital. Returns of
capital are generally nontaxable, but will reduce a shareholder's basis in
shares of a Fund. If that basis is reduced to zero (which could happen if the
shareholder does not reinvest distributions and returns of capital are
significant) any further returns of capital will be taxable as capital gain.
See "Dividends, Distributions and Taxes" in the Statements of Additional
Information. Shareholders will be advised annually as to the federal tax status
of dividends and capital gains and return of capital distributions made by a
Fund for the preceding year. Shareholders are urged to consult their tax
advisers regarding their own tax situation. Distributions by a Fund may be
subject to state and local taxes.
GENERAL INFORMATION
_______________________________________________________________________________
PORTFOLIO TRANSACTIONS
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, a Fund may
consider sales of its shares as a factor in the selection of dealers to enter
into portfolio transactions with the Fund.
ORGANIZATION
Each of the following Funds is a Maryland corporation organized in the year
indicated: U.S. GOVERNMENT PORTFOLIO and CORPORATE BOND PORTFOLIO (each a
series of Alliance Bond Fund, Inc.) (1973), ALLIANCE LIMITED MATURITY
GOVERNMENT FUND, INC. (1992), ALLIANCE MORTGAGE SECURITIES INCOME FUND, INC.
(1983), ALLIANCE MULTI-MARKET STRATEGY TRUST, INC. (1991), ALLIANCE NORTH
AMERICAN GOVERNMENT INCOME TRUST, INC. (1992), ALLIANCE GLOBAL DOLLAR
GOVERNMENT FUND, INC. (1993), ALLIANCE GLOBAL STRATEGIC INCOME TRUST, INC.
(1995) and ALLIANCE HIGH YIELD FUND, INC. (1996). Prior to March 1, 1996,
ALLIANCE LIMITED MATURITY GOVERNMENT FUND, INC. was known as Alliance Mortgage
Strategy Trust, Inc. Prior to January 4, 1993, CORPORATE BOND PORTFOLIO was
known as Monthly Income Portfolio. ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND is
a series of The Alliance Portfolios, a Massachusetts business trust that was
organized in 1987. Prior to August 2, 1993, The Alliance Portfolios was known
as The Equitable Funds and SHORT-TERM U.S. GOVERNMENT was known as The
Equitable Short-Term U.S. Government Fund.
It is anticipated that annual shareholder meetings will not be held;
shareholder meetings will be held only when required by federal or state law.
Shareholders have available certain procedures for the removal of Directors or
Trustees.
A shareholder in a Fund will be entitled to share pro rata with other holders
of the same class of shares all dividends and distributions arising from the
Fund's assets and, upon redeeming shares, will receive the then current net
asset value of the Fund represented by the redeemed shares less any applicable
CDSC. The Funds are empowered to establish, without shareholder approval,
additional portfolios, which may have different investment objectives and
policies than those of the Fund, and additional classes of shares within the
Fund. If
47
an additional portfolio or class were established in a Fund, each share of the
portfolio or class would normally be entitled to one vote for all purposes.
Generally, shares of each portfolio and class would vote together as a single
class on matters, such as the election of Directors or Trustees, that affect
each portfolio and class in substantially the same manner. Class A, Class B and
Class C shares of each Fund have identical voting, dividend, liquidation and
other rights, except that each class bears its own distribution and transfer
agency expenses. Each class of shares of each Fund votes separately with
respect to a Fund's Rule 12b-1 distribution plan and other matters for which
separate class voting is appropriate under applicable law. Shares are freely
transferable, are entitled to dividends as determined by the Directors and
Trustees and, in liquidation of a Fund, are entitled to receive the net assets
of the Fund. Since this Prospectus sets forth information about all the Funds,
it is theoretically possible that a Fund might be liable for any materially
inaccurate or incomplete disclosure in this Prospectus concerning another Fund.
Based on the advice of counsel, however, the Funds believe that the potential
liability of each Fund with respect to the disclosure in this Prospectus
extends only to the disclosure relating to that Fund. Certain additional
matters relating to a Fund's organization are discussed in its Statement of
Additional Information.
PENDING LEGAL PROCEEDINGS INVOLVING NORTH AMERICAN GOVERNMENT INCOME
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") styled In re ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST,
INC. SECURITIES LITIGATION was filed in the U.S. District Court for the
Southern District of New York ("District Court") against the Fund, Alliance,
ACMC, AFD, The Equitable Companies Incorporated ("ECI"), a parent of the
Adviser, and certain current and former officers and directors of the Fund and
ACMC, alleging violations of the federal securities laws, fraud and breach of
fiduciary duty in connection with the Fund's investments in Mexican and
Argentine securities. The Complaint sought certification of a plaintiff class
of all persons who purchased or owned Class A, B or C shares of the Fund from
March 27, 1992 through December 23, 1994. Plaintiffs alleged that during 1995
the Fund's losses exceeded $750,000,000 and sought as relief unspecified
damages, costs and attorney's fees.
On September 26, 1996, the District Court granted defendants' motion to dismiss
all counts of the Complaint ("First Decision"). On October 11, 1996, plaintiffs
filed a motion for reconsideration of the First Decision. On November 25, 1996,
the District Court denied plaintiffs' motion for reconsideration of the First
Decision. On October 29, 1997, the United States Court of Appeals for the
Second Circuit ("Court of Appeals") issued an order granting defendants' motion
to strike and dismissing plaintiffs' appeal of the First Decision.
On October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint ("Amended Complaint"). In the Amended Complaint, plaintiffs asserted
claims against the Fund, Alliance, ACMC, AFD, ECI, and certain current and
former officers of the Fund and ACMC alleging violations of the federal
securities laws, fraud and breach of fiduciary duty. The principal allegations
of the Amended Complaint related to the Fund's hedging practices, the Fund's
investments in certain mortgage-backed securities, and the risk and objectives
of the Fund as described in the Fund's marketing materials. The Amended
Complaint made similar requests for class certification and damages as made in
the Complaint. On July 15, 1997, the District Court denied plaintiffs' motion
for leave to file the Amended Complaint and dismissed the case ("Second
Decision").
On November 17, 1997, plaintiffs filed a notice of appeal of the Second
Decision to the Court of Appeals. On October 15, 1998, the Court of Appeals
affirmed in part and reversed in part the Second Decision. The Court of Appeals
affirmed the District Court's denial of plaintiffs' motion for leave to file
the Amended Complaint insofar as the Amended Complaint alleged that defendants
had made misrepresentations and omissions relating to the Funds' investments in
certain mortgage-backed securities and in the Fund's marketing materials. The
Court of Appeals reversed the District Court's decision to deny plaintiffs'
motions for leave to file the Amended Complaint insofar as the Amended
Complaint alleged that defendants had made actionable misrepresentations and
omissions relating to the Fund's hedging practices.
The Fund and Alliance believe that the allegations in the Complaint and the
Amended Complaint are without merit and intend to defend vigorously against
those claims.
REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as each Fund's registrar, transfer
agent and dividend-disbursing agent for a fee based upon the number of
shareholder accounts maintained for the Fund. The transfer agency fee with
respect to Class B shares will be higher than the transfer agency fee with
respect to Class A shares or Class C shares.
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue of
the Americas, New York, New York 10105, is the principal underwriter of shares
of the Funds.
PERFORMANCE INFORMATION
From time to time, the Funds advertise their "yield" and "total return," which
are computed separately for Class A, Class B and Class C shares. A Fund's yield
for any 30-day (or one-month) period is computed by dividing the net investment
income per share earned during such period by the maximum public offering price
per share on the last day of the period, and then annualizing such 30-day (or
one-month) yield in accordance with a formula prescribed by the Commission
which provides for compounding on a semi-annual basis. A Fund may also state in
sales literature an "actual distribution rate" for each class which is computed
in the same manner as yield except that actual income dividends declared per
share during the period in question are substituted for net investment income
per share. The actual distribution rate is computed
48
separately for Class A, Class B and Class C shares. Advertisements of a Fund's
total return disclose its average annual compounded total return for the
periods prescribed by the Commission. A Fund's total return for each such
period is computed by finding, through the use of a formula prescribed by the
Commission, the average annual compounded rate of return over the period that
would equate an assumed initial amount invested to the value of the investment
at the end of the period. For purposes of computing total return, income
dividends and capital gains distributions paid on shares of a Fund are assumed
to have been reinvested when paid and the maximum sales charges applicable to
purchases and redemptions of a Fund's shares are assumed to have been paid. A
Fund's advertisements may quote performance rankings or ratings of a Fund by
financial publications or independent organizations such as Lipper Analytical
Services, Inc. and Morningstar, Inc. or compare a Fund's performance to various
indices.
ADDITIONAL INFORMATION
This Prospectus and the Statements of Additional Information, which have been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statements filed by the Funds with the Commission under the
Securities Act. Copies of the Registration Statements may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at
the offices of the Commission in Washington, D.C.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
THIS PROSPECTUS IS INTENDED TO CONSTITUTE AN OFFER BY EACH FUND ONLY OF THE
SECURITIES OF WHICH IT IS THE ISSUER AND IS NOT INTENDED TO CONSTITUTE AN OFFER
BY ANY FUND OF THE SECURITIES OF ANY OTHER FUND WHOSE SECURITIES ARE ALSO
OFFERED BY THIS PROSPECTUS. NO FUND INTENDS TO MAKE ANY REPRESENTATION AS TO
THE ACCURACY OR COMPLETENESS OF THE DISCLOSURE IN THIS PROSPECTUS RELATING TO
ANY OTHER FUND. SEE "GENERAL INFORMATION--ORGANIZATION."
49
APPENDIX A: BOND RATINGS
_______________________________________________________________________________
MOODY'S INVESTORS SERVICE, INC.
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Absence of Rating--When no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note--Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S RATINGS SERVICES
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--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 debt in higher rated categories.
BBB--Debt rated BBB normally exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC or C is regarded as having
significant speculative characteristics. BB indicates the lowest degree of
speculation and C the highest. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
A-1
BB--Debt rated BB is less vulnerable to nonpayment than other speculative debt.
However, it faces major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to an inadequate capacity to
pay interest and repay principal.
B--Debt rated B is more vulnerable to nonpayment than debt rated BB, but there
is capacity to pay interest and repay principal. Adverse business, financial or
economic conditions will likely impair the capacity or willingness to pay
principal or repay interest.
CCC--Debt rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial and economic conditions to pay interest and
repay principal. In the event of adverse business, financial or economic
conditions, there is not likely to be capacity to pay interest or repay
principal.
CC--Debt rated CC is currently highly vulnerable to nonpayment.
C--The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments are being
continued.
D--The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually ocurred.
Plus (+) or Minus (-)--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR--Not rated.
DUFF & PHELPS CREDIT RATING CO.
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+,AA, AA- --High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, A- --Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- --Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB- --Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, B- --Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctutate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or
into a higher or lower rating grade.
CCC--Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD--Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP--Preferred stock with dividend arrearages.
FITCH IBCA, INC.
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F- 1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied,
may lead to default.
The ability to meet obligations requires an advantageous business and economic
environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
A-2
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA, DDD, DD or D categories.
NR--Indicates that Fitch does not rate the specific issue.
A-3
APPENDIX B: GENERAL INFORMATION ABOUT CANADA, MEXICO AND ARGENTINA
_______________________________________________________________________________
GENERAL INFORMATION ABOUT CANADA
Canada consists of a federation of ten Provinces and two federal territories
(which generally fall under federal authority) with a constitutional division
of powers between the federal and Provincial governments. The Parliament of
Canada has jurisdiction over all areas not assigned exclusively to the
Provincial legislatures, and has jurisdiction over such matters as the federal
public debt and property, the regulation of trade and commerce, currency and
coinage, banks and banking, national defense, the postal services, navigation
and shipping and unemployment insurance.
The Canadian economy is based on the free enterprise system, with business
organizations ranging from small owner-operated businesses to large
multinational corporations. Manufacturing and resource industries are large
contributors to the country's economic output, but as in many other highly
developed countries, there has been a gradual shift from a largely
goods-producing economy to a predominantly service-based one. Agriculture and
other primary production play a small but key role in the economy. Canada is
also an exporter of energy to the United States in the form of natural gas (of
which Canada has substantial reserves) and hydroelectric power, and has
significant mineral resources.
Canadian Dollars are fully exchangeable into U.S. Dollars without foreign
exchange controls or other legal restriction. Since the major developed-country
currencies were permitted to float freely against one another, the range of
fluctuation in the U.S. Dollar/Canadian Dollar exchange rate generally has been
narrower than the range of fluctuation between the U.S. Dollar and most other
major currencies. Since 1991, Canada generally has experienced a weakening of
its currency. The Canadian Dollar reached an all-time low of 1.5770 Canadian
Dollars per U.S. Dollars per U.S. Dollar on August 27, 1998. On October 13,
1998 the Canadian Dollar-U.S. Dollar exchange rate was 1.5510:1. The range of
fluctuation that has occurred in the past is not necessarily indicative of the
range of fluctuation that will occur in the future. Future rates of exchange
cannot be accurately predicted.
GENERAL INFORMATION ABOUT THE UNITED MEXICAN STATES
The United Mexican States ("Mexico") is a nation formed by 31 states and a
Federal District (Mexico City). The Political Constitution of Mexico, which
took effect on May 1, 1917, established Mexico as a Federal Republic and
provides for the separation of executive, legislative and judicial branches.
The President and the members of the General Congress are elected by popular
vote.
Prior to 1994, when Mexico experienced an economic crisis that led to the
devaluation of the Peso in December 1994, the Mexican economy experienced
improvement in a number of areas, including growth in gross domestic product
and a substantial reduction in the rate of inflation and in the public sector
financial deficit. Much of the past improvement in the Mexican economy was due
to a series of economic policy initiatives intended to modernize and reform the
Mexican economy, control inflation, reduce the financial deficit, increase
public revenues through the reform of the tax system, establish a competitive
and stable currency exchange rate, liberalize trade restrictions and increase
investment and productivity, while reducing the government's role in the
economy. In this regard, the Mexican government launched a program for
privatizing certain state owned enterprises, developing and modernizing the
securities markets, increasing investment in the private sector and permitting
increased levels of foreign investment.
In 1994 Mexico faced internal and external conditions that resulted in an
economic crisis that continues to affect the Mexican economy adversely. Growing
trade and current account deficits, which could no longer be financed by
inflows of foreign capital, were factors contributing to the crisis. A
weakening economy and unsettling political and social developments caused
investors to lose confidence in the Mexican economy. This resulted in a large
decline in foreign reserves followed by a sharp and rapid devaluation of the
Mexican Peso. The ensuing economic and financial crisis resulted in higher
inflation and domestic interest rates, a contraction in real gross domestic
product and a liquidity crisis.
In response to the adverse economic conditions that developed at the end of
1994, the Mexican government instituted a new economic program; and the
government and the business and labor sectors of the economy entered into a new
accord in an effort to stabilize the economy and the financial markets. To help
relieve Mexico's liquidity crisis and restore financial stability to Mexico's
economy, the Mexican government also obtained financial assistance from the
United States, other countries and certain international agencies conditioned
upon the implementation and continuation of the economic reform program.
In October 1995, and again in October 1996, the Mexican government announced
new accords designed to encourage economic growth and reduce inflation. While
it cannot be accurately predicted whether these accords will continue to
achieve their objectives, the Mexican economy has stabilized since the economic
crisis of 1994, and the high inflation and high interest rates that continued
to be a factor after 1994 have subsided as well. After declining for five
consecutive quarters beginning with the first quarter of 1995, Mexico's gross
domestic product began to grow in the second quarter of 1996. That growth was
sustained in 1996 and 1997, resulting in increases of 5.2% and 7.0%,
respectively. The growth rate for the first half of 1998 was 5.4%. In addition,
inflation dropped from a 52% annual rate in 1995 to a 27.7% annual rate in 1996
and a 15.7% annual rate in 1997. For the first eight months of 1998, the
inflation rate fluctuated between
B-1
15.0% and 15.5% on an annualized basis. Mexico's economy is influenced by
international economic conditions, particularly those in the United States, and
by world prices for oil and other commodities. The recovery of the economy will
require continued economic and fiscal discipline as well as stable political
and social conditions. In addition, there is no assurance that Mexico's
economic policy initiatives will be successful or that succeeding
administrations will continue these initiatives.
Under economic policy initiatives implemented on and after December 1987, the
Mexican government introduced a series of schedules allowing for the gradual
devaluation of the Mexican Peso against the U.S. Dollar. These gradual
devaluations continued until December 1994. On December 22, 1994, the Mexican
government announced that it would permit the Peso to float freely against
other currencies, resulting in a precipitous decline against the U.S. Dollar.
By December 31, 1996, the Peso-Dollar exchange rate had decreased approximately
40% from that on December 22, 1994. After dropping approximately 55% from 1994
through 1996, in 1997, the average annual Peso-Dollar exchange rate decreased
approximately 4% from that in 1996. At the end of the first nine months of
1998, the Peso-Dollar exchange rate decreased approximately 25% from the end of
1997.
Mexico has in the past imposed strict foreign exchange controls. There is no
assurance that future regulatory actions in Mexico would not affect the Fund's
ability to obtain U.S. Dollars in exchange for Mexican Pesos.
GENERAL INFORMATION ABOUT THE REPUBLIC OF ARGENTINA
The Republic of Argentina ("Argentina") consists of 23 provinces and the
federal capital of Buenos Aires. Its federal constitution provides for an
executive branch headed by a President, a legislative branch and a judicial
branch. Each province has its own constitution, and elects its own governor,
legislators and judges, without the intervention of the federal government.
The military has intervened in the political process on several occasions since
1930 and has ruled the country for 22 of the past 68 years. The most recent
military government ruled the country from 1976 to 1983. Four unsuccessful
military uprisings have occurred since 1983, the most recent in December 1990.
Shortly after taking office in 1989, the country's current President adopted
market-oriented and reformist policies, including an aggressive privatization
program, a reduction in the size of the public sector and an opening of the
economy to international competition.
In the decade prior to the announcement of a new economic plan in March 1991,
the Argentine economy was characterized by low and erratic growth, declining
investment rates and rapidly worsening inflation. Despite its strengths, which
include a well-balanced natural resource base and a high literacy rate, the
Argentine economy failed to respond to a series of economic plans in the
1980's. The 1991 economic plan represented a pronounced departure from its
predecessors in calling for raising revenues, cutting expenditures and reducing
the public deficit. The extensive privatization program commenced in 1989 was
accelerated, the domestic economy deregulated and opened up to foreign trade
and the frame-work for foreign investment reformed. As a result of the economic
stabilization reforms, gross domestic product has increased each year since
1991, with the exception of 1995. During 1997, gross domestic product increased
an estimated 8.4% from 1996. Preliminary data indicate that during the first
quarter of 1998 gross domestic product increased 6.9% from the first quarter of
1997. The rate of inflation is generally viewed to be under control.
Significant progress was also made between 1991 and 1994 in rescheduling
Argentina's debt with both external and domestic creditors, which improved
fiscal cash flows in the medium term and allowed a return to voluntary credit
markets. There is no assurance that Argentina's economic policy initiatives
will be successful or that succeeding administrations will continue these
initiatives.
In 1995 economic policy was directed toward the effects of the Mexican currency
crisis. The Mexican currency crisis led to a run on Argentine bank deposits,
which was brought under control by a series of measures designed to strengthen
the financial system. The measures included the "dollarization" of banking
reserves, the establishment of two trust funds and strengthening bank reserve
requirements.
In 1991 the Argentine government enacted currency reforms, which required the
domestic currency to be fully backed by international reserves, in an effort to
make the Argentine Peso fully convertible into the U.S. Dollar at a rate of one
to one.
The Argentine Peso has been the Argentine currency since January 1, 1992. Since
that date, the rate of exchange from the Argentine Peso to the U.S. Dollar has
remained approximately one to one. The fixed exchange rate has been
instrumental in stabilizing the economy, but has not reduced pressures from
high rates of unemployment. It is not clear that the government will be able to
resist pressure to devalue the currency. However, the historic range is not
necessarily indicative of fluctuations that may occur in the exchange rate over
time and future rates of exchange cannot be accurately predicted. The Argentine
foreign exchange market was highly controlled until December 1989, when a free
exchange rate was established for all foreign currency transactions. Argentina
has eliminated restrictions on foreign direct investment and capital
repatriation. In 1993, legislation was adopted abolishing previous requirements
of a three-year waiting period for capital repatriation. Under the legislation,
foreign investors are permitted to remit profits at any time.
B-2
ALLIANCE BOND FUNDS SUBSCRIPTION APPLICATION
_______________________________________________________________________________
SHORT-TERM U.S. GOVERNMENT FUND
U.S. GOVERNMENT PORTFOLIO
LIMITED MATURITY GOVERNMENT FUND
MORTGAGE SECURITIES INCOME FUND
MULTI-MARKET STRATEGY TRUST
NORTH AMERICAN GOVERNMENT INCOME TRUST
GLOBAL DOLLAR GOVERNMENT FUND
GLOBAL STRATEGIC INCOME TRUST
CORPORATE BOND PORTFOLIO
HIGH YIELD FUND
TO OPEN YOUR NEW ALLIANCE ACCOUNT...
Please complete the application and mail it to:
ALLIANCE FUND SERVICES, INC.
P.O. BOX 1520
SECAUCUS, NEW JERSEY 07096-1520
For certified or overnight deliveries, send to:
ALLIANCE FUND SERVICES, INC.
500 PLAZA DRIVE
SECAUCUS, NEW JERSEY 07094
SECTION 1 YOUR ACCOUNT REGISTRATION (REQUIRED)
Complete one of the available choices. To ensure proper tax reporting to the
IRS:
* Individuals, Joint Tenants, Transfer on Death and Gift/Transfer to a Minor:
. Indicate your name(s) exactly as it appears on your social security
card.
* Transfer on Death:
. Ensure that your state participates
* Trust/Other:
. Indicate the name of the entity exactly as it appeared on the notice
you received from the IRS when your Employer Identification number
was assigned.
SECTION 2 YOUR ADDRESS (REQUIRED) Complete in full.
* Non-Resident Alien:
. Indicate your permanent country of residence.
SECTION 3 YOUR INITIAL INVESTMENT (REQUIRED)
For each Fund in which you are investing: 1 Write the three digit Fund number
in the column titled 'INDICATE THREE DIGIT FUND NUMBER LOCATED BELOW'.
2 Write the dollar amount of your initial purchase in the column titled
'INDICATE DOLLAR AMOUNT'. (If you are eligible for a reduced sales charge,
you must also complete Section 4F). 3 Check off a distribution option for
your dividends. 4 Check off a distribution option for your capital gains.
All distributions (dividends and capital gains) will be reinvested into your
fund account unless you direct otherwise. If you want distributions sent
directly to your bank account, then you must complete Section 4D and attach
a preprinted, voided check for that account. If you want your distributions
sent to a third party you must complete Section 4E.
SECTION 4 YOUR SHAREHOLDER OPTIONS (COMPLETE ONLY THOSE OPTIONS YOU WANT)
A. AUTOMATIC INVESTMENT PLANS (AIP) - You can make periodic investments into
any of your Alliance Funds in one of three ways. First, by a periodic
withdrawal ($25 minimum) directly from your bank account and invested into an
Alliance Fund. Second, you can direct your distributions (dividends and
capital gains) from one Alliance Fund into another Fund. Or third, you can
automatically exchange monthly ($25 minimum) shares of one Alliance Fund for
shares of another Fund. To elect one of these options, complete the
appropriate portion of Section 4A & 4D. If more than one dividend direction
or monthly exchange is desired, please call our Literature Center to obtain a
Shareholder Account Services Options Form for completion.
B. TELEPHONE TRANSACTIONS VIA EFT - Complete this option if you would like to
be able to transact via telephone between your fund account and your bank
account.
C. SYSTEMATIC WITHDRAWAL PLANS (SWP) - Complete this option if you wish to
periodically redeem dollars from one of your fund accounts. Payments can be
made via Electronic Funds Transfer (EFT) to your bank account or by check.
D. BANK INFORMATION - If you have elected any options that involve
transactions between your bank account and your fund account or have elected
cash distribution options and would like the payments sent to your bank
account, please tape a preprinted, voided check of the account you wish to use
to this section of the application.
E. THIRD PARTY PAYMENT DETAILS - If you have chosen cash distributions and/or
a Systematic Withdrawal Plan and would like the payments sent to a person
and/or address other than those provided in section 1 or 2, complete this
option. Medallion Signature Guarantee is required if your account is not
maintained by a broker dealer.
F. REDUCED CHARGES (CLASS A ONLY) - Complete if you would like to link fund
accounts that have combined balances that might exceed $100,000 so that future
purchases will receive discounts. Complete if you intend to purchase over
$100,000 within 13 months.
SECTION 5 SHAREHOLDER AUTHORIZATION (REQUIRED) All owners must sign. If it
is a custodial, corporate, or trust account, the custodian, an authorized
officer, or the trustee respectively must sign.
IF WE CAN ASSIST YOU IN ANY WAY, PLEASE DO NOT HESITATE TO CALL US AT: (800)
221-5672.
FOR LITERATURE CALL: (800) 227-4618
THE ALLIANCE BOND FUNDS SUBSCRIPTION APPLICATION
_______________________________________________________________________________
1. YOUR ACCOUNT REGISTRATION (Please Print in Capital Letters and Mark Check
Boxes Where Applicable)
__ Individual Account { __ Male __ Female } - or - __ Joint Account - or -
__ Transfer On Death { __ Male __ Female } - or - __ Gift/Transfer to a Minor
___________________________________________ ____ ____________________________
Owner or Custodian (First Name) (MI) (Last Name)
________________________________________________________________________
(First Name) Joint Owner*, Transfer On Death Beneficiary or Minor
____ ______________________________
(MI) (Last Name)
______________-____-_________________
Social Security Number of Owner or Minor (required to open account)
If Uniform Gift/Transfer to Minor Account: ________ Minor's State of Residence
If Joint Tenants Account: * The Account will be registered "Joint Tenants with
right of Survivorship" unless you indicate otherwise below:
__ In Common __ By Entirety __ Community Property
__ Trust - or - __ Corporation - or - Other________________________________
___________________________________________ ____ ____________________________
Name of Trustee if applicable (First Name) (MI) (Last Name)
_______________________________________________________________________________
Name of Trust or Corporation or Other Entity
_______________________________________________________________________________
Name of Trust or Corporation or Other Entity continued
_________________________
Trust Dated (MM,DD,YYYY)
________________________________________
Tax ID Number (required to open account)
__ Employer ID Number - OR - __ Social Security Number
2. YOUR ADDRESS
__________________________ ___________________________________________________
Street Number Street Name
_______________________________________________ ______ ______________________
City State Zip code
____________________________ ________-________-____________
If Non-U.S., Specify Country Daytime Phone Number
__ U.S. Citizen __ Resident Alien __ Non-Resident Alien
80888GEN-TABFAPP-P1
1
3. YOUR INITIAL INVESTMENT
The minimum investment is $250 per fund.
The maximum investment in Class B is $250,000; Class C is $1,000,000.
I hereby subscribe for shares of the following Alliance Bond Fund(s) and elect
distribution options as indicated.
BROKER/DEALER USE ONLY: WIRE CONFIRM # _________________________
DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS:
R REINVEST DISTRIBUTIONS into my fund account.
C SEND MY DISTRIBUTIONS IN CASH to the address I have provided in Section 2.
(Complete Section 4D for direct deposit to your bank account. Complete Section
4E for payment to a third party)
D DIRECT MY DISTRIBUTIONS TO ANOTHER ALLIANCE FUND. Complete the appropriate
portion of Section 4A to direct your distributions (dividends and capital
gains) to another Alliance Fund (the $250 minimum investment requirement
applies to Funds into which distributions are directed).
Indicate three digit Fund Indicate Dollar Distributions Options *Check One*
number located below Amount Dividends Capital Gains
- ------------------------- --------------- ---------------- ---------------
_______________ $______________ R C D R C D
_______________ $______________ R C D R C D
_______________ $______________ R C D R C D
TOTAL INVESTMENT $______________
MAKE ALL CHECKS PAYABLE TO: ALLIANCE FUNDS
ALLIANCE BOND FUND NAMES AND NUMBERS
_______________________________________________________________________________
For checkwriting privileges, please send the enclosed signature card with
your application. Checkwriting is offered on Class A and Class C shares
only, and is not offered on Corporate Bond Portfolio and High Yield Fund.
A Medallion Signature Guarantee is required if your account is not maintained
by a broker/dealer. For Class C shares, checkwriting may result in the
imposition of a contingent deferred sales charge against your account. The
minimum amount for checkwriting is $500.
<TABLE>
<CAPTION>
Initial Sales Contingent Deferred Asset-Based
Charge Sales Charge Sales Charge
A B C
------------- ------------------- --------------
<S> <C> <C> <C>
U.S. GOVERNMENT FUNDS
SHORT-TERM U.S. GOVERNMENT FUND 37 51 337
U.S. GOVERNMENT PORTFOLIO 46 76 346
LIMITED MATURITY GOVERNMENT FUND 88 89 388
MORTGAGE SECURITIES INCOME FUND 52 63 352
MULTI-MARKET FUNDS
MULTI-MARKET STRATEGY TRUST 22 23 322
GLOBAL BOND FUNDS
NORTH AMERICAN GOVERNMENT INCOME TRUST 55 56 355
GLOBAL DOLLAR GOVERNMENT FUND 166 266 366
GLOBAL STRATEGIC INCOME TRUST 124 224 324
CORPORATE BOND FUNDS
CORPORATE BOND PORTFOLIO 95 295 395
HIGH YIELD FUND 103 203 303
</TABLE>
80888GEN-TABFAPP-P2
2
4. YOUR SHAREHOLDER OPTIONS
A. AUTOMATIC INVESTMENT PLANS (AIP)
__ WITHDRAW FROM MY BANK ACCOUNT VIA EFT*
I authorize Alliance to draw on my bank account for investment in my fund
account(s) as indicated below (Complete Section 4D also for the bank account
you wish to use).
1- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
2- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
M = monthly
Q = quarterly
A = Annually
* ELECTRONIC FUNDS TRANSFER. YOUR BANK MUST BE A MEMBER OF THE NATIONAL
AUTOMATED CLEARING HOUSE ASSOCIATION (NACHA)
__ DIRECT MY DISTRIBUTIONS
As indicated in Section 3, I would like my dividends and/or capital gains
directed to the same class of shares of another Alliance Fund.
FROM: ___________ ______________________________ - __
Fund Number Account Number (If existing)
TO: ___________ ______________________________ - __
Fund Number Account Number (If existing)
__ EXCHANGE MY SHARES MONTHLY
I authorize Alliance to transact monthly exchanges, within the same class of
shares, between my fund accounts as listed below.
FROM: ___________ ______________________________ - __
Fund Number Account Number (If existing)
______ ,___________.00 ________
Amount ($25 minimum) Day of Exchange**
TO: ___________ ______________________________ - __
Fund Number Account Number (If existing)
** SHARES EXCHANGED WILL BE REDEEMED AT THE NET ASSET VALUE ON THE "DAY OF
EXCHANGE" (IF THE "DAY OF EXCHANGE" IS NOT A FUND BUSINESS DAY, THE EXCHANGE
TRANSACTION WILL BE PROCESSED ON THE NEXT FUND BUSINESS DAY). THE EXCHANGE
PRIVILEGE IS NOT AVAILABLE IF SHOCK CERTIFICATES HAVE BEEN ISSUED.
B. PURCHASES AND REDEMPTIONS VIA EFT
You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund
Services, Inc. in a recorded conversation to purchase, redeem or exchange
shares for your account. Purchase and redemption requests will be processed
via electronic funds transfer (EFT) to and from your bank account.
INSTRUCTIONS:
* Review the information in the Prospectus about telephone transaction
services.
* If you select the telephone purchase or redemption privilege, you must write
"VOID" across the face of a check from the bank account you wish to use and
attach it to Section 4D of this application.
__ PURCHASES AND REDEMPTIONS VIA EFT
I hereby authorize Alliance Fund Services, Inc. to effect the purchase and/or
redemption of Fund shares for my account according to my telephone instructions
or telephone instructions from my Broker/Agent, and to withdraw money or credit
money for such shares via EFT from the bank account I have selected. The
maximum redemption amount is $100,000 per day.
For shares recently purchased by check or electronic funds transfer,
redemption proceeds will not be made available until the Fund is reasonably
assured the check or electronic funds transfer has been collected, normally
for 15 calendar days after the purchase date.
80888GEN-TABFAPP-P3
3
4. YOUR SHAREHOLDER OPTIONS (CONTINUED)
C. SYSTEMATIC WITHDRAWAL PLANS (SWP)
In order to establish a SWP, you must reinvest all dividends and capital gains.
__ I authorize Alliance to transact periodic redemptions from my fund account
and send the proceeds to me as indicated below.
1- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
2- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
M = monthly
Q = quarterly
A = Annually
PLEASE SEND MY SWP PROCEEDS TO:
__ My Address of Record (via check)
__ My checking account-via EFT (complete section 4D)
Your bank must be a member of the National Automated Clearing House Association
(NACHA) in order for you to receive SWP proceeds directly into your bank
account. Otherwise payment will be made by check
__ The Payee and address specified in section 4E (via check)
(Medallion Signature Guarantee required)
D. BANK INFORMATION This bank account information will be used for:
__ Distributions (Section 3)
__ Telephone Transactions (Section 4B)
__ Automatic Investments (Section 4A)
__ Withdrawals (Section 4C)
PLEASE TAPE A PRE-PRINTED VOIDED CHECK HERE*
* THE ABOVE SERVICES CANNOT BE ESTABLISHED WITHOUT A PRE-PRINTED VOIDED CHECK.
FOR EFT TRANSACTIONS, THE FUND REQUIRES SIGNATURES OF BANK ACCOUNT OWNERS
EXACTLY AS THEY APPEAR ON BANK RECORDS. IF THE REGISTRATION AT THE BANK
DIFFERS FROM THAT ON THE ALLIANCE MUTUAL FUND, ALL PARTIES MUST SIGN IN SECTION
5.
VOID
ABA Routing Number
Check Number
Bank Account Number
______________________________
Your Bank's ABA Routing Number
______________________________________________
Your Bank Account Number
__ Checking Account __ Savings Account
80888GEN-TABFAPP-P4
4
4. YOUR SHAREHOLDER OPTIONS (CONTINUED)
E. THIRD PARTY PAYMENT DETAILS Your signature(s) in Section 5 must be
Medallion Signature Guaranteed if your account is not maintained by a
broker/dealer. This third party payee information will be used for:
__ Distributions (section 3) __ Systematic Withdrawals (section 4C)
_________________________________ _____ _____________________________________
Name (First Name) (MI) (Last Name)
___________________________ __________________________________________________
Street Number Street Name
______________________________________________ _____ ________________________
City State Zip code
F. REDUCED CHARGES (CLASS A ONLY) If you, your spouse or minor children
own shares in other Alliance Funds, you may be eligible for a reduced sales
charge. Please complete the Right of Accumulation section or the Statement
of Intent section.
__ A. RIGHT OF ACCUMULATION
Please link the tax identification numbers or account numbers listed below for
Right of Accumulation privileges, so that this and future purchases will
receive any discount for which they are eligible.
_________________________ _________________________ _________________________
Tax ID or Account Number Tax ID or Account Number Tax ID or Account Number
__ B. STATEMENT OF INTENT
I want to reduce my sales charge by agreeing to invest the following amount
over a 13-month period:
__ $100,000 __ $250,000 __ $500,000 __ $1,000,000
If the full amount indicated is not purchased within 13 months, I understand
that an additional sales charge must be paid from my account.
DEALER/AGENT AUTHORIZATION - FOR SELECTED DEALERS OR AGENTS ONLY.
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee
the signature(s) set forth in Section 5, as well as the legal capacity of the
shareholder.
_________________________________________ ____________________________________
Dealer/Agent Firm Authorized Signature
____________________________________ ____ ___________________________________
Representative First Name MI Last Name
_________________________________________ ____________________________________
Dealer/Agent Firm Number Representative Number
_________________________________________ ____________________________________
Branch Number Branch Telephone Number
_______________________________________________________________________________
Branch Office Address
_______________________________________________ _____ _______________________
City State Zip Code
80888GEN-TABFAPP-P5
5
5. SHAREHOLDER AUTHORIZATION -- THIS SECTION MUST BE COMPLETED
TELEPHONE EXCHANGES AND REDEMPTIONS BY CHECK
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an authorized
employee of an investment dealer or agent requesting a redemption or exchange
on my behalf. (NOTE: Telephone exchanges may only be processed between
accounts that have identical registrations.) Telephone redemption checks will
only be mailed to the name and address of record; and the address must not have
changed within the last 30 days. The maximum telephone redemption amount is
$50,000. This service can be enacted once every 30 days.
__ I do not elect the telephone exchange service
__ I do not elect the telephone redemption by check service
By selecting any of the above telephone privileges, I agree that neither the
Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund Services,
Inc. or other Fund Agent will be liable for any loss, injury, damage or expense
as a result of acting upon telephone instructions purporting to be on my
behalf, that the Fund reasonably believes to be genuine, and that neither the
Fund nor any such party will be responsible for the authenticity of such
telephone instructions. I understand that any or all of these privileges may
be discontinued by me or the Fund at any time. I understand and agree that the
Fund reserves the right to refuse any telephone instructions and that my
investment dealer or agent reserves the right to refuse to issue any telephone
instructions I may request.
For non-residents only: Under penalties of perjury, I certify that to the best
of my knowledge and belief, I qualify as a foreign person as indicated in
Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
I CERTIFY UNDER PENALTY OF PERJURY THAT THE NUMBER SHOWN IN SECTION 1 OF THIS
FORM IS MY CORRECT TAX IDENTIFICATION NUMBER OR I AM WAITING FOR A NUMBER TO BE
ISSUED TO ME AND THAT I HAVE NOT BEEN NOTIFIED THAT THIS ACCOUNT IS SUBJECT TO
BACKUP WITHHOLDING.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION
OF THIS DOCUMENT OTHER THAN THE CERTIFICATION REQUIRED TO AVOID BACKUP
WITHHOLDING.
______________________________________________________ _______________________
Signature Date
______________________________________________________ _______________________
Signature Date
Medallion Signature Guarantee required if completing Section 4E and your mutual
fund is not maintained by a broker dealer
80888GEN-TABFAPP-P6
6
SIGNATURE CARD
Dealer/Bank Name: _______________________________________
FUND ACCT. NO.:* ________________________________________
FUND NAME:* _____________________________________________
*Information Necessary to Complete Request
ACCOUNT NAME(S) AS REGISTERED:
_________________________________________________________
_________________________________________________________
SHAREHOLDER ADDRESS:
_________________________________________________________
_________________________________________________________
SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER:*
_________________________________________________________
AUTHORIZED SIGNATURES:
1. _________________________________________________________
2. _________________________________________________________
3. _________________________________________________________
Joint Accounts check one:
__ Either owner is authorized to sign Redemption Checks
__ All owners are required to sign Redemption Checks
(If no box is checked, only one signature will be required.)
Checkbooks are not transferable to other accounts. If you change account
numbers, change funds or change of ownership you must reapply for check-writing.
STATE STREET BANK AND TRUST COMPANY Subject to conditions on reverse side.
SIGNATURE CARD
The payment of funds is authorized by the signature(s) appearing on the reverse
side. Each signatory guarantees the genuineness of the other signatures.
STATE STREET BANK AND TRUST COMPANY (the "Bank") is hereby appointed agent by
the person(s) signing this card (the "Depositor(s)") and, as agent, is
authorized and directed, upon presentment of checks to the Bank.
(1) IF PERTAINING TO AN ALLIANCE DEPOSIT ACCOUNT (THE "ACCOUNT") - to direct
Alliance, which as the Depositor's agent and nominee maintains such Account on
the Depositors behalf at one or more depository institutions, to withdraw funds
from the Account in the amounts of such checks for deposit in this checking
account. Alliance hereby appointed the Depositor's agent and, where
appropriate, messenger for the purpose of effecting such withdrawals.
(2) IF PERTAINING TO AN ALLIANCE MUTUAL FUND (THE "FUND") - to transmit such
checks to the Fund or its transfer agent as requests to redeem shares
registered in the name of the Depositor(s) in the amounts of such checks for
deposit in this checking account.
This checking arrangement is subject to the applicable terms and restrictions,
including charges, set forth in the current Prospectus or Statement of
Additional Information for each Alliance mutual fund or deposit account as to
which the Depositor has arranged to redeem shares or withdraw funds by
check-writing. The Bank is further authorized to effect withdrawals or
redemptions to defray the Bank's charges relating to this checking arrangement.
The Depositor(s) agrees that he shall be subject to the rules and regulations
of the Bank pertaining to this checking arrangement as amended from time to
time, that the Bank has the right not to honor checks which do not meet the
Banks normal standards for checks presented to it, that the Bank and Alliance
have the right to change, modify or terminate this check-writing service at
any time; and that the Bank shall be liable only for its own negligence.
MEDALLION SIGNATURE GUARANTEE - Signatures must be guaranteed by an institution
that is an "eligible guarantor" as defined in Rule 17 Ad-15 of the Securities
Exchange Act of 1934. This would include such institutions such as banks and
brokerage firms.
Send this card with any necessary authorizing documentation to:
ALLIANCE FUND SERVICES
ATTN: CHECKWRITING DEPARTMENT
P.O. BOX 1520
SECAUCUS, NJ 07096-1520
MEDALLION SIGNATURE GUARANTEE (see reverse)
<PAGE>
The Registrant's Advisor Class Prospectus is incorporated herein
by reference to Part A of the Amendment to the Registrant's
Registration Statement on Form N-1A filed with the Commission on
February 28, 1997.
<PAGE>
(LOGO)(R) THE ALLIANCE PORTFOLIOS
Alliance Strategic Balanced Fund
Alliance Growth Fund
________________________________________________________________
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature Toll Free (800) 227-4618
________________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
November 2, 1998
________________________________________________________________
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Funds' current Prospectus
that offers Class A, Class B and Class C shares and the Funds'
current Prospectus that offers the Advisor Class shares (the
"Advisor Class Prospectus" and, together with the Funds'
Prospectus that offers the Class A, Class B and Class C shares,
the "Prospectus"). A copy of the Funds' Prospectus may be
obtained by contacting Alliance Fund Services, Inc. at the
address or telephone numbers shown above.
TABLE OF CONTENTS
PAGE
INVESTMENT POLICIES AND RESTRICTIONS......................
ADDITIONAL INVESTMENT TECHNIQUES OF THE FUNDS.............
INVESTMENT RESTRICTIONS...................................
MANAGEMENT OF THE FUNDS...................................
PORTFOLIO TRANSACTIONS....................................
EXPENSES OF THE FUNDS.....................................
PURCHASE OF SHARES........................................
REDEMPTION AND REPURCHASE OF SHARES.......................
SHAREHOLDER SERVICES......................................
NET ASSET VALUE...........................................
DIVIDENDS, DISTRIBUTIONS AND TAXES........................
GENERAL INFORMATION.......................................
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT............
ACCOUNTANTS.............................................
APPENDIX A: DESCRIPTION OF CORPORATE BOND RATINGS A-1
APPENDIX B: CERTAIN EMPLOYEE BENEFIT PLANS B-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
set forth in the Prospectus of Alliance Strategic Balanced Fund
(the "Strategic Balanced Fund"), formerly Alliance Balanced Fund,
and Alliance Growth Fund (the "Growth Fund"), each a series (a
"Fund") of The Alliance Portfolios (the "Trust"), under the
heading "Investment Objective and Policies." In addition to the
investment techniques described in this section for each of the
Funds, the Funds also may engage in the investment techniques
described below under the sub-heading "Additional Investment
Techniques of the Funds."
INVESTMENT OBJECTIVE AND POLICIES OF THE STRATEGIC BALANCED FUND
GENERAL. Although the Fund seeks to reduce the risks
associated with any one investment medium by utilizing a variety
of investments, performance will depend upon the additional
factors of timing, asset allocation and the ability of Alliance
Capital Management L.P. (the "Adviser") to anticipate and react
to changing market conditions.
The average dollar-weighted maturity of debt securities
held by the Fund will vary according to market conditions and
interest rate cycles and will range between 1 year and 30 years
under normal market conditions. In periods of rising interest
rates, the Fund may, to the extent it holds mortgage-backed
securities, be subject to the risk that the average dollar-
weighted maturity of its portfolio of debt or other fixed-income
securities may be extended as a result of lower than anticipated
prepayment rates. See "Mortgage-backed Securities," below.
As a fundamental policy, the Fund will invest at least
25% of its total assets in fixed-income securities, which for
this purpose includes debt securities, preferred stocks and that
portion of the value of securities convertible into common stock,
including convertible preferred stock and convertible debt, which
is attributable to the fixed-income characteristics of those
securities.
The Fund's debt securities will generally consist of
investment grade securities, that is securities rated at the time
of purchase at least Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's ("S&P"), Fitch IBCA,Inc.
("Fitch") or Duff & Phelps Credit Rating Co. ("Duff & Phelps") or
will be unrated securities deemed to be of comparable quality by
the Adviser. (For a further description of these bond ratings,
2
<PAGE>
see Appendix A to this Statement of Additional Information.)
Securities rated Baa by Moody's or BBB by S&P, Fitch or Duff &
Phelps have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments on such
obligations than in the case of higher-rated securities. In the
event that the rating of any debt securities held by the Fund
falls below Baa by Moody's and/or BBB by S&P, Fitch or Duff &
Phelps (or in the case of unrated securities, such securities are
no longer determined by the Adviser to be of investment grade),
the Fund will not be obligated to dispose of such obligations and
may continue to hold such obligations if, in the opinion of the
Adviser, such investment is appropriate under the circumstances.
For temporary defensive purposes, the Fund may invest in money
market instruments.
MORTGAGE-BACKED SECURITIES. Interest and principal
payments (including prepayments) on the mortgages underlying
mortgage-backed securities are passed through to the holders of
the mortgage-backed security. As a result of the pass-through of
prepayments of principal on the underlying securities, mortgage-
backed securities are often subject to more rapid prepayment of
principal than their stated maturity would indicate. Prepayments
occur when the mortgagor on an individual mortgage prepays the
remaining principal before the mortgage's scheduled maturity
date. Because the prepayment characteristics of the underlying
mortgages vary, it is not possible to predict accurately the
realized yield or average life of a particular issue of pass-
through certificates. During periods of declining interest
rates, such prepayments can be expected to accelerate and a Fund
investing in such securities would be required to reinvest the
proceeds at the lower interest rates then available. Conversely,
during periods of rising interest rates, a reduction in
prepayments may increase the effective maturities of the
securities, subjecting them to a greater risk of decline in
market value in response to rising interest rates. In addition,
prepayments of mortgages underlying securities purchased at a
premium could result in capital losses.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Fund may
engage in foreign currency exchange transactions to protect
against uncertainty in the level of future currency exchange
rates. The Adviser expects to engage in foreign currency
exchange transactions in connection with the purchase and sale of
portfolio securities ("transaction hedging") and to protect
against changes in the value of specific portfolio positions
("position hedging").
The Fund may engage in transaction hedging to protect
against a change in foreign currency exchange rates between the
date on which the Fund contracted to purchase or sell a security
3
<PAGE>
and the settlement date, or to "lock in" the U.S. dollar
equivalent of a dividend or interest payment in a foreign
currency. The Fund may purchase or sell a foreign currency on a
spot (or cash) basis at the prevailing spot rate in connection
with the settlement of transactions in portfolio securities
denominated in that foreign currency.
If conditions warrant, the Fund may also enter into
contracts to purchase or sell foreign currencies at a future date
("forward contracts"), and may purchase and sell foreign currency
futures contracts, as a hedge against changes in foreign currency
exchange rates between the trade and settlement dates on
particular transactions and not for speculation. A foreign
currency forward contract is a negotiated agreement higher or
lower than the spot rate. Foreign currency futures contracts are
standardized exchange-traded contracts and have margin
requirements.
For transaction hedging purposes, the Fund may also
purchase and sell call and put options on foreign currency
futures contracts and on foreign currencies.
The Fund may engage in position hedging to protect
against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or
quoted (or an increase in value of a currency in which securities
the Fund intends to buy are denominated, when the Fund holds cash
or short-term investments). For position hedging purposes, the
Fund may purchase or sell foreign currency futures contracts,
foreign currency forward contracts, and options on foreign
currency futures contracts and on foreign currencies. In
connection with position hedging, the Fund may also purchase or
sell foreign currency on a spot basis.
The Fund's currency hedging transactions may call for
the delivery of one foreign currency in exchange for another
foreign currency and may at times not involve currencies in which
its portfolio securities are then denominated. The Adviser will
engage in such "cross hedging" activities when it believes that
such transactions provide significant hedging opportunities for
the Fund.
CONVERTIBLE SECURITIES. The Fund may invest in
convertible securities. These securities normally provide a
higher yield than the underlying stock but lower than a fixed-
income security without the conversion feature. Also, the price
of the convertible security will normally vary to some degree
with changes in the price of the underlying stock although under
some market conditions the higher yield of the convertible
security tends to make it less volatile than the underlying
common stock. In addition, the price of the convertible security
4
<PAGE>
will generally also vary inversely to some degree with interest
rates. For a description of these risks, see "Investment
Objective and Policies of the Growth Fund -- High-Yield
Securities" below.
INVESTMENT OBJECTIVE AND POLICIES OF THE GROWTH FUND
GENERAL. The Fund invests primarily in common stocks and
securities convertible into common stocks, such as convertible
bonds, convertible preferred stocks and warrants convertible into
common stocks. Because the values of fixed- income securities are
expected to vary inversely with changes in interest rates
generally, when the Adviser expects a general decline in interest
rates the Fund may also invest for capital growth in fixed-income
securities. The Fund may invest up to 25% of its total assets in
fixed-income securities rated at the time of purchase below
investment grade, that is, securities rated Ba or lower by
Moody's or BB or lower by S&P, Fitch or Duff & Phelps or in
unrated fixed-income securities determined by the Adviser to be
of comparable quality. For a description of the ratings referred
to above, see Appendix A to this Statement of Additional
Information. For temporary defensive purposes, the Fund may
invest in money market instruments.
HIGH-YIELD SECURITIES. The Fund may invest in high-
yield, high-risk, fixed-income and convertible securities rated
at the time of purchase Ba or lower by Moody's or BB or lower by
S&P, or, if unrated, judged by the Adviser to be of comparable
quality ("High-Yield Securities"). The Fund will generally
invest in securities with a minimum rating of Caa- by Moody's or
CCC- by S&P or Fitch or CCC by Duff & Phelps or in unrated
securities judged by the Adviser to be of comparable quality.
However, from time to time, the Fund may invest in securities
rated in the lowest grades of Moody's (C), S&P (D), Fitch (D) or
Duff & Phelps (DD) or in unrated securities judged by the Adviser
to be of comparable quality, if the Fund's management determines
that there are prospects for an upgrade or a favorable conversion
into equity securities (in the case of convertible securities).
Securities rated Ba or BB or lower (and comparable unrated
securities) are commonly referred to as "junk bonds." Securities
rated D by S&P or Fitch and DD by Duff & Phelps are in default.
During the fiscal year ended October 31, 1997, the Fund did not
invest in any High-Yield Securities.
As with other fixed-income securities, High-Yield
Securities are subject to credit risk and market risk and their
yields may fluctuate. Market risk relates to changes in a
security's value as a result of changes in interest rates. Credit
risk relates to the ability of the issuer to make payments of
principal and interest. High-Yield Securities are subject to
greater credit risk (and potentially greater incidences of
5
<PAGE>
default) than comparable higher-rated securities because issuers
are more vulnerable to economic downturns, higher interest rates
or adverse issuer-specific developments. In addition, the prices
of High-Yield Securities are generally subject to greater market
risk and therefore react more sharply to changes in interest
rates. The value and liquidity of High-Yield Securities may be
diminished by adverse publicity and investor perceptions.
Because High-Yield Securities are frequently traded only
in markets where the number of potential purchasers and sellers,
if any, is limited, the ability of the Fund to sell High-Yield
Securities at their fair value either to meet redemption requests
or to respond to changes in the financial markets may be limited.
Thinly traded High-Yield Securities may be more difficult to
value accurately for the purpose of determining the Fund's net
asset value. Also, because the market for certain High-Yield
Securities is relatively new, that market may be particularly
sensitive to an economic downturn or a general increase in
interest rates. In addition, under such circumstances the values
of such securities may be more volatile.
Some High-Yield Securities in which the Fund may invest
may be subject to redemption or call provisions. Such provisions
may limit increases in market value that might otherwise result
from lower interest rates while increasing the risk that the Fund
may be required to reinvest redemption or call proceeds during a
period of relatively low interest rates.
The credit ratings issued by Moody's, S&P, Fitch and
Duff & Phelps, a description of which is included as Appendix A
to this Statement of Additional Information, are subject to
various limitations. For example, while such ratings evaluate
credit risk, they ordinarily do not evaluate the market risk of
High-Yield Securities. In certain circumstances, the ratings may
not reflect in a timely fashion adverse developments affecting an
issuer. For these reasons, the Adviser conducts its own
independent credit analysis of High-Yield Securities. When the
Fund invests in securities in the lower rating categories, the
achievement of the Fund's goals is more dependent on the
Adviser's ability than would be the case if the Fund were
investing in higher rated securities.
In the event that the credit rating of a High-Yield
Security held by the Fund falls below its rating at the time of
purchase (or, in the case of unrated securities, the Adviser
determines that the quality of such security has deteriorated
since purchased by the Fund), the Fund will not be obligated to
dispose of such security and may continue to hold the obligation
if, in the opinion of the Adviser, such investment is appropriate
in the circumstances.
6
<PAGE>
Securities rated Baa by Moody's or BBB by S&P, Fitch, or
Duff & Phelps or judged by the Adviser to be of comparable
quality share some of the speculative characteristics of High-
Yield Securities described above.
CONVERTIBLE SECURITIES. The Fund may invest in
convertible securities. These securities normally provide a yield
that is higher than that of the underlying stock but lower than
that of a fixed-income security without the conversion feature.
Also, the price of the convertible security will normally vary to
some degree with changes in the price of the underlying stock
although under some market conditions the higher yield of the
convertible security tends to make it less volatile than the
underlying common stock. In addition, the price of the
convertible security will generally also vary inversely to some
degree with interest rates. Convertible debt securities that are
rated below BBB by S&P, Fitch, or Duff & Phelps, or Baa by
Moody's or comparable unrated securities as determined by the
Adviser may share some or all of the risks of High-Yield
Securities. For a description of these risks, see "High-Yield
Securities" above.
ZERO-COUPON AND PAYMENT-IN-KIND BONDS. The Fund may at
times invest in so-called "zero-coupon" bonds and "payment-in-
kind" bonds. Zero-coupon bonds are issued at a significant
discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in
cash or in additional bonds. Because zero-coupon bonds do not
pay current interest, their value is generally subject to greater
fluctuation in response to changes in market interest rates than
bonds which pay interest currently. Both zero-coupon and
payment-in-kind bonds allow an issuer to avoid the need to
generate cash to meet current interest payments. Accordingly,
such bonds may involve greater credit risks than bonds paying
interest currently. Even though such bonds do not pay current
interest in cash, the Fund is nonetheless required to accrue
interest income on such investments and to distribute such
amounts at least annually to shareholders. Thus, the Fund could
be required to liquidate other investments in order to satisfy
its dividend requirements at times when the Adviser would not
otherwise deem it advisable to do so.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Fund may
engage in foreign currency exchange transactions to protect
against uncertainty in the level of future currency exchange
rates. The Adviser expects to engage in foreign currency
exchange transactions in connection with the purchase and sale of
portfolio securities ("transaction hedging") and to protect
against changes in the value of specific portfolio
positions("position hedging").
7
<PAGE>
The Fund may engage in transaction hedging to protect
against a change in foreign currency exchange rates between the
date on which the Fund contracted to purchase or sell a security
and the settlement date, or to "lock in" the U.S. dollar
equivalent of a dividend or interest payment in a foreign
currency. The Fund may purchase or sell a foreign currency on a
spot (or cash) basis at the prevailing spot rate in connection
with the settlement of transactions in portfolio securities
denominated in that foreign currency.
If conditions warrant, the Fund may also enter into
contracts to purchase or sell foreign currencies at a future date
("forward contracts"), and may purchase and sell foreign currency
futures contracts, as a hedge against changes in foreign currency
exchange rates between the trade and settlement dates on
particular transactions and not for speculation. A foreign
currency forward contract is a negotiated agreement higher or
lower than the spot rate. Foreign currency futures contracts are
standardized exchange-traded contracts and have margin
requirements.
For transaction hedging purposes, the Fund may also
purchase and sell call and put options on foreign currency
futures contracts and on foreign currencies.
The Fund may engage in position hedging to protect
against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or
quoted (or an increase in value of a currency in which securities
the Fund intends to buy are denominated, when the Fund holds cash
or short-term investments). For position hedging purposes, the
Fund may purchase or sell foreign currency futures contracts,
foreign currency forward contracts, and options on foreign
currency futures contracts and on foreign currencies. In
connection with position hedging, the Fund may also purchase or
sell foreign currency on a spot basis.
The Fund's currency hedging transactions may call for
the delivery of one foreign currency in exchange for another
foreign currency and may at times not involve currencies in which
its portfolio securities are then denominated. The Adviser will
engage in such "cross hedging" activities when it believes that
such transactions provide significant hedging opportunities for
the Fund.
PORTFOLIO MANAGEMENT
The Adviser manages each Fund's portfolio by buying and
selling securities to help attain its investment objective. The
portfolio turnover rate for each Fund is included under
"Financial Highlights" in the Funds' Prospectus. A high
8
<PAGE>
portfolio turnover rate will involve greater costs to a Fund
(including brokerage commissions and other transaction costs) and
may also result in the realization of taxable capital gains,
including short-term capital gains taxable at ordinary income
rates. See "Dividends, Distributions and Taxes" and "Portfolio
Transactions" below.
______________________________________________________________
ADDITIONAL INVESTMENT TECHNIQUES OF THE FUNDS
______________________________________________________________
REPURCHASE AGREEMENTS
The repurchase agreements referred to in the Funds'
Prospectus are agreements by which a Fund purchases a security
and obtains a simultaneous commitment from the seller to
repurchase the security at an agreed upon price and date. The
resale price is in excess of the purchase price and reflects an
agreed upon market rate unrelated to the coupon rate on the
purchased security. The purchased security serves as collateral
for the obligation of the seller to repurchase the security. The
value of the purchased security is initially greater than or
equal to the amount of the repurchase obligation, and the seller
is required to furnish additional collateral on a daily basis in
order to maintain with the purchaser securities with a value
greater than or equal to the amount of the repurchase obligation.
Such transactions afford the Funds the opportunity to earn a
return on temporarily available cash. While at times the
underlying security may be a bill, certificate of indebtedness,
note, or bond issued by an agency, authority or instrumentality
of the U.S. Government, the obligation of the seller is not
guaranteed by the U.S. Government and there is a risk that the
seller may fail to repurchase the underlying security, whether
because of the seller's bankruptcy or otherwise. In such event,
the Funds would attempt to exercise their rights with respect to
the underlying security, including possible disposition in the
market. However, the Funds may incur various expenses in the
attempted enforcement and may be subject to various delays and
risks of loss, including (a) possible declines in the value of
the underlying security, (b) possible reduced levels of income
and lack of access to income and (c) possible inability to
enforce their rights.
NON-PUBLICLY TRADED SECURITIES
The Funds may invest in securities that are not publicly
traded, including securities sold pursuant to Rule 144A under the
Securities Act of 1933, as amended ("Rule 144A Securities"). The
sale of these securities is usually restricted under federal
securities laws, and market quotations may not be readily
9
<PAGE>
available. As a result, a Fund may not be able to sell these
securities (other than Rule 144A Securities) unless they are
registered under applicable federal and state securities laws, or
may have to sell such securities at less than fair market value.
Investment in these securities is restricted to 5% of a Fund's
total assets (excluding, to the extent permitted by applicable
law, Rule 144A Securities) and is also subject to the restriction
against investing more than 15% of total assets in "illiquid"
securities. To the extent permitted by applicable law, Rule 144A
Securities will not be treated as "illiquid" for purposes of the
foregoing restriction so long as such securities meet the
liquidity guidelines established by the Trust's Board of
Trustees. Pursuant to these guidelines, the Adviser will monitor
the liquidity of a Fund's investment in Rule 144A Securities.
FOREIGN SECURITIES
The Funds may invest without limit in securities of
foreign issuers which are not publicly traded in the United
States, although each of these Funds generally will not invest
more than 15% of its total assets in such securities. The
Strategic Balanced Fund may also purchase certificates of deposit
issued by foreign branches of domestic banks without regard to
the 15% limit. These certificates of deposit are not insured by
an agency or instrumentality of the U.S. Government. Investment
in foreign issuers or securities principally traded outside the
United States may involve certain special risks due to foreign
economic, political, diplomatic and legal developments, including
favorable or unfavorable changes in currency exchange rates,
exchange control regulations (including currency blockage),
expropriation or nationalization of assets, confiscatory
taxation, imposition of withholding taxes on dividend or interest
payments, and possible difficulty in obtaining and enforcing
judgments against foreign entities. Furthermore, issuers of
foreign securities are subject to different, often less
comprehensive, accounting, reporting and disclosure requirements
than domestic issuers. The securities of some foreign companies
and foreign securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S.
securities markets, and foreign securities markets may be subject
to less regulation than U.S. securities markets. The laws of
some foreign countries may limit the Funds' abilities to invest
in securities of certain issuers located in these countries.
Foreign brokerage commissions and other fees are also generally
higher than in the United States. There are also special tax
considerations which apply to securities of foreign issuers and
securities principally traded overseas. Foreign settlement
procedures and trade regulations may involve certain risks (such
as delay in payment or delivery of securities or in the abroad)
and expenses not present in the settlement of domestic
investments. The Fund may invest a portion of its assets in
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developing countries or in countries with new or developing
capital markets. The risks noted above are generally increased
with respect to these investments. These countries may have
relatively unstable governments, economies based on only a few
industries or securities markets that trade in limited volume.
Securities of issuers located in these countries tend to have
volatile prices and may offer significant potential for loss.
The value of foreign investments measured in U.S.
dollars will rise or fall because of decreases or increases,
respectively, in the value of the U.S. dollar in comparison to
the value of the currency in which the foreign investment is
denominated. The Fund may buy or sell foreign currencies,
options on foreign currencies, foreign currency futures contracts
(and related options) and deal in forward foreign currency
exchange contracts in connection with the purchase and sale of
foreign investments. See "Investment Objective and Policies of
the Strategic Balanced Fund--Foreign Currency Exchange
Transactions" above.
DESCRIPTIONS OF CERTAIN MONEY MARKET SECURITIES IN
WHICH THE FUNDS MAY INVEST
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND BANK
TIME DEPOSITS. Certificates of deposit are receipts issued by a
bank 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 another 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 acceptances can be as long as
270 days, most maturities are six months or less.
Bank time deposits are funds kept on deposit with a bank
for a stated period of time in an interest-bearing account. At
present, bank time deposits maturing in more than seven days are
not considered by the Adviser to be readily marketable.
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COMMERCIAL PAPER. Commercial paper consists of short-
term (usually from 1 to 270 days) unsecured promissory notes
issued in order to finance current operations.
VARIABLE NOTES. Variable amount master demand notes and
variable amount floating rate notes are obligations that permit
the investment of fluctuating amounts by a Fund at varying rates
of interest pursuant to direct arrangements between a Fund, as
lender, and the borrower. Master demand notes permit daily
fluctuations in the interest rate while the interest rate under
variable amount floating rate notes fluctuates on a weekly basis.
These notes permit daily changes in the amounts borrowed. The
Funds have the right to increase the amount under these notes at
any time up to the full amount provided by the note agreement, or
to decrease the amount, and the borrower may repay up to the full
amount of the note without penalty. Because these types of notes
are direct lending arrangements between the lender and the
borrower, it is not generally contemplated that such instruments
will be traded and there is no secondary market for these notes.
Master demand notes are redeemable (and, thus, immediately
repayable by the borrower) at face value, plus accrued interest,
at any time. Variable amount floating rate notes are subject to
next-day redemption 14 days after the initial investment therein.
With both types of notes, therefore, the Funds' right to redeem
depends on the ability of the borrower to pay principal and
interest on demand. In connection with both types of note
arrangements, the Funds consider earning power, cash flow and
other liquidity ratios of the issuer. These notes, as such, are
not typically rated by credit rating agencies. Unless they are
so rated, a Fund may invest in them only if at the time of an
investment the issuer has an outstanding issue of unsecured debt
rated Aa or better by Moody's or AA or better by S&P, Fitch, or
Duff & Phelps.
ASSET-BACKED SECURITIES
The Funds may invest in asset-backed securities
(unrelated to first mortgage loans) which represent fractional
interests in pools of retail installment loans, leases or
revolving credit receivables, both secured (such as Certificates
for Automobile Receivables or "CARS") and unsecured (such as
Credit Card Receivable Securities or "CARDS"). These assets are
generally held by a trust and payments of principal and interest
or interest only are passed through monthly or quarterly to
certificate holders and may be guaranteed up to certain amounts
by letters of credit issued by a financial institution affiliated
or unaffiliated with the trustee or originator of the trust.
Like mortgages underlying mortgage-backed securities,
underlying automobile sales contracts or credit card receivables
are subject to prepayment, which may reduce the overall return to
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certificate holders. Certificate holders may also experience
delays in payment if the full amounts due on underlying sales
contracts or receivables are not realized by the trust holding
the obligations because of unanticipated legal or administrative
costs of enforcing the contracts or because of depreciation or
damage to the collateral (usually automobiles) securing certain
contracts, or other factors. If consistent with their investment
objectives and policies, each of the Funds may invest in other
types of asset-backed securities that may be developed in the
future.
The staff of the Securities and Exchange Commission (the
"SEC") is of the view that certain asset-backed securities may
constitute investment companies under the Investment Company Act
of 1940 (the "1940 Act"). The Funds intend to conduct their
operations in a manner consistent with this view; therefore, the
Funds generally may not invest more than 10% of their total
assets in such securities without obtaining appropriate
regulatory relief.
LENDING OF SECURITIES
The Funds may seek to increase income by lending
portfolio securities. Under present regulatory policies,
including those of the Board of Governors of the Federal Reserve
System and the SEC, such loans may be made only to member firms
of the New York Stock Exchange (the "Exchange") and would be
required to be secured continuously by collateral in cash, cash
equivalents, or U.S. Treasury Bills maintained on a current basis
at an amount at least equal to the market value of the securities
loaned. A Fund would have the right to call a loan and obtain
the securities loaned at any time on five days' notice. During
the existence of a loan, a Fund would continue to receive the
equivalent of the interest or dividends paid by the issuer on the
securities loaned and would also receive compensation based on
investment of the collateral. A Fund would not, however, have
the right to vote any securities having voting rights during the
existence of the loan but would call the loan in anticipation of
an important vote to be taken among holders of the securities or
of the giving or withholding of their consent on a material
matter affecting the investment. As with other extensions of
credit there are risks of delay in recovery or even loss of
rights in the collateral should the borrower of the securities
fail financially. However, the loans would be made only to firms
deemed by the Adviser to be of good standing, and when, in the
judgment of the Adviser, the consideration that can be earned
currently from securities loans of this type justifies the
attendant risk. The value of the securities loaned will not
exceed 25% of the value of such Fund's total assets at the time
any such loan is made.
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FORWARD COMMITMENTS AND WHEN-ISSUED AND DELAYED
DELIVERY SECURITIES
Each of the Funds may enter into forward commitments for
the purchase of securities and may purchase securities on a
"when-issued" or "delayed delivery" basis. Agreements for such
purchases might be entered into, for example, when a Fund
anticipates a decline in interest rates and is able to obtain a
more advantageous yield by committing currently to purchase
securities to be issued later. When a Fund purchases securities
in this manner (i.e., on a forward commitment, "when-issued" or
"delayed delivery" basis), it does not pay for the securities
until they are received, and a Fund is required to create a
segregated account with the Trust's custodian and to maintain in
that account liquid assets in an amount equal to or greater than,
on a daily basis, the amount of the Fund's forward commitments
and "when-issued" or "delayed delivery" commitments.
A Fund will enter into forward commitments and make
commitments to purchase securities on a "when-issued" or "delayed
delivery" basis only with the intention of actually acquiring the
securities. However, a Fund may sell these securities before the
settlement date if, in the opinion of the Adviser, it is
advisable as a matter of investment strategy.
Although neither of the Funds intends to make such
purchases for speculative purposes and each Fund intends to
adhere to the provisions of SEC policies, purchases of securities
on such bases may involve more risk than other types of
purchases. For example, by committing to purchase securities in
the future, a Fund subjects itself to a risk of loss on such
commitments as well as on its portfolio securities. Also, a Fund
may have to sell assets which have been set aside in order to
meet redemptions. In addition, if a Fund determines it is
advisable as a matter of investment strategy to sell the forward
commitment or "when-issued" or "delayed delivery" securities
before delivery, that Fund may incur a gain or loss because of
market fluctuations since the time the commitment to purchase
such securities was made. Any such gain or loss would be treated
as a capital gain or loss and would be treated for tax purposes
as such. When the time comes to pay for the securities to be
purchased under a forward commitment or on a "when-issued" or
"delayed delivery" basis, a Fund will meet its obligations from
the then available cash flow or the sale of securities, or,
although it would not normally expect to do so, from the sale of
the forward commitment or "when-issued" or "delayed delivery"
securities themselves (which may have a value greater or less
than a Fund's payment obligation).
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OPTIONS
OPTIONS ON SECURITIES. The Funds may write call and put
options and may purchase call and put options on securities. Each
Fund intends to write only covered options. In addition to the
methods of "cover" described in the Prospectus, this means that
so long as a Fund is obligated as the writer of a call option, it
will own the underlying securities subject to the option or
securities convertible into such securities without additional
consideration (or for additional cash consideration held in a
segregated account by the custodian). In the case of call options
on U.S. Treasury Bills, a Fund might own U.S. Treasury Bills of a
different series from those underlying the call option, but with
a principal amount and value corresponding to the option contract
amount and a maturity date no later than that of the securities
deliverable under the call option. A Fund will be considered
"covered" with respect to a put option it writes, if, so long as
it is obligated as the writer of a put option, it deposits and
maintains with its custodian in a segregated account liquid
assets having a value equal to or greater than the exercise price
of the option.
Effecting a closing transaction in the case of a written
call option will permit a Fund to write another call option on
the underlying security with either a different exercise price or
expiration date or both, or in the case of a written put option
will permit a Fund to write another put option to the extent that
the exercise price thereof is secured by deposited cash or short-
term securities. Such transactions permit a Fund to generate
additional premium income, which will partially offset declines
in the value of portfolio securities or increases in the cost of
securities to be acquired. Also, effecting a closing transaction
will permit the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other investments
by a Fund, provided that another option on such security is not
written. If a Fund desires to sell a particular security from
its portfolio on which it has written a call option, it will
effect a closing transaction in connection with the option prior
to or concurrent with the sale of the security.
A Fund will realize a profit from a closing transaction
if the premium paid in connection with the closing of an option
written by the Fund is less than the premium received from
writing the option, or if the premium received in connection with
the closing of an option purchased by the Fund is more than the
premium paid for the original purchase. Conversely, a Fund will
suffer a loss if the premium paid or received in connection with
a closing transaction is more or less, respectively, than the
premium received or paid in establishing the option position.
Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying
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security, any loss resulting from the repurchase of a call option
previously written by a Fund is likely to be offset in whole or
in part by appreciation of the underlying security owned by the
Fund.
A Fund may purchase a security and then write a call
option against that security or may purchase a security and
concurrently write an option on it. The exercise price of the
call a Fund determines to write will depend upon the expected
price movement of the underlying security. The exercise price of
a call option may be below ("in-the-money"), equal to ("at-the-
money") or above ("out-of-the-money") the current value of the
underlying security at the time the option is written. In-the-
money call options may be used when it is expected that the price
of the underlying security will decline moderately during the
option period. Out-of-the-money call options may be written when
it is expected that the premiums received from writing the call
option plus the appreciation in the market price of the
underlying security up to the exercise price will be greater than
the appreciation in the price of the underlying security alone.
If the call options are exercised in such transactions, a Fund's
maximum gain will be the premium received by it for writing the
option, adjusted upwards or downwards by the difference between
the Fund's purchase price of the security and the exercise price.
If the options are not exercised and the price of the underlying
security declines, the amount of such decline will be offset in
part, or entirely, by the premium received.
The writing of covered put options is similar in terms
of risk/return characteristics to buy-and-write transactions. If
the market price of the underlying security rises or otherwise is
above the exercise price, the put option will expire worthless
and a Fund's gain will be limited to the premium received. If
the market price of the underlying security declines or otherwise
is below the exercise price, a Fund may elect to close the
position or retain the option until it is exercised, at which
time the Fund will be required to take delivery of the security
at the exercise price; the Fund's return will be the premium
received from the put option minus the amount by which the market
price of the security is below the exercise price, which could
result in a loss. Out-of-the-money put options may be written
when it is expected that the price of the underlying security
will decline moderately during the option period. In-the-money
put options may be used when it is expected that the premiums
received from writing the put option plus the appreciation in the
market price of the underlying security up to the exercise price
will be greater than the appreciation in the price of the
underlying security alone.
Each of the Funds may also write combinations of put and
call options on the same security, known as "straddles," with the
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same exercise and expiration date. By writing a straddle, a Fund
undertakes a simultaneous obligation to sell and purchase the
same security in the event that one of the options is exercised.
If the price of the security subsequently rises above the
exercise price, the call will likely be exercised and the Fund
will be required to sell the underlying security at a below
market price. This loss may be offset, however, in whole or
part, by the premiums received on the writing of the two options.
Conversely, if the price of the security declines by a sufficient
amount, the put will likely be exercised. The writing of
straddles will likely be effective, therefore, only where the
price of the security remains stable and neither the call nor the
put is exercised. In those instances where one of the options is
exercised, the loss on the purchase or sale of the underlying
security may exceed the amount of the premiums received.
By writing a call option, a Fund limits its opportunity
to profit from any increase in the market value of the underlying
security above the exercise price of the option. By writing a put
option, a Fund assumes the risk that it may be required to
purchase the underlying security for an exercise price above its
then current market value, resulting in a capital loss unless the
security subsequently appreciates in value. Where options are
written for hedging purposes, such transactions constitute only a
partial hedge against declines in the value of portfolio
securities or against increases in the value of securities to be
acquired, up to the amount of the premium.
Each of the Funds may purchase put options to hedge
against a decline in the value of portfolio securities. If such
decline occurs, the put options will permit the Fund to sell the
securities at the exercise price or to close out the options at a
profit. By using put options in this way, a Fund will reduce any
profit it might otherwise have realized on the underlying
security by the amount of the premium paid for the put option and
by transaction costs.
A Fund may purchase call options to hedge against an
increase in the price of securities that the Fund anticipates
purchasing in the future. If such increase occurs, the call
option will permit the Fund to purchase the securities at the
exercise price, or to close out the options at a profit. The
premium paid for the call option plus any transaction costs will
reduce the benefit, if any, realized by a Fund upon exercise of
the option, and, unless the price of the underlying security
rises sufficiently, the option may expire worthless to the Fund
and the Fund will suffer a loss on the transaction to the extent
of the premium paid.
OPTIONS ON SECURITIES INDEXES. Each of the Funds may
write (sell) covered call and put options on securities indexes
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and purchase call and put options on securities indexes. A call
option on a securities index is considered covered if, so long as
a Fund is obligated as the writer of the call option, the Fund
holds in its portfolio securities the price changes of which are
expected by the Adviser to replicate substantially the movement
of the index or indexes upon which the options written by the
Fund are based. A put option on a securities index written by a
Fund will be considered covered if, so long as it is obligated as
the writer of the put option, the Fund maintains with its
custodian in a segregated account liquid assets having a value
equal to or greater than the exercise price of the option.
A Fund may purchase put options on securities indexes to
hedge against a decline in the value of portfolio securities. By
purchasing a put option on a securities index, a Fund will seek
to offset a decline in the value of securities it owns through
appreciation of the put option. If the value of a Fund's
investments does not decline as anticipated, or if the value of
the option does not increase, the Fund's loss will be limited to
the premium paid for the option. The success of this strategy
will largely depend on the accuracy of the correlation between
the changes in value of the index and the changes in value of a
Fund's security holdings.
A Fund may purchase call options on securities indexes
to attempt to reduce the risk of missing a broad market advance,
or an advance in an industry or market segment, at a time when
the Fund holds uninvested cash or short-term debt securities
awaiting investment. When purchasing call options for this
purpose, a Fund will also bear the risk of losing all or a
portion of the premium paid if the value of the index does not
rise. The purchase of call options on stock indexes when a Fund
is substantially fully invested is a form of leverage, up to the
amount of the premium and related transaction costs, and involves
risks of loss and of increased volatility similar to those
involved in purchasing call options on securities the Fund owns.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
FUTURES CONTRACTS. The Funds may enter into interest
rate futures contracts, index futures contracts and foreign
currency futures contracts. (Unless otherwise specified,
interest rate futures contracts, index futures contracts and
foreign currency futures contracts are collectively referred to
as "Futures Contracts.") Such investment strategies will be used
as a hedge and not for speculation.
Purchases or sales of stock or bond index futures
contracts are used for hedging purposes to attempt to protect a
Fund's current or intended investments from broad fluctuations in
stock or bond prices. For example, a Fund may sell stock or bond
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index futures contracts in anticipation of or during a market
decline to attempt to offset the decrease in market value of the
Fund's portfolio securities that might otherwise result. If such
decline occurs, the loss in value of portfolio securities may be
offset, in whole or part, by gains on the futures position. When
a Fund is not fully invested in the securities market and
anticipates a significant market advance, it may purchase stock
or bond index futures contracts in order to gain rapid market
exposure that may, in whole or in part, offset increases in the
cost of securities that the Fund intends to purchase. As such
purchases are made, the corresponding positions in stock or bond
index futures contracts will be closed out.
Interest rates futures contracts are purchased or sold
for hedging purposes to attempt to protect against the effects of
interest rate changes on a Fund's current or intended investments
in fixed-income securities. For example, if a Fund owned long-
term bonds and interest rates were expected to increase, that
Fund might sell interest rate futures contracts. Such a sale
would have much the same effect as selling some of the long-term
bonds in that Fund's portfolio. However, since the futures
market is more liquid than the cash market, the use of interest
rate futures contracts as a hedging technique allows a Fund to
hedge its interest rate risk without having to sell its portfolio
securities. If interest rates were to increase, the value of the
debt securities in the portfolio would decline, but the value of
that Fund's interest rate futures contracts would be expected to
increase at approximately the same rate, thereby keeping the net
asset value of that Fund from declining as much as it otherwise
would have. On the other hand, if interest rates were expected
to decline, interest rate futures contracts could be purchased to
hedge in anticipation of subsequent purchases of long-term bonds
at higher prices. Because the fluctuations in the value of the
interest rate futures contracts should be similar to those of
long-term bonds, a Fund could protect itself against the effects
of the anticipated rise in the value of long-term bonds without
actually buying them until the necessary cash became available or
the market had stabilized. At that time, the interest rate
futures contracts could be liquidated and that Fund's cash
reserves could then be used to buy long-term bonds on the cash
market.
The Funds may purchase and sell foreign currency futures
contracts for hedging purposes in order to protect against
fluctuations in currency exchange rates. Such fluctuations could
reduce the dollar value of portfolio securities denominated in
foreign currencies, or increase the cost of foreign-denominated
securities to be acquired, even if the value of such securities
in the currencies in which they are denominated remains constant.
The Funds may sell futures contracts on a foreign currency, for
example, when they hold securities denominated in such currency
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and it anticipates a decline in the value of such currency
relative to the dollar. If such a decline were to occur, the
resulting adverse effect on the value of foreign-denominated
securities may be offset, in whole or in part, by gains on the
futures contracts. However, if the value of the foreign currency
increases relative to the dollar, the Fund's loss on the foreign
currency futures contract may or may not be offset by an increase
in the value of the securities because a decline in the price of
the security stated in terms of the foreign currency may be
greater than the increase in value as a result of the change in
exchange rates.
Conversely, the Funds could protect against a rise in
the dollar cost of foreign-denominated securities to be acquired
by purchasing futures contracts on the relevant currency, which
could offset, in whole or in part, the increased cost of such
securities resulting from a rise in the dollar value of the
underlying currencies. When a Fund purchases futures contracts
under such circumstances, however, and the price of securities to
be acquired instead declines as a result of appreciation of the
dollar, the Fund will sustain losses on its futures position
which could reduce or eliminate the benefits of the reduced cost
of portfolio securities to be acquired.
The Funds may also engage in currency "cross hedging"
when, in the opinion of the Adviser, the historical relationship
among foreign currencies suggests that a Fund may achieve
protection against fluctuations in currency exchange rates
similar to that described above at a reduced cost through the use
of a futures contract relating to a currency other than the U.S.
dollar or the currency in which the foreign security is
denominated. Such "cross hedging" is subject to the same risks
as those described above with respect to an unanticipated
increase or decline in the value of the subject currency relative
to the dollar.
OPTIONS ON FUTURES CONTRACTS. The writing of a call
option on a Futures Contract constitutes a partial hedge against
declining prices of the securities in the Fund's portfolio. If
the futures price at expiration of the option is below the
exercise price, a Fund will retain the full amount of the option
premium, which provides a partial hedge against any decline that
may have occurred in the Fund's portfolio holdings. The writing
of a put option on a Futures Contract constitutes a partial hedge
against increasing prices of the securities or other instruments
required to be delivered under the terms of the Futures Contract.
If the futures price at expiration of the put option is higher
than the exercise price, a Fund will retain the full amount of
the option premium, in the price of securities which the Fund
intends to purchase. If a put or call option a Fund has written
is exercised, the Fund will incur a loss which will be reduced by
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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 options on futures
positions, a Fund's losses from exercised options on futures may
to some extent be reduced or increased by changes in the value of
portfolio securities.
The Funds may purchase options on Futures Contracts for
hedging purposes instead of purchasing or selling the underlying
Futures Contracts. For example, where a decrease in the value of
portfolio securities is anticipated as a result of a projected
market-wide decline or changes in interest or exchange rates, a
Fund could, in lieu of selling Futures Contracts, purchase put
options thereon. In the event that such decrease were to occur,
it may be offset, in whole or part, by a profit on the option. If
the market decline were not to occur, the Fund will suffer a loss
equal to the price of the put. Where it is projected that the
value of securities to be acquired by a Fund will increase prior
to acquisition, due to a market advance or changes in interest or
exchange rates, a Fund could purchase call options on Futures
Contracts, rather than purchasing the underlying Futures
Contracts. If the market advances, the increased cost of
securities to be purchased may be offset by a profit on the call.
However, if the market declines, the Fund will suffer a loss
equal to the price of the call, but the securities which the Fund
intends to purchase may be less expensive.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Funds may enter into forward foreign currency
exchange contracts ("Forward Contracts") to attempt to minimize
the risk to the Fund from adverse changes in the relationship
between the U.S. dollar and foreign currencies. The Funds intend
to enter into Forward Contracts for hedging purposes similar to
those described above in connection with their transactions in
foreign currency futures contracts. In particular, a Forward
Contract to sell a currency may be entered into in lieu of the
sale of a foreign currency futures contract where a Fund seeks to
protect against an anticipated increase in the exchange rate for
a specific currency which could reduce the dollar value of
portfolio securities denominated in such currency. Conversely, a
Fund may enter into a Forward Contract to purchase a given
currency to protect against a projected increase in the dollar
value of securities denominated in such currency which the Fund
intends to acquire. A Fund also may enter into a Forward
Contract in order to assure itself of a predetermined exchange
rate in connection with a security denominated in a foreign
currency. The Funds may engage in currency "cross hedging" when,
in the opinion of the Adviser, the historical relationship among
foreign currencies suggests that a Fund may achieve the same
protection for a foreign security at a reduced cost through the
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use of a Forward Contract relating to a currency other than the
U.S. dollar or the foreign currency in which the security is
denominated.
If a hedging transaction in Forward Contracts is
successful, the decline in the value of portfolio securities or
the increase in the cost of securities to be acquired may be
offset, at least in part, by profits on the Forward Contract.
Nevertheless, by entering into such Forward Contracts, a Fund may
be required to forego all or a portion of the benefits which
otherwise could have been obtained from favorable movements in
exchange rates.
Each Fund has established procedures consistent with SEC
policies concerning purchases of foreign currency through Forward
Contracts. Since those policies currently recommend that an
amount of a Fund's assets equal to the amount of the purchase be
held aside or segregated to be used to pay for the commitment, a
Fund will always have liquid assets available sufficient to cover
any commitments under these contracts or to limit any potential
risk.
OPTIONS ON FOREIGN CURRENCIES
The Funds may purchase and write options on foreign
currencies for hedging purposes. 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 Funds may purchase put options on the
foreign currency. If the value of the currency does decline, the
Funds will have the right to sell such currency for a fixed
amount in dollars and will thereby offset, in whole or in part,
the adverse effect on its portfolio which otherwise would have
resulted.
Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is
projected, thereby increasing the cost of such securities, the
Funds 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 a Fund derived 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, a 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.
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The Funds may write options on foreign currencies for
the same types of hedging purposes or to increase return. For
example, where a Fund anticipates a decline in the dollar value
of foreign-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, a 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
will 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, a 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.
RISK FACTORS IN OPTIONS, FUTURES AND FORWARD TRANSACTIONS
RISK OF IMPERFECT CORRELATION OF HEDGING INSTRUMENTS
WITH A FUND'S PORTFOLIO. The Funds' abilities effectively to
hedge all or a portion of their portfolios through transactions
in options, Futures Contracts, options on Futures Contracts,
Forward Contracts and options on foreign currencies depend on the
degree to which price movements in the underlying index or
instrument correlate with price movements in the securities that
are the subject of the hedge. In the case of futures and options
based on an index, the portfolio will not duplicate the
components of the index, and in the case of futures and options
on are being hedged may not be the same as those underlying such
contract. As a result, the correlation, to the extent it exists,
probably will not be exact.
It should be noted that stock index futures contracts or
options based upon a narrower index of securities, such as those
of a particular industry group, may present greater risk than
options or futures based on a broad market index. This is due to
the fact that a narrower index is more susceptible to rapid and
extreme fluctuations as a result of changes in the value of a
small number of securities.
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<PAGE>
The trading of futures and options entails the
additional risk of imperfect correlation between movements in the
futures or option price and the price of the underlying index or
instrument. The anticipated spread between the prices may be
distorted due to the differences in the nature of the markets,
such as differences in margin requirements, the liquidity of such
markets and the participation of speculators in the futures
market. In this regard, trading by speculators in futures and
options has in the past occasionally resulted in market
distortions, which may be difficult or impossible to predict,
particularly near the expiration of such contracts.
The trading of options on Futures Contracts 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.
Further, with respect to options on securities, options
on foreign currencies, options on stock indexes and options on
Futures Contracts, the Funds are subject to the risk of market
movements between the time that the option is exercised and the
time of performance thereunder. This could increase the extent
of any loss suffered by a Fund in connection with such
transactions.
If a Fund purchases futures or options in order to hedge
against a possible increase in the price of securities before the
Fund is able to invest its cash in such securities, the Fund
faces the risk that the market may instead decline. If the Fund
does not then invest in such securities because of concern as to
possible further market declines or for other reasons, the Fund
may realize a loss on the futures or option contract that is not
offset by a reduction in the price of securities purchased.
In writing a call option on a security, foreign
currency, index or Futures Contract, a Fund also incurs the risk
that changes in the value of the assets used to cover the
position will not correlate closely with changes in the value of
the option or underlying index or instrument. For example, when
a Fund writes a call option on a stock index, the securities used
as "cover" may not match the composition of the index, and the
Fund may not be fully covered. As a result, the Fund could
suffer a loss on the call which is not entirely offset or not
offset at all by an increase in the value of the Fund's portfolio
securities.
The writing of options on securities, options on stock
indexes or options on Futures Contracts constitutes only a
partial hedge against fluctuations in the value of a Fund's
portfolio. When a Fund writes an option, it will receive premium
income in return for the holder's purchase of the right to
acquire or dispose of the underlying security or future or, in
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<PAGE>
the case of index options, cash. In the event that the price of
such obligation does not rise sufficiently above the exercise
price of the option, in the case of a call, or fall below the
exercise price, in the case of a put, the option will not be
exercised and the Fund will retain the amount of the premium,
which will constitute a partial hedge against any decline that
may have occurred in the Fund's portfolio holdings, or against
the increase in the cost of the instruments to be acquired.
When the price of the underlying obligation moves
sufficiently in favor of the holder to warrant exercise of the
option, however, and the option is exercised, the Fund will incur
a loss which may only be partially offset by the amount of the
premium the Fund received. Moreover, by writing an option, a
Fund may be required to forego the benefits which might otherwise
have been obtained from an increase in the value of portfolio
securities or a decline in the value of securities to be
acquired.
In the event of the occurrence of any of the foregoing
adverse market events, a Fund's overall return may be lower than
if it had not engaged in the transactions described above.
With respect to the writing of straddles on securities,
a Fund incurs the risk that the price of the underlying security
will not remain stable, that one of the options written will be
exercised and that the resulting loss will not be offset by the
amount of the premiums received. Such transactions, therefore,
while creating an opportunity for increased return by providing a
Fund with two simultaneous premiums on the same security,
nonetheless involve additional risk, because the Fund may have an
option exercised against it regardless of whether the price of
the security increases or decreases.
POTENTIAL LACK OF A LIQUID SECONDARY MARKET. Prior to
exercise or expiration, a futures or option position can be
terminated only by entering into a closing purchase or sale
transaction. This requires a secondary market for such
instruments on the exchange on which the initial transaction was
entered into. While the Funds will enter into options or futures
positions only if there appears to be a liquid secondary market
therefor, there can be no assurance that such a market will exist
for any particular contracts at any specific time. In that
event, it may not be possible to close out a position held by a
Fund, and the Fund could be required to purchase or sell the
instrument underlying an option, make or receive a cash
settlement or meet ongoing variation margin requirements. Under
such circumstances, if the Fund has insufficient cash available
to meet margin requirements, it may be necessary to liquidate
portfolio securities at a time when, in the opinion of the
Adviser, it is disadvantageous to do so. The inability to close
25
<PAGE>
out options and futures positions, therefore, could have an
adverse impact on the Funds' ability to effectively hedge their
portfolios, and could result in trading losses.
The liquidity of a secondary market in a Futures
Contract or option thereon may be adversely affected by "daily
price fluctuation limits," established by exchanges, which limit
the amount of fluctuation in the price of a contract during a
single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the
limit, thus preventing the liquidation of open futures or option
positions and requiring traders to make additional margin
deposits. Prices of some Futures Contracts have in the past
moved to the daily limit on a number of consecutive trading days.
The trading of Futures Contracts and options (including
options on Futures Contracts) is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm
or clearing house or other disruptions of normal trading
activity, which could at times make it difficult or impossible to
liquidate existing positions or to recover excess variation
margin payments.
The staff of the SEC has taken the position that over-
the-counter options and the assets used as cover for over-the-
counter options are illiquid securities, unless certain
arrangements are made with the other party to the option
contract, permitting the prompt liquidation of the option
position. The Funds will enter into those special arrangements
only with primary U.S. Government securities dealers recognized
by the Federal Reserve Bank of New York ("primary dealers").
Under these special arrangements, the Trust will enter into
contracts with primary dealers which provide that each Fund has
the absolute right to repurchase an option it writes at any time
at a repurchase price which represents fair market value, as
determined in good faith through negotiation between the parties,
but which in no event will exceed a price determined pursuant to
a formula contained in the contract. Although the specific
details of the formula may vary between contracts with different
primary dealers, the formula will generally be based on a
multiple of the premium received by the Fund for writing the
option, plus the amount, if any, by which the option is "in-the-
money." The formula will also include a factor to account for
the difference between the price of the security and the strike
price of the option if the option is written "out-of-the-money."
Under such circumstances, the Fund only needs to treat as
illiquid that amount of the "cover" assets equal to the amount by
which (i) the formula price exceeds (ii) any amount by which the
market value of the security subject to the option exceeds the
exercise price of the option (the amount by which the option is
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<PAGE>
"in-the-money"). Although each agreement will provide that the
Fund's repurchase price shall be determined in good faith (and
that it shall not exceed the maximum determined pursuant to the
formula), the formula price will not necessarily reflect the
market value of the option written; therefore, the Fund might pay
more to repurchase the option contract than the Fund would pay to
close out a similar exchange-traded option.
MARGIN. Because of low initial margin deposits made
upon the opening of a futures position and the writing of an
option, such transactions involve substantial leverage. As a
result, relatively small movements in the price of the contract
can result in substantial unrealized gains or losses. However,
to the extent the Funds purchase or sell Futures Contracts and
options on Futures Contracts and purchase and write options on
securities and securities indexes for hedging purposes, any
losses incurred in connection therewith should, if the hedging
strategy is successful, be offset, in whole or in part, by
increases in the value of securities held by the Fund or
decreases in the prices of securities the Fund intends to
acquire. When a Fund writes options on securities or options on
stock indexes for other than hedging purposes, the margin
requirements associated with such transactions could expose the
Fund to greater risk.
TRADING AND POSITION LIMITS. The exchanges on which
futures and options are traded may impose limitations governing
the maximum number of positions on the same side of the market
and involving the same underlying instrument which may be held by
a single investor, whether acting alone or in concert with others
(regardless of whether such contracts are held on the same or
different exchanges or held or written in one or more accounts or
through one or more brokers). In addition, the Commodity Futures
Trading Commission (the "CFTC") and the various contract markets
have established limits referred to as "speculative position
limits" on the maximum net long or net short position which any
person may hold or control in a particular futures or option
contract. An exchange may order the liquidation of positions
found to be in violation of these limits and may impose other
sanctions or restrictions. The Adviser does not believe that
these trading and position limits will have any adverse impact on
the strategies for hedging the portfolios of the Funds.
RISKS OF OPTIONS ON FUTURES CONTRACTS. The amount of
risk a Fund assumes when it purchases an option on a Futures
Contract is the premium paid for the option, plus related
transaction costs. In order to profit from an option purchased,
however, it may be necessary to exercise the option and to
liquidate the underlying Futures Contract, subject to the risks
of the availability of a liquid offset market described herein.
The writer of an option on a Futures Contract is subject to the
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risks of commodity futures trading, including the requirement of
initial and variation margin payments, as well as the additional
risk that movements in the price of the option may not correlate
with movements in the price of the underlying security, index,
currency or Futures Contract.
RISKS OF FORWARD CONTRACTS, FOREIGN CURRENCY FUTURES
CONTRACTS AND OPTIONS THEREON, OPTIONS ON FOREIGN CURRENCIES AND
OVER-THE-COUNTER OPTIONS ON SECURITIES. Transactions in Forward
Contracts, as well as futures and options on foreign currencies,
are subject to all of the correlation, liquidity and other risks
outlined above. In addition, however, such transactions are
subject to the risk of governmental actions affecting trading in
or the prices of currencies underlying such contracts, which
could restrict or eliminate trading and could have a substantial
adverse effect on the value of positions held by a Fund. In
addition, the value of such positions could be adversely affected
by a number of other complex political and economic factors
applicable to the countries issuing the underlying currencies.
Further, unlike trading in most other types of
instruments, there is no systematic reporting of last sale
information with respect to the foreign currencies underlying
contracts thereon. As a result, the available information on
which trading decisions will be based may not be as complete as
the comparable data on which a Fund makes investment and trading
decisions in connection with other transactions. Moreover,
because the foreign currency market is a global, twenty-four hour
market, events could occur on that market which will not be
reflected in the forward, futures or options markets until the
following day, thereby preventing the Funds from responding to
such events in a timely manner.
Settlements of exercises of over-the-counter Forward
Contracts or foreign currency options generally must occur within
the country issuing the underlying currency, which in turn
requires traders to accept or make delivery of such currencies in
conformity with any U.S. or foreign restrictions and regulations
regarding the maintenance of foreign banking relationships and
fees, taxes or other charges.
Unlike transactions entered into by the Funds in Futures
Contracts and exchange-traded options, options on foreign
currencies, Forward Contracts and over-the-counter options on
securities and securities indexes are not traded on contract
markets regulated by the CFTC or (with the exception of certain
foreign currency options) the SEC. Such instruments are instead
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
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regulation. 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 could lose amounts
substantially in excess of the initial investment, due to the
margin and collateral requirements associated with such
positions.
In addition, over-the-counter transactions can be
entered into only with a financial institution willing to take
the opposite side, as principal, of a Fund's position unless the
institution acts as broker and is able to find another
counterparty willing to enter into the transaction with the Fund.
Where no such counterparty is available, it will not be possible
to enter into a desired transaction. There also may be no liquid
secondary market in the trading of over-the-counter contracts,
and a Fund could be required to retain options purchased or
written, or Forward Contracts entered into, until exercise,
expiration or maturity. This in turn could limit the Fund's
ability to profit from open positions or to reduce losses
experienced, and could result in greater losses.
Further, over-the-counter transactions are not subject
to the guarantee of an exchange clearing house, and a Fund will
therefore be subject to the risk of default by, or the bankruptcy
of, the financial institution serving as its counterparty. A
Fund will enter into an over-the-counter transaction only with
parties whose creditworthiness has been reviewed and found
satisfactory by the Adviser.
Transactions in over-the-counter options on foreign
currencies are subject to a number of conditions regarding the
commercial purpose of the purchaser of such option. The Funds
are not able to determine at this time whether or to what extent
additional restrictions on the trading of over-the-counter
options on foreign currencies may be imposed at some point in the
future, or the effect that any such restrictions may have on the
hedging strategies to be implemented by them.
As discussed below, CFTC regulations require that a Fund
not enter into transactions in commodity futures contracts or
commodity option contracts for other than "bona fide" hedging
purposes, unless the aggregate initial margin and premiums do not
exceed 5% of the fair market value of the Fund's total assets.
Premiums paid to purchase over-the-counter options on foreign
currencies, and margins paid in connection with the writing of
such options, are required to be included in determining
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<PAGE>
compliance with this requirement, which could, depending upon the
existing positions in Futures Contracts and options on Futures
Contracts already entered into by a Fund, limit the Fund's
ability to purchase or write options on foreign currencies.
Conversely, the existence of open positions in options on foreign
currencies could limit the ability of the Fund to enter into
desired transactions in other options or futures contracts.
While Forward Contracts are not presently subject to
regulation by the CFTC, the CFTC may in the future assert or be
granted authority to regulate such instruments. In such event,
the Fund's ability to utilize Forward Contracts in the manner set
forth above could be restricted.
Options on foreign currencies traded on national
securities exchanges are within the jurisdiction of the SEC, as
are other securities traded on such exchanges. As a result, many
of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on
a national securities exchange are cleared and guaranteed by the
Options Clearing Corporation ("OCC"), thereby reducing the risk
of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more
readily available than in the over-the-counter market,
potentially permitting a 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, the
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, if
the OCC 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, the OCC may 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.
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RESTRICTIONS ON THE USE OF FUTURES AND OPTION CONTRACTS
Under applicable regulations, when a Fund enters into
transactions in Futures Contracts and options on Futures
Contracts other than for bona fide hedging purposes, that Fund is
required to maintain with its custodian in a segregated account
cash, short-term U.S. Government securities or high quality U.S.
dollar-denominated money market instruments, which, together with
any initial margin deposits, are equal to the aggregate market
value of the Futures Contracts and options on Futures Contracts
that it purchases. In addition, a Fund may not purchase or sell
such instruments for other than bona fide hedging purposes if,
immediately thereafter, the sum of the amount of initial margin
deposits on such futures and options positions and premiums paid
for options purchased would exceed 5% of the market value of the
Fund's total assets.
Each Fund has adopted the additional restriction that it
will not enter into a Futures Contract if, immediately
thereafter, the value of securities and other obligations
underlying all such Futures Contracts would exceed 50% of the
value of such Fund's total assets. Moreover, a Fund will not
purchase put and call options if as a result more than 10% of its
total assets would be invested in such options.
ECONOMIC EFFECTS AND LIMITATIONS
Income earned by a Fund from its hedging activities will
be treated as capital gain and, if not offset by net realized
capital losses incurred by a Fund, will be distributed to
shareholders in taxable distributions. Although gain from such
transactions may hedge against a decline in the value of a Fund's
portfolio securities, that gain, to the extent not offset by
losses, will be distributed in light of certain tax
considerations and will constitute a distribution of that portion
of the value preserved against decline.
Neither Fund will "over-hedge," that is, neither Fund
will maintain open short positions in futures or options
contracts if, in the aggregate, the market value of its open
positions exceeds the current market value of its securities
portfolio plus or minus the unrealized gain or loss on such open
positions, adjusted for the historical volatility relationship
between the portfolio and futures and options contracts.
Each Fund's ability to employ the options and futures
strategies described above will depend in part on the
availability of liquid markets in such instruments. Markets in
financial futures and related options are still developing. It
is impossible to predict the amount of trading interest that may
hereafter exist in various types of options or futures. Therefore
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no assurance can be given that a Fund will be able to use these
instruments effectively for the purposes set forth above.
The Funds' ability to use options, futures and forward
contracts may be limited by tax considerations. In particular,
tax rules might accelerate or adversely affect the character of
the income earned on such contracts. In addition, differences
between each Fund's book income (upon the basis of which
distributions are generally made) and taxable income arising from
its hedging activities may result in return of capital
distributions, and in some circumstances, distributions in excess
of the Fund's book income may be required to be made in order to
meet tax requirements.
FUTURE DEVELOPMENTS
The foregoing discussion relates to each Fund's proposed
use of Futures Contracts, Forward Contracts, options and options
on Futures Contracts currently available. As noted above, the
relevant markets and related regulations are evolving. In the
event of future regulatory or market developments, each Fund may
also use additional types of futures contracts or options and
other investment techniques for the purposes set forth above.
________________________________________________________________
INVESTMENT RESTRICTIONS
________________________________________________________________
Except as described below and except as otherwise
specifically stated in the Funds' Prospectus or this Statement of
Additional Information, the investment policies of each Fund set
forth in the Prospectus and in this Statement of Additional
Information are not fundamental and may be changed without
shareholder approval.
The following is a description of the fundamental
restrictions on the investments that may be made by the Funds,
which restrictions may not be changed without the approval of a
majority of the outstanding voting securities of the relevant
Fund.
Neither of the Funds will:
(1) Borrow money in excess of 10% of the value (taken
at the lower of cost or current value) of its total
assets (not including the amount borrowed) at the time
the borrowing is made, and then only from banks as a
temporary measure to facilitate the meeting of
redemption requests (not for leverage) which might
otherwise require the untimely disposition of portfolio
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investments or pending settlement of securities
transactions or for extraordinary or emergency purposes.
(2) Underwrite securities issued by other persons
except to the extent that, in connection with the
disposition of its portfolio investments, it may be
deemed to be an underwriter under certain federal
securities laws.
(3) Purchase or retain real estate or interests in real
estate, although each Fund may purchase securities which
are secured by real estate and securities of companies
which invest in or deal in real estate.
(4) Make loans to other persons except by the purchase
of obligations in which such Fund may invest consistent
with its investment policies and by entering into
repurchase agreements, or by lending its portfolio
securities representing not more than 25% of its total
assets.
(5) Issue any senior security (as that term is defined
in the 1940 Act), if such issuance is specifically
prohibited by the 1940 Act or the rules and regulations
promulgated thereunder. For the purposes of this
restriction, collateral arrangements with respect to
options, Futures Contracts and options on Futures
Contracts and collateral arrangements with respect to
initial and variation margins are not deemed to be the
issuance of a senior security. (There is no intention
to issue senior securities except as set forth in
paragraph 1 above.)
It is also a fundamental policy of each Fund that it may
purchase and sell Futures Contracts and related options.
In addition, the following is a description of operating
policies which the Trust has adopted on behalf of the Funds but
which are not fundamental and are subject to change without
shareholder approval.
Neither of the Funds will:
(a) Pledge, mortgage, hypothecate or otherwise
encumber an amount of its assets taken at
current value in excess of 15% of its total
assets (taken at the lower of cost or current
value) and then only to secure borrowings
permitted by restriction (1) above. For the
purpose of this restriction, the deposit of
securities and other collateral arrangements
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with respect to reverse repurchase agreements,
options, Futures Contracts, Forward Contracts
and options on foreign currencies, and
payments of initial and variation margin in
connection therewith are not considered
pledges or other encumbrances.
(b) Purchase securities on margin, except that
each Fund may obtain such short-term credits
as may be necessary for the clearance of
purchases and sales of securities, and except
that each Fund may make margin payments in
connection with Futures Contracts, options on
Futures Contracts, options, Forward Contracts
or options on foreign currencies.
(c) Make short sales of securities or maintain a
short position for the account of such Fund
unless at all times when a short position is
open it owns an equal amount of such
securities or unless by virtue of its
ownership of other securities it has at all
such times a right to obtain securities
(without payment of further consideration)
equivalent in kind and amount to the
securities sold, provided that if such right
is conditional the sale is made upon
equivalent conditions and further provided
that no Fund will make such short sales with
respect to securities having a value in excess
of 5% of its total assets.
(d) Write, purchase or sell any put or call option
or any combination thereof, provided that this
shall not prevent a Fund from writing,
purchasing and selling puts, calls or
combinations thereof with respect to
securities, indexes of securities or foreign
currencies, and with respect to Futures
Contracts.
(e) Purchase voting securities of any issuer if
such purchase, at the time thereof, would
cause more than 10% of the outstanding voting
securities of such issuer to be held by such
Fund; or purchase securities of any issuer if
such purchase at the time thereof would cause
more than 10% of any class of securities of
such issuer to be held by such Fund. For this
purpose all indebtedness of an issuer shall be
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deemed a single class and all preferred stock
of an issuer shall be deemed a single class.
(f) Invest in securities of any issuer if, to the
knowledge of the Trust, officers and Trustees
of the Trust and officers and directors of the
Adviser who beneficially own more than 0.5% of
the shares of securities of that issuer
together own more than 5%.
(g) Purchase securities issued by any other
registered open-end investment company or
investment trust except (A) by purchase in the
open market where no commission or profit to a
sponsor or dealer results from such purchase
other than the customary broker's commission,
or (B) where no commission or profit to a
sponsor or dealer results from such purchase,
or (C) when such purchase, though not made in
the open market, is part of a plan of merger
or consolidation; provided, however, that a
Fund will not purchase such securities if such
purchase at the time thereof would cause more
than 5% of its total assets (taken at market
value) to be invested in the securities of
such issuers; and, provided further, that a
Fund's purchases of securities issued by such
open-end investment company will be consistent
with the provisions of the 1940 Act.
(h) Make investments for the purpose of exercising
control or management.
(i) Participate on a joint or joint and several
basis in any trading account in securities.
(j) Invest in interests in oil, gas, or other
mineral exploration or development programs,
although each Fund may purchase securities
which are secured by such interests and may
purchase securities of issuers which invest in
or deal in oil, gas or other mineral
exploration or development programs.
(k) Purchase warrants, if, as a result, a Fund
would have more than 5% of its total assets
invested in warrants or more than 2% of its
total assets invested in warrants which are
not listed on the New York Stock Exchange or
the American Stock Exchange.
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(l) Purchase commodities or commodity contracts,
provided that this shall not prevent a Fund
from entering into interest rate futures
contracts, securities index futures contracts,
foreign currency futures contracts, forward
foreign currency exchange contracts and
options (including options on any of the
foregoing) to the extent such action is
consistent with such Fund's investment
objective and policies.
(m) Purchase additional securities in excess of 5%
of the value of its total assets until all of
a Fund's outstanding borrowings (as permitted
and described in Restriction No. 1 above) have
been repaid.
Whenever any investment restriction states a maximum
percentage of a 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 such Fund's acquisition of such securities or other
assets. Accordingly, any later increase or decrease beyond the
specified limitation resulting from a change in value or net
asset value will not be considered a violation of such percentage
limitation.
______________________________________________________________
MANAGEMENT OF THE FUNDS
______________________________________________________________
Adviser
Alliance Capital Management L.P., a Delaware limited
partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Investment Advisory
Contract") to provide investment advice and, in general, to
conduct the management and investment program of the Trust under
the supervision of the Trust's Board of Trustees (see "Management
of the Funds" in the Prospectus).
The Adviser is a leading international investment
manager supervising client accounts with assets as of June 30,
1998, totaling more than $262 billion (of which more than $107
billion represented the assets of investment companies). The
Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies,
foundations and endowment funds. The 58 registered investment
36
<PAGE>
companies managed by the Adviser, comprising 123 separate
investment portfolios, currently have more than 3.5 million
shareholders. As of September 30, 1998, the Adviser and its
subsidiaries employed approximately 2,000 employees who operate
out of domestic offices and the offices of subsidiaries in
Bahrain, Bangalore, Cairo, Chennai, Hong Kong, Istanbul,
Johannesburg, London, Luxembourg, Madrid, Moscow, Mumbai, New
Delhi, Paris, Pune, Sao Paolo, Seoul, Singapore, Sydney, Tokyo,
Toronto, Vienna and Warsaw. As of June 30, 1998, the Adviser was
retained as an investment manager for employee benefit plan
assets of 32 of the FORTUNE 100 companies.
Alliance Capital Management Corporation ("ACMC"), the
sole general partner of, and the owner of a 1% general
partnership interest in the Adviser, is an indirect wholly-owned
subsidiary of the Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies
in the United States and a wholly-owned subsidiary of the
Equitable Companies Incorporated ("ECI"). ECI is a holding
company controlled by AXA-UAP ("AXA") a French insurance holding
company which at March 1, 1998, beneficially owned approximately
59% of the outstanding voting shares of ECI. As of June 30,
1998, ACMC, Inc. and Equitable Capital Management Corporation,
each a wholly-owned direct or indirect subsidiary of Equitable,
together with Equitable, owned in the aggregate approximately 57%
of the issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser.
AXA is a holding company for an international group of
insurance and related financial services companies. AXA's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities
principally in Western Europe, North America and the Asia/Pacific
area. AXA is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA, as of March 31,
1998, more than 30% of the voting power of AXA was controlled
directly and indirectly by FINAXA, a French holding company. As
of March 31, 1998 approximately 74% of the voting power of FINAXA
was controlled directly and indirectly by four French mutual
insurance companies (the "Mutuelles AXA"), one of which, AXA
Assurances I.A.R.D. Mutuelle, itself controlled directly and
indirectly more than 42% of the voting power of FINAXA. Acting
as a group, the Mutuelles AXA control AXA and FINAXA.
37
<PAGE>
INVESTMENT ADVISORY CONTRACT AND EXPENSES
The Adviser serves as investment manager and adviser of
each of the Funds, continuously furnishes an investment program
for each Fund and manages, supervises and conducts the affairs of
each Fund. The Investment Advisory Contract also provides that
the Adviser will furnish or pay the expenses of the Trust for
office space, facilities and equipment, services of executive and
other personnel of the Trust and certain administrative services.
The Adviser is compensated for its services to the Strategic
Balanced Fund at an annual rate of .75% of the Fund's average
daily net assets. The Adviser is compensated for its services to
the Growth Fund at an annual rate of 0.75% of the first $3
billion of the Fund's average daily net assets, 0.70% of the next
$1 billion of such assets, 0.65% of the next $1 billion of such
assets, and 0.60% of such average net assets in excess of $5
billion.
The Adviser is, under the Investment Advisory Contract,
responsible for certain expenses incurred by the Funds,
including, for example, office facilities and certain
administrative services, and any expenses incurred in promoting
the sale of Fund shares (other than the portion of the
promotional expenses borne by the Fund in accordance with an
effective plan pursuant to Rule 12b-1 under the 1940 Act, and the
costs of printing Fund prospectuses and other reports to
shareholders and fees related to registration with the Securities
and Exchange Commission and with state regulatory authorities).
For the fiscal year ended October 31, 1997, the Adviser
earned $31,680,829 in management fees from the Growth Fund (none
of which was waived). For the fiscal year ended October 31,
1996, the Adviser earned $20,263,705 in management fees from the
Growth Fund (none of which was waived). For the fiscal year
ended October 31, 1995, the Adviser earned $11,100,437 in
management fees from the Growth Fund (none of which was waived).
For the fiscal year ended July 31, 1998, the Adviser
earned $385,597 in management fees from the Strategic Balanced
Fund (of which $281,633 was waived). For the fiscal year ended
July 31, 1997, the Adviser earned $380,244 in management fees
from the Strategic Balanced Fund (of which $334,820 was waived).
For the fiscal year ended July 31, 1996, the Adviser earned
$396,099 in management fees from the Strategic Balanced Fund (of
which $194,243 was waived).
The Investment Advisory Contract provides that it will
continue in effect for two years from its date of execution and
thereafter from year to year if its continuance is approved at
least annually (i) by the Board of Trustees or by vote of a
38
<PAGE>
majority of the outstanding voting securities of the relevant
Fund, and (ii) by vote of a majority of the Trustees who are not
interested persons of the Adviser cast in person at a meeting
called for the purpose of voting on such approval. Any amendment
to the Investment Advisory Contract must be approved by vote of a
majority of the outstanding voting securities of the relevant
Fund and by vote of a majority of the Trustees who are not such
interested persons, cast in person at a meeting called for the
purpose of voting on such approval. The Investment Advisory
Contract may be terminated without penalty by the Adviser, by
vote of the Trustees or by vote of a majority of the outstanding
voting securities of the relevant Fund upon sixty days' written
notice, and it terminates automatically in the event of its
assignment. The Adviser controls the word "Alliance" in the
names of the Trust and each Fund, and if Alliance should cease to
be the investment manager of any Fund, the Trust and such Fund
may be required to change their names and delete the word
"Alliance" from their names.
The Investment Advisory Contract provides that the
Adviser shall not be subject to any liability in connection with
the performance of its services thereunder in the absence of
willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
TRUSTEES AND OFFICERS
The Trustees and principal officers of the Trust, their
ages as of the date of this Statement of Additional Information
and their primary occupations during the past five years are set
forth below.
TRUSTEES
John D. Carifa,* 53, Chairman of the Board, is the
President, Chief Operating Officer, and a Director of ACMC, with
which he has been associated since prior to 1993. His address is
1345 Avenue of the Americas, New York, New York 10105.
Ruth Block, 67, was formerly an Executive Vice President
and the Chief Insurance Officer of Equitable. She is a Director
of Ecolab Incorporated (specialty chemicals) and Amoco
Corporation (oil and gas). Her address is P.O. Box 4623,
Stamford, Connecticut 06903.
Richard W. Couper, 75, is President Emeritus and Trustee
of The Woodrow Wilson Fellowship Foundation and President
____________________
* An "interested person" of the Trust, as defined by the
1940 Act.
39
<PAGE>
Emeritus of the New York Public Library. His address is Box 345,
Clinton, New York, 13323-0345.
William H. Foulk, Jr., 66, is an Investment Adviser and
an independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1993. His address is
Room 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
Brenton W. Harries, 70, is a Director of Enhance
Reinsurance Co. and was formerly the President and Chief
Executive of Global Electronic Markets Company. His address is
14 Point Road, Wilson Point, South Norwalk, Connecticut 06854.
Donald J. Robinson, 64, is Senior Counsel to the law
firm of Orrick, Herrington and Sutcliffe and was formerly a
senior partner and a member of the Executive Committee of that
firm. He was also a Trustee of the Museum of the City of New
York from 1977 to 1995. His address is 98 Hell's Peak Road,
Weston, Vermont 05161.
OFFICERS
John D. Carifa, President, see biography above.
Edmund P. Bergan, Jr., 48, Clerk, is a Senior Vice
President and General Counsel of Alliance Fund Distributors, Inc.
("AFD") and Alliance Fund Services, Inc. ("AFS"), with which he
has been associated since prior to 1993. His address is 1345
Avenue of the Americas, New York, New York 10105.
Mark D. Gersten, 48, Treasurer and Chief Financial
Officer, is a Senior Vice President of AFS, with which he has
been associated since prior to 1993. His address is 500 Plaza
Drive, Secaucus, New Jersey 07094.
Vincent S. Noto, 34, Controller and Chief Accounting
Officer, is a Vice President of AFS, with which he has been
associated since prior to 1993. His address is 500 Plaza Drive,
Secaucus, New Jersey 07094.
Bruce W. Calvert, 52, Vice President, is the Vice
Chairman and Chief Investment Officer of ACMC, with which he has
been associated since prior to 1993. His address is 1345 Avenue
of the Americas, New York 10105.
Kathleen A. Corbet, 39, Vice President, is an Executive
Vice President of ACMC, with which she has been associated since
July 1993. Her address is 1345 Avenue of the Americas, New York,
New York 10105.
40
<PAGE>
Wayne D. Lyski, 57, Vice President, is an Executive Vice
President of ACMC, with which he has been associated since prior
to 1993. His address is 1345 Avenue of the Americas, New York,
New York 10105.
Nicholas D.P. Carn, 40, Vice President, is a Vice
President of ACMC, with which he has been associated since 1997.
Prior thereto, he was Chief Investment Officer and Portfolio
Manager at Draycott Partners. His address is 1345 Avenue of the
Americas, New York, New York 10105.
Tyler Smith, 60, Vice President, is a Senior Vice
President of ACMC, with which he has been associated since July
1993. His address is 1345 Avenue of the Americas, New York, New
York 10105.
Andrew L. Gangolf, 44, Assistant Clerk, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since December 1994. Prior thereto, he was Vice
President and Assistant Secretary of Delaware Management Co.,
Inc. His address is 1345 Avenue of the Americas, New York, New
York 10105.
Domenick Pugliese, 37, Assistant Clerk, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since May 1995. Prior thereto, he was Vice
President and General Counsel of Concorde Holding Corporation
since 1994 and Vice President and Associate General Counsel of
Prudential Securities since prior to 1993. His address is 1345
Avenue of the Americas, New York, New York 10105.
Emilie D. Wrapp, 42, Assistant Clerk, is a Vice
President and Assistant General Counsel of AFD, with which she
has been associated since prior to 1993. Her address is 1345
Avenue of the Americas, New York, New York 10105.
The aggregate compensation paid to each of the Trustees
by the Strategic Balanced Fund for the fiscal year ended July 31,
1998, and by the Growth Fund for the fiscal year ended October
31, 1997, the aggregate compensation paid to each of the Trustees
during calendar year 1997 by all of the funds to which the
Adviser provides investment advisory services (collectively, the
"Alliance Fund Complex"), and the total number of registered
investment companies (and separate investment portfolios within
the 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 of the Funds nor any 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
41
<PAGE>
the Trustees is a director or trustee of one or more other
registered investment companies in the Alliance Fund Complex.
Total Number
of Investment
Total Number Portfolios
of Investment Within the
Companies in Alliance Fund
Total Com- the Alliance Complex,
Aggre- pensation Fund Complex, Including
gate Aggregate From the Including the the Fund,
Compensa- Compen- Alliance Fund, as to as to which
tion from sation Fund which the the Trustee
Strategic from Complex, Trustee is is a
Balanced Growth Including a Director Director
Name of Trustee Fund Fund the Fund or Trustee or Trustee*
John D. Carifa $ -0- $ -0- $ -0- 53 118
Ruth Block $4,407 $6,413 $164,000 40 81
Richard W. Couper $5,500 $7,400 $ 94,000 2 19
William H. Foulk, Jr. $4,407 $6,221 $149,145 48 113
Brenton W. Harries $5,400 $7,400 $102,000 2 19
Donald J. Robinson $4,407 $7,200 $217,358 44 107
As of January 16, 1998, the Trustees and officers of
Growth Fund as a group owned less than 1% of the shares of the
Fund.
As of October 9, 1998, the Trustees and officers of
Strategic Balanced Fund as a group owned less than 1% of the
shares of the Fund.
The Trust undertakes to provide assistance to
shareholders in communications concerning the removal of any
Trustee of the Trust in accordance with Section 16 of the 1940
Act.
______________________________________________________________
PORTFOLIO TRANSACTIONS
______________________________________________________________
Under the general supervision of the Board of Trustees,
the Adviser makes the Funds' portfolio decisions and determines
the broker to be used in each specific transaction with the
objective of negotiating a combination of the most favorable
commission and the best price obtainable on each transaction
(generally defined as best execution). When consistent with the
objective of obtaining best execution, brokerage may be directed
42
<PAGE>
to persons or firms supplying investment information to the
Adviser. Neither the Funds nor the Adviser have entered into
agreements or understandings with any brokers regarding the
placement of securities transactions because of research services
they provide. To the extent that such persons or firms supply
investment information to the Adviser for use in rendering
investment advice to the Funds, 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
Funds. While it is impossible to place an actual dollar value on
such investment information, the Adviser believes its receipt
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) of the Securities Exchange
Act of 1934, as amended, and is designed to augment the Adviser's
own internal research and investment strategy capabilities.
Research services furnished by brokers through which the Funds
effect securities transactions are used by the Adviser in
carrying out its investment management responsibilities with
respect to all its clients' accounts. There may be occasions
where the transaction cost charged by a broker may be greater
than that which another broker may charge if it is determined in
good faith that the amount of such transaction cost is reasonable
in relation to the value of brokerage and research services
provided by the executing broker.
The Funds may deal in some instances in securities which
are not listed on a national securities exchange but are traded
in the over-the-counter market. They may also purchase listed
securities through the third market. Where transactions are
executed in the over-the-counter market or third market, the
Funds will seek to deal with the primary market makers; but when
necessary in order to obtain best execution, they will utilize
the services of others.
Aggregate securities transactions for the Growth Fund
during the fiscal year ended October 31, 1997 were $1,458,023,454
and, in connection therewith, brokerage commissions of $1,326,056
(32.3%) were allocated to persons or firms supplying research
information. Aggregate securities transactions for the Strategic
Balanced Fund during the fiscal year ended July 31, 1998 were
$101,940,022 and, in connection therewith, brokerage commissions
of $2,136 (2.29%) were allocated to persons or firms supplying
research information.
For the fiscal years ended October 31, 1995, 1996 and
1997, the Growth Fund paid aggregate brokerage commissions of
$3,231,153, $3,395,225 and $4,109,583, respectively. For the
fiscal years ended July 31, 1996, 1997 and 1998, the Strategic
43
<PAGE>
Balanced Fund paid aggregate brokerage commissions of $173,237,
100,951 and $93,166, respectively.
The extent to which commissions that will be charged by
broker-dealers selected by the Funds may reflect an element of
value for research cannot presently be determined. To the extent
that research services of value are provided by broker-dealers
with or through whom the Funds place portfolio transactions, the
Adviser may be relieved of expenses which it might otherwise
bear. Research services furnished by broker-dealers could be
useful and of value to the Adviser in servicing its other clients
as well as the Funds; on the other hand, certain research
services obtained by the Adviser as a result of the placement of
portfolio brokerage of other clients could be useful and of value
to it in servicing the Funds. Consistent with the Conduct Rules
of the National Association of Securities Dealers, Inc. and
subject to seeking best execution, the Funds may consider sales
of shares of the Funds or other investment companies managed by
the Adviser as a factor in the selection of broker-dealers to
execute portfolio transactions for the Funds.
The Funds may from time to time place orders for the
purchase or sale of securities (including listed call options)
with Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ")
and with brokers which may have their transactions cleared or
settled, or both, by the Pershing Division of DLJ, for which DLJ
may receive a portion of the brokerage commissions. In such
instances, the placement of orders with such brokers would be
consistent with the Funds' objective of obtaining the best
execution and would not be dependent upon the fact that DLJ is an
affiliate of the Adviser. With respect to orders placed with DLJ
for execution on a national securities exchange, commissions
received must conform to Section 17(e)(2)(A) of the 1940 Act and
Rule 17e-1 thereunder, which permit an affiliated person of a
registered investment company (such as the Trust), 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.
The brokerage transactions engaged in by the Funds with
DLJ and its affiliates during the fiscal years ended October 31,
1997 for the Growth Fund and July 31, 1998 for the Strategic
Balanced Fund are set forth below:
44
<PAGE>
% of Fund's
% of Fund's Aggregate
Amount of Aggregate Dollar
Fiscal Year Brokerage Brokerage Amount of
Ended Fund Commissions Commissions Transactions
October 31, 1997 Growth Fund $14,245 0.35% 0.00%
July 31, 1998 Strategic $0 0.00% 0.00%
Balanced Fund
______________________________________________________________
EXPENSES OF THE FUNDS
______________________________________________________________
In addition to the payments to the Adviser under the
Investment Advisory Contract described above, the Trust pays
certain other costs including (a) brokerage and commission
expenses, (b) federal, state and local taxes, including issue and
transfer taxes incurred by or levied on a Fund, (c) interest
charges on borrowing, (d) fees and expenses of registering the
shares of the Funds under the appropriate federal securities laws
and of qualifying shares of the Funds under applicable state
securities laws including expenses attendant upon renewing and
increasing such registrations and qualifications, (e) expenses of
printing and distributing the Funds' prospectuses and other
reports to shareholders, (f) costs of proxy solicitations,
(g) transfer agency fees described below, (h) charges and
expenses of the Trust's custodian, (i) compensation of the
Trust's officers, Trustees and employees who do not devote any
part of their time to the affairs of the Adviser or its
affiliates, (j) costs of stationery and supplies, and (k) such
promotional expenses as may be contemplated by the Distribution
Services Agreement described below.
DISTRIBUTION ARRANGEMENTS
Rule 12b-1 adopted by the SEC under the 1940 Act permits
an investment company to directly or indirectly pay expenses
associated with the distribution of its shares in accordance with
a duly adopted and approved plan. The Trust has adopted a plan
for each class of shares of the Funds pursuant to Rule 12b-1
(each a "Plan" and collectively the "Plans"). Pursuant to the
Plans, each Fund pays AFD (the "Principal Underwriter") a Rule
12b-1 distribution services fee which may not exceed an annual
rate of .50% of a Fund's aggregate average daily net assets
attributable to the Class A shares, 1.00% of a Fund's aggregate
average daily net assets attributable to the Class B shares and
1.00% of a Fund's aggregate average daily net assets attributable
45
<PAGE>
to the Class C shares to compensate the Principal Underwriter for
distribution expenses. The Trustees currently limit payments
under the Class A Plan to .30% of a Fund's aggregate average
daily net assets attributable to the Class A shares. The Plans
provide that a portion of the distribution services fee in an
amount not to exceed .25% of the aggregate average daily net
assets of a Fund attributable to each of the Class A, Class B and
Class C shares constitutes a service fee that the Principal
Underwriter will use for personal service and/or the maintenance
of shareholder accounts. The Plans also provide that the Adviser
may use its own resources, which may include management fees
received by the Adviser from the Trust or other investment
companies which it manages and the Adviser's past profits, to
finance the distribution of the Funds' shares.
Each Plan may be terminated with respect to the class of
shares of any Fund to which the Plan relates by vote of a
majority of the Trustees who are not "interested persons" of the
Trust and who have no direct or indirect financial interest in
the operation of the Plans or in any agreement related to the
Plans (the "Qualified Trustees"), or by vote of a majority of the
outstanding voting securities of that class. Each Plan may be
amended by vote of the Trustees, including a majority of the
Qualified Trustees, cast in person at a meeting called for that
purpose. Any change in a Plan that would materially increase the
distribution costs to the class of shares of any Fund to which
the Plan relates requires approval by the affected class of
shareholders of that Fund. The Trustees review quarterly a
written report of such distribution costs and the purposes for
which such costs have been incurred with respect to each Fund's
Class A, Class B and Class C shares. For so long as the Plans
are in effect, selection and nomination of those Trustees who are
not interested persons of the Trust shall be committed to the
discretion of such disinterested persons.
The Plans may be terminated with respect to any Fund or
class of shares thereof at any time on 60 days' written notice
without payment of any penalty by the Principal Underwriter or by
vote of a majority of the outstanding voting securities of that
Fund or that class (as appropriate) or by vote of a majority of
the Qualified Trustees.
The Plans will continue in effect with respect to each
Fund and each class of shares thereof for successive one-year
periods, provided that each such continuance is specifically
approved (i) by the vote of a majority of the Qualified Trustees
and (ii) by the vote of a majority of the entire Board of
Trustees cast in person at a meeting called for that purpose.
For services rendered by the Principal Underwriter in
connection with the distribution of Class A shares, the Principal
46
<PAGE>
Underwriter received $67,585 in 12b-1 fees, pursuant to the Plan
applicable to such shares, and $3,305 in sales charges with
respect to the Class A shares of the Strategic Balanced Fund for
the fiscal year ended July 31, 1998. For services rendered by
the Principal Underwriter in connection with the Distribution of
Class A shares, the Principal Underwriter received $1,931,232 in
12b-1 fees, pursuant to the Plan applicable to such shares, and
$216,796 in sales charges and $9,882 in contingent deferred sales
charges with respect to the Class A shares of the Growth Fund for
the fiscal year ended October 31, 1997.
For services rendered by the Principal Underwriter in
connection with the distribution of Class B shares, the Principal
Underwriter received $258,610 in 12b-1 fees, pursuant to the Plan
applicable to such shares, and $12,289 in contingent deferred
sales charges with respect to the Class B shares of the Strategic
Balanced Fund for the fiscal year ended July 31, 1998. For
services rendered by the Principal Underwriter in connection with
the distribution of Class B shares, the Principal Underwriter
received $30,755,087 in 12b-1 fees, pursuant to the Plan
applicable to such shares, and $4,125,626 in contingent deferred
sales charges with respect to the Class B shares of the Growth
Fund for the fiscal year ended October 31, 1997.
For services rendered by the Principal Underwriter in
connection with the distribution of Class C shares, the Principal
Underwriter received $30,232 in 12b-1 fees, pursuant to the Plan
applicable to such shares, and $1,684 in contingent deferred
sales charges with respect to the Class C shares of the Strategic
Balanced Fund for the fiscal year ended July 31, 1998. For
services rendered by the Principal Underwriter in connection with
the distribution of Class C shares, the Principal Underwriter
received $5,105,935 in 12b-1 fees, pursuant to the Plan
applicable to such shares, and $101,192 in contingent deferred
sales charges with respect to the Class C shares of the Growth
Fund for the fiscal years ended October 31, 1997.
The Principal Underwriter has informed the Trust that
expenses incurred by it and costs allocated to it in connection
with activities primarily intended to result in the sale of
Class A, Class B, and Class C shares, respectively, were as
follows for the periods indicated:
47
<PAGE>
STRATEGIC BALANCED FUND
Amount of Expense and Allocated Cost
Class A Shares Class B Shares Class C Shares
(for the Fiscal (for the Fiscal (for the Fiscal
year ended year ended year ended
Category of Expense July 31, 1998) July 31, 1998) July 31, 1998)
Advertising/Marketing $ 21,884 $ 53,912 $ 14,973
Printing and Mailing
of Prospectuses and
Semi-Annual and
Annual Reports to
Other than Current
Shareholders $ 1,384 $ 5,425 $ 1,236
Compensation to
Underwriters $ 46,173 $114,277 $ 29,143
Compensation to
Dealers $ 72,159 $223,667 $ 39,093
Compensation to Sales
Personnel $ 3,835 $ 3,023 $ 729
Interest, Carrying or
Other Financing
Charges $ 0 $ 27,128 $ 3,177
Other (includes personnel
costs of those home
office employees involved
in the distribution
effort and the
travel-related expenses
incurred by the marketing
personnel conducting
seminars) $ 70,160 $157,883 $ 40,424
Total $215,595 $585,315 $128,775
======== ======== ========
48
<PAGE>
GROWTH FUND
Amount of Expense and Allocated Cost
Class A Shares Class B Shares Class C Shares
(For the Fiscal (For the Fiscal (For the Fiscal
year ended year ended year ended
October 31, October 31, October 31,
Category of Expense 1997) 1997) 1997)
Advertising/Marketing $ 153,682 $ 532,693 $ 121,477
Printing and Mailing
of Prospectuses and
Semi-Annual and
Annual Reports to
Other than Current
Shareholders $ 57,802 $ 219,834 $ 49,321
Compensation to
Underwriters $ 307,493 $ 1,100,520 $ 248,667
Compensation to
Dealers $1,594,084 $30,483,485 $5,038,885
Compensation to Sales
Personnel $ 468,205 $ 584,769 $ 117,224
Interest, Carrying or
Other Financing
Charges - $ 3,611,838 $ 501,326
Other (includes
personnel costs
of those home office
employees involved
in the distribution
effort and the
travel-related
expenses incurred
by the marketing
personnel conducting
seminars) $ 727,604 $ 1,395,919 $ 315,409
$3,308,870 $37,929,058 $6,392,309
========== =========== ==========
49
<PAGE>
CUSTODIAL ARRANGEMENTS
State Street Bank and Trust Company ("State Street
Bank"), 225 Franklin Street, Boston, MA, 02110 acts as the
Trust's custodian, but plays no part in deciding the purchase or
sale of portfolio securities. Subject to the supervision of the
Funds' Trustees, State Street Bank may enter into subcustodial
agreements for the holding of the Funds' securities outside of
the United States.
TRANSFER AGENCY ARRANGEMENTS
AFS, an indirect wholly-owned subsidiary of the Adviser,
receives a transfer agency fee per account holder of each of the
Class A, Class B , Class C and Advisor Class shares of the Trust,
plus reimbursement for out-of-pocket expenses. The transfer
agency fee with respect to the Class B and Class C shares is
higher than the transfer agency fee with respect to the Class A
and Advisor Class shares. For the fiscal year ended July 31,
1998, Alliance Strategic Balanced Fund paid AFS $82,954 for
transfer agency services. For the fiscal year ended October 31,
1997, Alliance Growth Fund paid AFS $6,625,051 for transfer
agency services.
_________________________________________________________________
PURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in
the Funds' Prospectus under the heading "Purchase and Sale of
Shares--How To Buy Shares."
GENERAL
Shares of the Funds are offered on a continuous basis at
a price equal to their net asset value plus an initial sales
charge at the time of purchase (the "Class A shares"), with a
contingent deferred sales charge (the "Class B shares"), without
any initial sales charge and, as long as the shares are held for
one year or more, without any contingent deferred sales charge
("Class C shares"), or, to investors eligible to purchase Advisor
Class shares, without any initial, contingent deferred or asset-
based sales charge ("Advisor Class Shares"), in each case as
described below. Shares of the Funds that are offered subject to
a sales charge are offered through (i) investment dealers that
are members of the National Association of Securities Dealers,
Inc. and have entered into selected dealer agreements with the
Principal Underwriter ("selected dealers"), (ii) depository
institutions and other financial intermediaries or their
affiliates, that have entered into selected agent agreements with
50
<PAGE>
the Principal Underwriter ("selected agents"), and (iii) the
Principal Underwriter.
Advisor Class shares of the Funds may be purchased and
held solely (i) through accounts established under fee-based
programs, sponsored and maintained by registered broker-dealers
or other financial intermediaries and approved by the Principal
Underwriter, (ii) through self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that have at least
1,000 participants or $25 million in assets, or (iii) by the
categories of investors described in clauses (i) through (iv)
below under "--Sales at Net Asset Value" (other than officers,
directors and present and full-time employees of selected dealers
or agents, or relatives of such persons, or any trust, individual
retirement account or retirement plan account for the benefit of
such relative, none of whom is eligible on the basis solely of
such status to purchase and hold Advisor Class shares), or (iv)
by directors and present or retired full-time employees of CB
Richard Ellis, Inc. Generally, a fee-based program must charge
an asset-based or other similar fee and must invest at least
$250,000 in Advisor Class shares of the Fund in order to be
approved by the Principal Underwriter for investment in Advisor
Class shares.
Investors may purchase shares of the Funds either
through selected broker-dealers, agents, financial intermediaries
or other financial representatives, or directly through the
Principal Underwriter. A transaction, service, administrative or
other similar fee may be charged by your broker-dealer, agent,
financial intermediary or other financial representative with
respect to the purchase, sale or exchange of Class A, Class B,
Class C or Advisor Class shares made through such financial
representative. Such financial representative may also impose
requirements with respect to the purchase, sale or exchange of
shares that are different from, or in addition to, those imposed
by the Funds, including requirements as to the minimum initial
and subsequent investment amounts. Sales personnel of selected
dealers and agents distributing the Funds' shares may receive
differing compensation for selling Class A, Class B, Class C or
Advisor Class shares.
The Funds may refuse any order for the purchase of
shares. The Funds reserve the right to suspend the sale of their
shares to the public in response to conditions in the securities
markets or for other reasons.
The public offering price of shares of the Funds is
their net asset value, plus, in the case of Class A shares, a
sales charge which will vary depending on the amount of the
purchase alternative chosen by the investor, as shown in the
table below under "Class A Shares". On each Fund business day on
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<PAGE>
which a purchase or redemption order is received by a Fund and
trading in the types of securities in which the Fund invests
might materially affect the value of Fund shares, the per share
net asset value is computed in accordance with the Trust's
Agreement and Declaration of Trust and By-Laws as of the next
close of regular trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m. Eastern time) by dividing the
value of the total assets attributable to a class, less its
liabilities, by the total number of its shares then outstanding.
A Fund business day is any day on which the Exchange is open for
trading.
The respective per share net asset values of the
Class A, Class B, Class C and Advisor Class shares are expected
to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class B and
Class C shares may be lower than the per share net asset value of
the Class A and Advisor Class shares, as a result of the
differential daily expense accruals of the distribution and
transfer agency fees applicable with respect to those classes of
shares. Even under those circumstances, the per share net asset
values of the four classes eventually will tend to converge
immediately after the payment of dividends, which will differ by
approximately the amount of the expense accrual differential
among the classes.
The Funds will accept unconditional orders for their
shares to be executed at the public offering price equal to their
net asset value next determined (plus applicable Class A sales
charges), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange
on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on
the Exchange on that day (plus applicable Class A sales charges).
In the case of orders for purchase of shares placed through
selected dealers, agents or financial representatives, as
applicable, the applicable public offering price will be the net
asset value as so determined, but only if the selected dealer,
agent or financial representative receives the order prior to the
close of regular trading on the Exchange and transmits it to the
Principal Underwriter prior to 5:00 p.m. Eastern time. The
selected dealer, agent or financial representative, as
applicable, is responsible for transmitting such orders by
5:00 p.m. Eastern time (certain selected dealers, agents or
financial representatives may enter into operating agreements
permitting them to transmit purchase information to the Principal
Underwriter after 5:00 p.m. Eastern time and receive that day's
net asset value). If the selected dealer, agent or financial
representative, as applicable, fails to do so, the investor's
right to purchase shares at that day's closing price must be
settled between the investor and the selected dealer, agent or
52
<PAGE>
financial representative, as applicable. If the selected dealer,
agent or financial representative, as applicable, receives the
order after the close of regular trading on the Exchange, the
price will be based on the net asset value determined as of the
close of regular trading on the Exchange on the next day it is
open for trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application, both of which may be obtained by calling the "For
Literature" telephone number shown on the cover of this Statement
of Additional Information. Except with respect to certain
omnibus accounts, telephone purchase orders may not exceed
$500,000. Payment for shares purchased by telephone can be made
only by Electronic Funds Transfer from a bank account maintained
by the shareholder at a bank that is a member of the National
Automated Clearing House Association ("NACHA"). If a
shareholder's telephone purchase request is received before
3:00 p.m. Eastern time on a Fund business day, the order to
purchase shares is automatically placed the following Fund
business day, and the applicable public offering price will be
the public offering price determined as of the close of business
on such following business day.
Full and fractional shares are credited to a
subscriber's account in the amount of his or her subscription. As
a convenience to the subscriber, and to avoid unnecessary expense
to the Fund, share certificates representing shares of the Fund
are not issued except upon written request to the Fund by the
shareholder or his or her authorized selected dealer or agent.
This facilitates later redemption and relieves the shareholder of
the responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
although such shares remain in the shareholder's account on the
books of the Fund.
In addition to the discount or commission paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents, in
connection with the sale of shares of the Funds. Such additional
amounts may be utilized, in whole or in part, to provide
additional compensation to registered representatives who sell
shares of the Funds. On some occasions, such cash or other
incentives will be conditioned upon the sale of a specified
minimum dollar amount of the shares of a Fund and/or other
Alliance Mutual Funds, as defined below, during a specified
period of time. On some occasions, such cash or other incentives
may take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment incurred in
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<PAGE>
connection with travel, lodging and entertainment incurred in
connection with travel taken by persons associated with a dealer
or agent to urban or resort locations within or outside the
United States. Such dealer or agent may elect to receive cash
incentives of equivalent amount in lieu of such payments.
Class A, Class B, Class C and Advisor Class shares each
represent an interest in the same portfolio of investments of a
Fund, have the same rights and are identical in all respects,
except that (i) Class A shares bear the expense of the initial
sales charge (or contingent deferred sales charge, when
applicable) and Class B and Class C generally shares bear the
expense of the deferred sales charge, (ii) Class B shares and
Class C shares each bear the expense of a higher distribution
services fee than that borne by Class A shares, and Advisor Class
shares do not bear such a fee, (iii) Class B and Class C shares
bear higher transfer agency costs than those borne by Class A and
Advisor Class shares, (iv) each of Class A, Class B and Class C
shares has exclusive voting rights with respect to provisions of
the Rule 12b-1 Plan pursuant to which its distribution services
fee is paid and other matters for which separate class voting is
appropriate under applicable law, provided that, if the Fund
submits to a vote of the Class A shareholders, an amendment to
the Rule 12b-1 Plan that would materially increase the amount to
be paid thereunder with respect to the Class A shares, then such
amendment will also be submitted to the Class B and Advisor Class
shareholders and the Class A shareholders, the Class B
shareholders and the Advisor Class shareholders will vote
separately by class and (v) Class B and Advisor Class shares are
subject to a conversion feature. Each class has different
exchange privileges and certain different shareholder service
options available.
The Trustees of the Trust have determined that currently
no conflict of interest exists between or among the Class A,
Class B, Class C and Advisor Class shares. On an ongoing basis,
the Trustees of the Trust, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
Alternative Retail Purchase Arrangements -- Class A, Class B and
Class C Shares**
The alternative purchase arrangements available with
respect to Class A, Class B and Class C shares permit an investor
to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor
____________________
** Advisor Class shares are sold only to investors described
above in this section under "--General."
54
<PAGE>
expects to hold the shares, and other circumstances. Investors
should consider whether, during the anticipated life of their
investment in the Funds, the accumulated distribution services
fee and contingent deferred sales charges on Class B shares prior
to conversion, or the accumulated distribution services fee and
contingent deferred sales charges on Class C shares, would be
less than the initial sales charge and accumulated distribution
services fee on Class A shares purchased at the same time, and to
what extent such differential would be offset by the higher
return of Class A shares. Class A shares will normally be more
beneficial than Class B shares to the investor who qualifies for
reduced initial sales charges on Class A shares, as described
below. In this regard, the Principal Underwriter will reject any
order (except orders from certain retirement plans and certain
employee benefit plans) for more than $250,000 for Class B
shares. (See Appendix B for information concerning the
eligibility of certain employee benefit plans to purchase Class B
shares at net asset value without being subject to a contingent
deferred sales charge and the ineligibility of certain such plans
to purchase Class A shares.) Class C shares will normally not be
suitable for the investor who qualifies to purchase Class A
shares at net asset value. For this reason, the Principal
Underwriter will reject any order for more than $1,000,000 for
Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time
of purchase, investors purchasing Class A shares would not have
all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for
an extended period of time might consider purchasing Class A
shares because the accumulated continuing distribution charges on
Class B shares or Class C shares may exceed the initial sales
charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration
against the fact that, because of such initial sales charges, not
all their funds will be invested initially.
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and
being subject to a contingent deferred sales charge for a four-
year and one-year period, respectively. For example, based on
current fees and expenses, an investor subject to the 4.25%
initial sales charge on Class A shares would have to hold his or
her investment approximately seven years for the Class C
distribution services fee to exceed the initial sales charge plus
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<PAGE>
the accumulated distribution services fee of Class A shares. In
this example, an investor intending to maintain his or her
investment for a longer period might consider purchasing Class A
shares. This example does not take into account the time value
of money, which further reduces the impact of the Class C
distribution services fees on the investment, fluctuations in net
asset value or the effect of different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
four-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
During the Growth Fund's fiscal year ended October 31,
1997, the aggregate amount of underwriting commissions payable
with respect to Class A shares of the Fund was $5,837,510 of
which $216,796, representing that portion of the sales charges
paid on Class A shares of the Fund sold during the year which was
not reallowed to selected dealers, was retained by the Principal
Underwriter. During the Growth Fund's fiscal year ended
October 31, 1997, the Principal Underwriter received $9,882 in
contingent deferred sales charges. During the Growth Fund's
fiscal year ended October 31, 1996, the aggregate amount of
underwriting commissions payable with respect to Class A shares
of the Fund was $6,003,066, of which $231,038, representing that
portion of the sales charges paid on Class A shares of the Fund
sold during the year which was not reallowed to selected dealers,
was retained by the Principal Underwriter. During the Growth
Fund's fiscal year ended October 31, 1996, the Principal
Underwriter received $2,632,819 in contingent deferred sales
charges. During the Growth Fund's fiscal year ended October 31,
1995, the aggregate amount of underwriting commissions payable
with respect to Class A shares of the Fund was $3,688,506, of
which $144,082, representing that portion of the sales charges
paid on Class A shares of the Fund sold during the year which was
not reallowed to selected dealers, was retained by the Principal
Underwriter. During the Growth Fund's fiscal year ended
October 31, 1995, the Principal Underwriter received $2,140,032
in contingent deferred sales charges.
During the Strategic Balanced Fund's fiscal year ended
July 31, 1998, the aggregate amount of underwriting commissions
payable with respect to Class A shares of the Fund was $62,753,
of which $4,211, representing that portion of the sales charges
paid on Class A shares of the Fund sold during the year which was
not reallowed to selected dealers, was retained by the Principal
Underwriter. During the Strategic Balanced Fund's fiscal year
ended July 31, 1998, the Principle Underwriter received $32,909
in contingent deferred sales charges. During the Strategic
Balanced Fund's fiscal year ended July 31, 1997, the aggregate
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<PAGE>
amount of underwriting commissions payable with respect to
Class A shares of the Fund was $17,128, of which $637,
representing that portion of the sales charges paid on Class A
shares of the Fund sold during the year which was not reallowed
to selected dealers, was retained by the Principal Underwriter.
During the Strategic Balanced Fund's fiscal year ended July 31,
1997, the Principal Underwriter received $47,251 in contingent
deferred sales charges. During the Strategic Balanced Fund's
fiscal year ended July 31, 1996, the aggregate amount of
underwriting commissions payable with respect to Class A shares
of the Fund was $15,976, of which $1,204, representing that
portion of the sales charges paid on Class A shares of the Fund
sold during the year which was not reallowed to selected dealers,
was retained by the Principal Underwriter. During the Strategic
Balanced Fund's fiscal year ended July 31, 1996, the Principal
Underwriter received $37,022 in contingent deferred sales
charges.
Class A Shares
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below:
Sales Charge
Discount or
Commission
As % of to Dealers
As % of the or Agents
Net Public As % of
Amount of Amount Offering Offering
Purchase Invested Price Price
Less than
$100,000 . . . 4.44% 4.25% 4.00%
$100,000 but
less than
$250,000 . . . 3.36 3.25 3.00
$250,000 but
less than
$500,000 . . . 2.30 2.25 2.00
$500,000 but
less than
$1,000,000*. . 1.78 1.75 1.50
____________________
* There is no initial sales charge on transactions of $1,000,000
or more.
57
<PAGE>
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. In
determining the contingent deferred sales charge applicable to a
redemption of Class A shares, it will be assumed that the
redemption is, first, of any shares that are not subject to a
contingent deferred sales charge (for example, because an initial
sales charge was paid with respect to the shares, or they have
been held beyond the period during which the charge applies or
were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the
time they are subject to the sales charge. Proceeds from the
contingent deferred sales charge on Class A shares are paid to
the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Funds
in connection with sales of Class A shares, such as the payment
of compensation to selected dealers and agents for selling
Class A shares. With respect to purchases of $1,000,000 or more
made through selected dealers or agents, the Adviser may,
pursuant to the Distribution Services Agreement described above,
pay such dealers or agents from its own resources a fee of up to
1% of the amount invested to compensate such dealers or agents
for their distribution assistance in connection with such
purchases.
No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, (ii) in exchange for
Class A shares of other "Alliance Mutual Funds" (as that term is
defined under "Combined Purchase Privilege" below), except that
an initial sales charge will be imposed on Class A shares issued
in exchange for Class A shares of AFD Exchange Reserves ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge or (iii) upon the automatic conversion of Class B
shares or Advisor Class shares as described below under "Class B
Shares--Conversion Feature" and "--Conversion of Advisor Class
Shares to Class A Shares." The Funds receive the entire net
asset value of their Class A shares sold to investors. The
Principal Underwriter's commission is the sales charge shown in
the Prospectus less any applicable discount or commission
"reallowed" to selected dealers and agents. The Principal
Underwriter will reallow discounts to selected dealers and agents
in the amounts indicated in the table above. In this regard, the
Principal Underwriter may elect to reallow the entire sales
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<PAGE>
charge to selected dealers and agents for all sales with respect
to which orders are placed with the Principal Underwriter. A
selected dealer who receives a reallowance in excess of 90% of
such a sales charge may be deemed to be an "underwriter" under
the Securities Act of 1933, as amended.
Set forth below is an example of the method of computing
the offering price of the Class A shares. The example assumes a
purchase of Class A shares of the Growth Fund aggregating less
than $100,000 subject to the schedule of sales charges set forth
in the Prospectus at a price based upon the net asset value of
Class A shares of the Fund on January 16, 1998.
Net Asset Value per Class A
Share at January 16, 1998 $42.41
Per Share Sales Charge--4.25%
of offering price (4.44% of
net asset value per share) $ 1.88
Class A Per Share Offering Price
to the Public $44.29
Set forth below is an example of the method of computing
the offering price of the Class A shares. The example assumes a
purchase of Class A shares of the Strategic Balanced Fund
aggregating less than $100,000 subject to the schedule of sales
charges set forth in the Prospectus at a price based upon the net
asset value of Class A shares of the Fund on July 31, 1998.
Net Asset Value per Class A
Share at July 31, 1998 $19.76
Per Share Sales Charge--4.25%
of offering price (4.45% of
net asset value per share) $ .88
Class A Per Share Offering Price
to the Public $20.64
======
Investors choosing the initial sales charge alternative
may under certain circumstances be entitled to pay (i) no initial
sales charge (but be subject in most such cases to a contingent
deferred sales charge) or (ii) a reduced initial sales charge.
The circumstances under which such investors may pay a reduced
initial sales charge are described below.
COMBINED PURCHASE PRIVILEGE. Certain persons may
qualify for the sales charge reductions indicated in the schedule
of such charges shown above by combining purchases of shares of a
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<PAGE>
Fund into a single "purchase," if the resulting "purchase" totals
at least $100,000. The term "purchase" refers to: (i) a single
purchase by an individual, or two concurrent purchases, which in
the aggregate are at least equal to the prescribed amounts, by an
individual, his or her spouse and their children under the age of
21 years purchasing shares of a Fund for his, her or their own
account(s); (ii) a single purchase by a trustee or other
fiduciary purchasing shares for a single trust, estate or single
fiduciary account although more than one beneficiary is involved;
or (iii) a single purchase for the employee benefit plans of a
single employer. The term "purchase" also includes purchases by
any "company," as that term is defined in the 1940 Act, but does
not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of a Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
dealer or agent, of any other "Alliance Mutual Fund." Currently,
the Alliance Mutual Funds include:
The Alliance Fund, Inc.
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
60
<PAGE>
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Portfolios
-Alliance Conservative Investors Fund
-Alliance Growth Fund
-Alliance Growth Investors Fund
-Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting AFS at the address or the
"For Literature" telephone number shown on the front cover of
this Statement of Additional Information.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). An
investor's purchase of additional Class A shares of a Fund may
qualify for a Cumulative Quantity Discount. The applicable sales
charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business
on the previous day) of (a) all shares of the
Fund held by the investor and (b) all shares
of any other Alliance Mutual Fund held by the
investor; and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder
eligible to combine his or her purchase with
that of the investor into a single "purchase"
(see above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the sales charge for the $100,000 purchase
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<PAGE>
would be at the 2.25% rate applicable to a single $300,000
purchase of shares of the Fund, rather than the 3.25% rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
information to verify that each purchase qualifies for the
privilege or discount.
STATEMENT OF INTENTION. Class A investors may also
obtain the reduced sales charges shown in the table above by
means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B,
Class C and/or Advisor Class shares) of a Fund or any other
Alliance Mutual Fund. Each purchase of shares under a Statement
of Intention will be made at the public offering price or prices
applicable at the time of such purchase to a single transaction
of the dollar amount indicated in the Statement of Intention. At
the investor's option, a Statement of Intention may include
purchases of shares of a Fund or any other Alliance Mutual Fund
made not more than 90 days prior to the date that the investor
signs the Statement of Intention; however, the 13-month period
during which the Statement of Intention is in effect will begin
on the date of the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at
least $100,000 in Class A shares of a Fund, the investor and the
investor's spouse each purchase shares of the Fund worth $20,000
(for a total of $40,000), it will only be necessary to invest a
total of $60,000 during the following 13 months in shares of the
Fund or any other Alliance Mutual Fund to qualify for the 3.25%
sales charge on the total amount being invested (the sales charge
applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5%
of such amount. Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the
name of the investor) to secure payment of the higher initial
sales charge applicable to the shares actually purchased if the
full amount indicated is not purchased, and such escrowed shares
will be involuntarily redeemed to pay the additional sales
charge, if necessary. Dividends on escrowed shares, whether paid
in cash or reinvested in additional Fund shares, are not subject
to escrow. When the full amount indicated has been purchased,
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<PAGE>
the escrow will be released. To the extent that an investor
purchases more than the dollar amount indicated on the Statement
of Intention and qualifies for a further reduced sales charge,
the sales charge will be adjusted for the entire amount purchased
at the end of the 13-month period. The difference in the sales
charge will be used to purchase additional shares of a Fund
subject to the rate of the sales charge applicable to the actual
amount of the aggregate purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
a Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus while current
Class A shareholders desiring to do so can obtain a form of
Statement of Intention by contacting AFS at the address or
telephone numbers shown on the cover of this Statement of
Additional Information.
CERTAIN RETIREMENT PLANS. Multiple participant payroll
deduction retirement plans may also purchase shares of a Fund or
any other Alliance Mutual Fund at a reduced sales charge on a
monthly basis during the 13-month period following such a plan's
initial purchase. The sales charge applicable to such initial
purchase of shares of a Fund will be that normally applicable,
under the schedule of sales charges set forth above, to an
investment 13 times larger than such initial purchase. The sales
charge applicable to each succeeding monthly purchase will be
that normally applicable, under such schedule, to an investment
equal to the sum of (i) the total purchases previously made
during the 13-month period and (ii) the current month's purchase
multiplied by the number of months (including the current month)
remaining in the 13-month period. Sales charges previously paid
during such period will not be retroactively adjusted on the
basis of later purchases.
REINSTATEMENT PRIVILEGE. A shareholder who has caused
any or all of his or her Class A or Class B shares of a Fund to
be redeemed or repurchased may reinvest all or any portion of the
redemption or repurchase proceeds in Class A shares of the Fund
at net asset value without any sales charge, provided that
(i) such reinvestment is made within 120 calendar days after the
redemption or repurchase date and (ii) for Class B shares, a
contingent deferred sales charge has been paid and the Principal
Underwriter has approved, at its discretion, the reinstatement of
such shares. Shares are sold to a reinvesting shareholder at the
net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for federal tax purposes except
that no loss will be recognized to the extent that the proceeds
are reinvested in shares of the Fund within 30 calendar days
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after the redemption or repurchase transaction. Investors may
exercise the reinstatement privilege by written request sent to a
Fund at the address shown on the cover of this Statement of
Additional Information.
SALES AT NET ASSET VALUE. The Funds may sell their
Class A shares at net asset value (i.e., without any initial
sales charge) and without any contingent deferred sales charge to
certain categories of investors including: (i) investment
management clients of the Adviser or its affiliates;
(ii) officers and present or former Trustees of the Trust;
present or former directors and trustees of other investment
companies managed by the Adviser; present or retired full-time
employees of the Adviser, the Principal Underwriter, AFS and
their affiliates; officers and directors of ACMC, the Principal
Underwriter, AFS and their affiliates; officers, directors and
present and full-time employees of selected dealers or agents; or
the spouse, sibling, direct ancestor or direct descendant
(collectively "relatives") of any such person; any trust,
individual retirement account or retirement plan account for the
benefit of any such person or relative; or the estate of any such
person or relative, if such shares are purchased for investment
purposes (such shares may not be resold except to the relevant
Fund); (iii) the Adviser, Principal Underwriter, AFS and their
affiliates; certain employee benefit plans for employees of the
Adviser, the Principal Underwriter, AFS and their affiliates;
(iv) registered investment advisers or other financial
intermediaries who charge a management, consulting or other fee
for their service and who purchase shares through a broker or
agent approved by the Principal Underwriter and clients of such
registered investment advisers or financial intermediaries whose
accounts are linked to the master account of such investment
adviser or financial intermediary on the books of such approved
broker or agent; (v) persons participating in a fee-based
program, sponsored and maintained by a registered broker-
dealer or other financial intermediary and approved by the
Principal Underwriter, pursuant to which such persons pay an
asset-based fee to such broker-dealer or financial intermediary,
or its affiliate or agent, for services in the nature of
investment advisory or administrative services; (vi) persons who
establish to the Principal Underwriter's satisfaction that they
are investing in the Fund, within such time period as may be
designated by the Principal Underwriter, proceeds of redemption
of shares of such other registered investment companies as may be
designated from time to time by the Principal Underwriter; and
(vii) employer-sponsored qualified pension or profit-sharing
plans (including Section 401(k) plans), custodial accounts
maintained pursuant to Section 403(b)(7) retirement plans and
individual retirement accounts (including individual retirement
accounts to which simplified employee pension (SEP) contributions
are made), if such plans or accounts are established or
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administered under programs sponsored by administrators or other
persons that have been approved by the Principal Underwriter.
Class B Shares
Investors may purchase Class B shares at the public
offering price equal to the net asset value per share of the
Class B shares on the date of purchase without the imposition of
a sales charge at the time of purchase. The Class B shares are
sold without an initial sales charge so that the Funds will
receive the full amount of the investor's purchase payment.
Proceeds from the contingent deferred sales charge on
the Class B shares are paid to the Principal Underwriter and are
used by the Principal Underwriter to defray the expenses of the
Principal Underwriter related to providing distribution-related
services to the Funds in connection with the sale of the Class B
shares, such as the payment of compensation to selected dealers
and agents for selling Class B shares. The combination of the
contingent deferred sales charge and the distribution services
fee enables the Funds to sell Class B shares without a sales
charge being deducted at the time of purchase. The higher
distribution services fee incurred by Class B shares will cause
such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares.
CONTINGENT DEFERRED SALES CHARGE. Class B shares that
are redeemed within four years of purchase will generally be
subject to a contingent deferred sales charge at the rates set
forth below, charged as a percentage of the dollar amount subject
thereto. The charge will be assessed on an amount equal to the
lesser of the cost of the shares being redeemed or their net
asset value at the time of redemption. Accordingly, no sales
charge will be imposed on increases in net asset value above the
initial purchase price. In addition, no charge will be assessed
on shares derived from reinvestment of dividends or capital gains
distributions.
To illustrate, assume that on or after November 19, 1993
an investor purchased 100 Class B shares at $10 per share (at a
cost of $1,000) and in the second year after purchase the net
asset value per share is $12 and, during such time, the investor
has acquired 10 additional Class B shares upon dividend
reinvestment. If at such time the investor makes his or her
first redemption of 50 Class B shares (proceeds of $600), 10
Class B shares will not be subject to charge because of dividend
reinvestment. With respect to the remaining 40 Class B shares,
the charge is applied only to the original cost of $10 per share
and not to the increase in net asset value of $2 per share.
Therefore, $400 of the $600 redemption proceeds will be charged
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at a rate of 3.0% (the applicable rate in the second year after
purchase).
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
Contingent Deferred Sales Charge for the
Funds as a % of Dollar Amount
Shares purchased
on or after Shares
August 2, 1993, purchased
Year Since but before on or after
Purchase November 19, 1993 November 19, 1993
First 5.50% 4.00%
Second 4.50% 3.00%
Third 3.50% 2.00%
Fourth 2.50% 1.00%
Fifth 1.50 None
Sixth None None
In determining the contingent deferred sales charge
applicable to a redemption of Class B shares, it will be assumed
that the redemption is, first, of any shares that were acquired
upon the reinvestment of dividends or distributions and, second,
of shares held longest during the time they are subject to the
sales charge. When shares acquired in an exchange are redeemed,
the applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of the
purchase of shares of the corresponding class of the Alliance
Mutual Fund originally purchased by the shareholder.
The contingent deferred sales charge is waived on
redemptions of shares (i) following the death or disability, as
defined in the Internal Revenue Code of 1986, as amended (the
"Code"), of a shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who
has attained the age of 70-1/2, (iii) that had been purchased by
present or former Trustees of the Trust, by the relative of any
such person, by any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative, or by the estate of any such person or relative, or
(iv) pursuant to a systematic withdrawal plan (see Appendix B and
"Shareholder Services--Systematic Withdrawal Plan" below).
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CONVERSION FEATURE. Class B shares purchased on or
after August 2, 1993 and held for eight years after the end of
the calendar month in which the shareholder's purchase order was
accepted will automatically convert to Class A shares. Class B
shares purchased before August 2, 1993 and held for six years
after the calendar month in which the shareholder's purchase
order was accepted will automatically convert to Class A shares
at the end of this period and such shares will no longer be
subject to a higher distribution services fee. Such conversions
will occur on the basis of the relative net asset values of the
two classes, without the imposition of any sales load, fee or
other charge. The purpose of the conversion feature is to reduce
the distribution services fee paid by holders of Class B shares
that have been outstanding long enough for the Principal
Underwriter to have been compensated for distribution expenses
incurred in the sale of such shares.
For purposes of conversion to Class A shares, Class B
shares purchased through the reinvestment of dividends and
distributions paid in respect of Class B shares in a
shareholder's account will be considered to be held in a separate
sub-account. Each time any Class B shares in the shareholder's
account (other than those in the sub-account) convert to Class A
shares, an equal pro-rata portion of the Class B shares in the
sub-account will also convert to Class A shares.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class B shares to Class A
shares does not constitute a taxable event under federal income
tax law. The conversion of Class B shares to Class A shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee
for an indefinite period, which may extend beyond the period
ending eight years after the end of the calendar month in which
the shareholder's purchase order was accepted.
Class C Shares
Investors may purchase Class C shares at the public
offering price equal to the net asset value per share of the
Class C shares on the date of purchase without the imposition of
a sales charge either at the time of purchase or, as long as the
shares are held for at least one year, upon redemption. Class C
shares are sold without an initial sales charge, so that a Fund
will receive the full amount of the investor's purchase payment
and, as long as the shares are held for one year or more, without
a contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of
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his or her Class C shares. The Class C distribution services fee
enables a Fund to sell Class C shares without either an initial
or contingent deferred sales charge, as long as the shares are
held for one year or more. Class C shares do not convert to any
other class of shares of the Fund and incur higher distribution
services fees and transfer agency costs than Class A shares and
Advisor Class shares, and will thus have a higher expense ratio
and pay correspondingly lower dividends than Class A shares and
Advisor Class shares.
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1% of the lesser of the cost of shares being redeemed or net
asset value at the time of redemption. Accordingly, no sales
charge will be imposed on increases in net asset value above the
initial purchase price. In addition, no charge will be assessed
on shares derived from reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge on Class C
shares will be waived on certain redemptions, as described above
under "--Class B Shares."
In determining the contingent deferred sales charge
applicable to a redemption of Class C shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because the
shares have been held beyond the period during which the charge
applies or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the
time they are subject to the sales charge.
Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Funds
in connection with the sale of the Class C shares, such as the
payment of compensation to selected dealers and agents for
selling Class C shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Funds to sell the Class C shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
paid with respect to Class A and Advisor Class shares.
Conversion of Advisor Class Shares to Class A Shares
Advisor Class shares may be held solely through the fee-
based program accounts and employee benefit plans and registered
investment advisory or other financial intermediary relationships
described above under "Purchase of Shares-- General," and by
investment advisory clients of, and certain other persons
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associated with, the Adviser and its affiliates or the Trust. If
(i) a holder of Advisor Class shares ceases to participate in the
fee-based program or plan, or to be associated with the
investment adviser or financial intermediary that satisfies the
requirements to purchase shares set forth under "Purchase of
Shares--General" or (ii) the holder is otherwise no longer
eligible to purchase Advisor Class shares as described in the
Advisor Class Prospectus and this Statement of Additional
Information (each, a "Conversion Event"), then all Advisor Class
shares held by the shareholder will convert automatically and
without notice to the shareholder, other than the notice
contained in the Advisor Class Prospectus and this Statement of
Additional Information, to Class A shares of the same Funds
during the calendar month following the month in which the Funds
are informed of the occurrence of the Conversion Event. The
failure of a shareholder or a fee-based program to satisfy the
minimum investment requirements to purchase Advisor Class shares
will not constitute a Conversion Event. The conversion would
occur on the basis of the relative net asset values of the two
classes and without the imposition of any sales load, fee or
other charge. Class A shares currently bear a .30% distribution
services fee and have a higher expense ratio than Advisor Class
shares. As a result, Class A shares may pay correspondingly
lower dividends and have a lower net asset value than Advisor
Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of
counsel to the effect that the conversion of Advisor Class shares
to Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Advisor Class shares
to Class A shares may be suspended if such an opinion is no
longer available at the time such conversion is to occur. In
that event, the Advisor Class shareholder would be required to
redeem his or her Advisor Class shares, which would constitute a
taxable event under federal income tax law.
_________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in
the Funds' Prospectus under the heading "Purchase and Sale of
Shares--How to Sell Shares." If you are an Advisor Class
shareholder through an account established under a fee-based
program, your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Funds that are different from those described herein. A
transaction fee may be charged by your financial representative
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with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
REDEMPTION
Subject only to the limitations described below, the
Funds will redeem the shares tendered to them, 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. Except for any contingent deferred
sales charge which may be applicable to Class A, Class B or
Class C shares, there is no redemption charge. Payment of the
redemption price will be made within seven days after a Fund's
receipt of such tender for redemption. If a shareholder is in
doubt about what documents are required by his or her fee-based
program or employee benefit plan, the shareholder should contact
his or her financial representative.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the SEC determines that
trading thereon is restricted, or for any period during which an
emergency (as determined by the SEC) exists as a result of which
disposal by a Fund of securities owned by it is not reasonably
practicable or as a result of which it is not reasonably
practicable for a Fund fairly to determine the value of its net
assets, or for such other periods as the SEC may by order permit
for the protection of security holders of a Fund.
Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of a Fund's
portfolio securities at the time of such redemption or
repurchase. Redemption proceeds from Class A, Class B and
Class C shares will reflect the deduction of the contingent
deferred sales charge, if any. Payment received by a shareholder
upon redemption or repurchase of his or her shares, assuming the
shares constitute capital assets in his or her hands, will result
in long-term or short-term capital gain (or loss) depending upon
the shareholder's holding period and basis in respect of the
shares redeemed.
To redeem shares of a 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 "eligible guarantor institution" as defined in
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Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended.
To redeem shares of the Funds 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 relevant 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 share certificate or certificates or, where
tender is made by mail, separately mailed to the relevant Fund.
The signature or signatures on the assignment form must be
guaranteed in the manner described above.
TELEPHONE REDEMPTION BY ELECTRONIC FUNDS TRANSFER. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer of shares for which no share certificates have
been issued by telephone at (800) 221-5672 by a shareholder who
has completed the appropriate portion of the Subscription
Application found in the Prospectus or, in the case of an
existing shareholder, an "Autosell" application obtained from
AFS. A telephone redemption request by electronic funds transfer
may not exceed $100,000 (except for certain omnibus accounts by
electronic funds transfer), and must be made by 4:00 p.m. Eastern
time on a Fund business day as defined above. Proceeds of
telephone redemptions will be sent by Electronic Funds Transfer
to a shareholder's designated bank account at a bank selected by
the shareholder that is a member of the NACHA.
TELEPHONE REDEMPTION BY CHECK. Each Fund shareholder is
eligible to request redemption by check of Fund shares for which
no share certificates have been issued, by telephone at
(800) 221-5672 before 4:00 p.m. Eastern time on a Fund business
day in an amount not exceeding $50,000. Proceeds of such
redemptions are remitted by check to the shareholder's address of
record. A shareholder otherwise eligible for telephone redemption
by check may cancel the privilege by written instruction to AFS,
or by checking the appropriate box on the Subscription
Application found in the Prospectus.
TELEPHONE REDEMPTIONS--GENERAL. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching AFS by telephone (although no such
difficulty was apparent at any time in connection with the 1987
market break). If a shareholder were to experience such
difficulty, the shareholder should issue written instructions to
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AFS at the address shown on the cover of this Statement of
Additional Information. The Funds reserve the right to suspend
or terminate their telephone redemption service at any time
without notice. Telephone redemption is not available with
respect to shares (i) for which certificates have been issued,
(ii) held in nominee or "street name" accounts, (iii) held by a
shareholder who has changed his or her address of record within
the preceding 30 calendar days or (iv) held in any retirement
plan account. Neither the Funds nor the Adviser, the Principal
Underwriter nor AFS will be responsible for the authenticity of
telephone requests for redemptions that a Fund reasonably
believes to be genuine. The Funds will employ reasonable
procedures in order to verify that telephone requests for
redemptions are genuine, including, among others, recording such
telephone instructions and causing written confirmations of the
resulting transactions to be sent to shareholders. If a Fund did
not employ such procedures, it could be liable for losses arising
from unauthorized or fraudulent telephone instructions. Selected
dealers or agents may charge a commission for handling telephone
requests for redemptions.
REPURCHASE
The Funds may repurchase shares through the Principal
Underwriter, selected financial intermediaries or selected
dealers or agents. The repurchase price will be the net asset
value next determined after the Principal Underwriter receives
the request (less the contingent deferred sales charge, if any,
with respect to the Class A, Class B and Class C shares), except
that requests placed through selected dealers or agents before
the close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of the close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary or selected
dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. Eastern time (certain
selected dealers, agents or financial representatives may enter
into operating agreements permitting them to transmit purchase
information to the Principal Underwriter after 5:00 p.m. Eastern
time and receive that day's net asset value). If the financial
intermediary or selected dealer or agent fails to do so, the
shareholder's right to receive that day's closing price must be
settled between the shareholder and the dealer or agent. A
shareholder may offer shares of a Fund to the Principal
Underwriter either directly or through a selected dealer or
agent. Neither the Funds nor the Principal Underwriter charges a
fee or commission in connection with the repurchase of shares
(except for the contingent deferred sales charge, if any, with
respect to Class A, Class B and Class C shares). Normally, if
shares of the Funds are offered through a financial intermediary
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or selected dealer or agent, the repurchase is settled by the
shareholder as an ordinary transaction with or through the
selected dealer or agent, who may charge the shareholder for this
service. The repurchase of shares of the Funds as described
above is a voluntary service of the Funds and the Funds may
suspend or terminate this practice at any time.
GENERAL
The Funds reserve the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days' written notice to increase the
account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
of the Funds recently purchased by check, redemption proceeds
will not be made available until the relevant Fund is reasonably
assured that the check has cleared, normally up to 15 calendar
days following the purchase date.
_________________________________________________________________
SHAREHOLDER SERVICES
_________________________________________________________________
The following information supplements that set forth in
the Funds' Prospectus under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set
forth below are applicable to Class A, Class B, Class C and
Advisor Class shares unless otherwise indicated. If you are an
Advisor Class shareholder through an account established under a
fee-based program, your fee-based program may impose requirements
with respect to the purchase, sale or exchange of Advisor Class
shares of the Funds that are different from those described
herein. A transaction fee may be charged by your financial
representative with respect to the purchase, sale or exchange of
Advisor Class shares made through such financial representative.
AUTOMATIC INVESTMENT PROGRAM
Investors may purchase shares of the Funds through an
automatic investment program utilizing Electronic Funds Transfers
drawn on the investor's own bank account. Under such a program,
pre-authorized monthly drafts for a fixed amount (at least $25)
are used to purchase shares through the selected dealer or
selected agent designated by the investor at the public offering
price next determined after the Principal Underwriter receives
the proceeds from the investor's bank. In electronic form,
drafts can be made on or about a date each month selected by the
shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment
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should complete the appropriate portion of the Subscription
Application found in the Prospectus. Current shareholders should
contact AFS at the address or telephone numbers shown on the
cover of this Statement of Additional Information to establish an
automatic investment program.
EXCHANGE PRIVILEGE
You may exchange your investment in the Funds for shares
of the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by the Adviser).
In addition, (i) present officers and full-time employees of the
Adviser, (ii) present Directors or Trustees of any Alliance
Mutual Fund and (iii) certain employee benefit plans for
employees of the Adviser, the Principal Underwriter, AFS and
their affiliates may exchange Class A shares of any Alliance
Mutual Fund for Advisor Class shares of any other Alliance Mutual
Fund, including the Funds. Exchanges of shares are made at the
net asset value next determined after receipt of a properly
completed exchange request and without sales or service charges.
Exchanges may be made by telephone or written request. Telephone
exchange requests must be received by AFS by 4:00 p.m. Eastern
time on a Fund business day in order to receive that day's net
asset value.
Shares will continue to age without regard to exchanges
for purpose of determining the CDSC, if any, upon redemption and,
in the case of Class B shares, for the purpose of conversion to
Class A shares. After an exchange, your Class B shares will
automatically convert to Class A shares in accordance with the
conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original
shares"). When redemption occurs, the CDSC applicable to the
original shares is applied.
Please read carefully the prospectus of the mutual fund
into which you are exchanging before submitting the request. Call
AFS at (800) 221-5672 to exchange uncertificated shares. An
exchange is a taxable capital transaction for federal tax
purposes. The exchange service may be changed, suspended or
terminated on 60 days' written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's prospectus or
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(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date. Exchanges of shares of Alliance Mutual Funds
will generally result in the realization of a capital gain or
loss for federal income tax purposes.
Each Fund shareholder, and the shareholder's selected
dealer, agent or financial representative, as applicable, are
authorized to make telephone requests for exchanges unless AFS
receives written instruction to the contrary from the
shareholder, or the shareholder declines the privilege by
checking the appropriate box on the Subscription Application
found in the Prospectus. Such telephone requests cannot be
accepted with respect to shares then represented by share
certificates. Shares acquired pursuant to a telephone request
for exchange will be held under the same account registration as
the shares redeemed through such exchange.
Eligible shareholders desiring to make an exchange
should telephone AFS with their account number and other details
of the exchange at (800) 221-5672 before 4:00 p.m. Eastern time
on a Fund business day as defined above. Telephone requests for
exchange received before 4:00 p.m. Eastern time on a Fund
business day will be processed as of the close of business on
that day. During periods of drastic economic or market
developments, such as the market break of October 1987, it is
possible that shareholders would have difficulty in reaching AFS
by telephone (although no such difficulty was apparent at any
time in connection with the 1987 market break). If a shareholder
were to experience such difficulty, the shareholder should issue
written instructions to AFS at the address shown on the cover of
this Statement of Additional Information.
A shareholder may elect to initiate a monthly "Auto
Exchange" whereby a specified dollar amount's worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares
of another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the Fund
business day prior thereto.
None of the Alliance Mutual Funds, the Adviser, the
Principal Underwriter or AFS will be responsible for the
authenticity of telephone requests for exchanges that a Fund
reasonably believes to be genuine. AFS will employ reasonable
procedures in order to verify that telephone requests for
exchanges are genuine, including, among others, recording such
telephone instructions and causing written confirmations of the
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resulting transactions to be sent to shareholders. If AFS did
not employ such procedures, it could be liable for losses arising
from unauthorized or fraudulent telephone instructions. Selected
dealers, agents or financial representatives, as applicable, may
charge a commission for handling telephone requests for
exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Funds being acquired may legally be
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to modify, restrict or
terminate the exchange privilege.
RETIREMENT PLANS
The Funds may be a suitable investment vehicle for part
or all of the assets held in various types of retirement plans,
such as those listed below. The Funds have available forms of
such plans pursuant to which investments can be made in a Fund
and other Alliance Mutual Funds. Persons desiring information
concerning these plans should contact AFS at the "For Literature"
telephone number on the cover of this Statement of Additional
Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 07096-1520
INDIVIDUAL RETIREMENT ACCOUNT ("IRA"). Individuals who
receive compensation, including earnings from self-employment,
are entitled to establish and make contributions to an IRA.
Taxation of the income and gains paid to an IRA by a Fund is
deferred until distribution from the IRA. An individual's
eligible contributions to an IRA will be deductible if neither
the individual nor his or her spouse is an active participant in
an employer-sponsored retirement plan. If the individual or his
or her spouse is an active participant in an employer-sponsored
retirement plan, the individual's contributions to an IRA may be
deductible, in whole or in part, depending on the amount of the
adjusted gross income of the individual and his or her spouse.
EMPLOYER-SPONSORED QUALIFIED RETIREMENT PLANS. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including
Section 401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals. The minimum
initial investment requirement may be waived with respect to
certain of these qualified plans.
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If the aggregate net asset value of shares of the
Alliance Mutual Funds held by a qualified plan reaches $5 million
on or before December 15 in any year, all Class B shares or
Class C shares of the Fund held by such plan can be exchanged, at
the plan's request, without any sales charge, for Class A shares
of such Fund.
SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
IRA established by each eligible employee within prescribed
limits based on employee compensation.
403(b)(7) RETIREMENT PLAN. Certain tax-exempt
organizations and public educational institutions may sponsor
retirement plans under which an employee may agree that monies
deducted from his or her compensation (minimum $25 per pay
period) may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable, which serves as custodian or trustee
under the retirement plan prototype forms available from the
Funds, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
to AFS as compensation for its services to the retirement plan
accounts maintained with a Fund.
Distributions from retirement plans are subject to
certain Code requirements in addition to normal redemption
procedures. For additional information please contact AFS at the
address or "For Literature" telephone number shown on the cover
of this Statement of Additional Information.
DIVIDEND DIRECTION PLAN
A shareholder who already maintains, in addition to his
or her Class A, Class B, Class C or Advisor Class Fund accounts,
a Class A, Class B, Class C or Advisor Class account with one or
more other Alliance Mutual Funds may direct that income dividends
and/or capital gains distributions paid on his or her Class A,
Class B, Class C or Advisor Class Fund shares be automatically
reinvested, in any amount, without the payment of any sales or
service charges, in shares of the same class of such other
Alliance Mutual Fund(s). Further information can be obtained by
contacting AFS at the address or the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Investors wishing to establish a dividend direction
plan in connection with their initial investment should complete
the appropriate section of the Subscription Application found in
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the Prospectus. Current shareholders should contact AFS to
establish a dividend direction plan.
SYSTEMATIC WITHDRAWAL PLAN
General. Any shareholder who owns or purchases shares
of a Fund having a current net asset value of at least $4,000
(for quarterly or less frequent payments), $5,000 (for bi-monthly
payments) or $10,000 (for monthly payments) may establish a
systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less
than $50 on a selected date. Systematic withdrawal plan
participants must elect to have their dividends and distributions
from a Fund automatically reinvested in additional shares of that
Fund.
Shares of a Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such payments will be subject to any
taxes applicable to redemptions and, except as discussed below,
any applicable contingent deferred sales charge. Shares acquired
with reinvested dividends and distributions will be liquidated
first to provide such withdrawal payments and thereafter other
shares will be liquidated to the extent necessary, and depending
upon the amount withdrawn, the investor's principal may be
depleted. A systematic withdrawal plan may be terminated at any
time by the shareholder or the relevant Fund.
Withdrawal payments will not automatically end when a
shareholder's account reaches a certain minimum level. Therefore,
redemptions of shares under the plan may reduce or even liquidate
a shareholder's account and may subject the shareholder to a
Fund's involuntary redemption provisions. See "How to Sell
Shares--General." Purchases of additional shares concurrently
with withdrawals are undesirable because of sales charges imposed
when the purchases are made. While an occasional lump-sum
investment may be made by a holder of Class A shares who is
maintaining a systematic withdrawal plan, such investment should
normally be an amount equivalent to three times the annual
withdrawal or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made
by check or electronically via the Automated Clearing House
("ACH") network. Investors wishing to establish a systematic
withdrawal plan in conjunction with their initial investment in
shares of a Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus, while current
Fund shareholders desiring to do so can obtain an application
form by contacting AFS at the address or the "For Literature"
telephone number shown on the cover of this Statement of
Additional Information.
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CDSC WAIVER FOR CLASS B SHARES AND CLASS C SHARES.
Under a systematic withdrawal plan, up to 1% monthly, 2%
bi-monthly or 3% quarterly of the value at the time of redemption
of the Class B or Class C shares in a shareholder's account may
be redeemed free of any contingent deferred sales charge.
With respect to Class B shares, the waiver applies only
with respect to shares acquired after July 1, 1995. Class B
shares that are not subject to a contingent deferred sales charge
(such as shares acquired with reinvested dividends or
distributions) will be redeemed first and will count toward the
foregoing limitations. Remaining Class B shares that are held
the longest will be redeemed next. Redemptions of Class B shares
in excess of the foregoing limitations will be subject to any
otherwise applicable contingent deferred sales charge.
With respect to Class C shares, shares held the longest
will be redeemed first and will count toward the foregoing
limitations. Redemptions in excess of those limitations will be
subject to any otherwise applicable contingent deferred sales
charge.
STATEMENTS AND REPORTS
Each shareholder receives semi-annual and annual reports
which include a portfolio of investments, financial statements
and, in the case of the annual report, the report of the Trust's
independent accountants, PricewaterhouseCoopers LLP, as well as a
confirmation of each purchase and redemption. By contacting his
or her broker or AFS, a shareholder can arrange for copies of his
or her account statements to be sent to another person.
_________________________________________________________________
NET ASSET VALUE
_________________________________________________________________
The per share net asset value is computed in accordance
with the Fund's Articles of Incorporation and By-Laws at the next
close of regular trading on the Exchange (ordinarily 4:00 p.m.
Eastern time) following receipt of a purchase or redemption order
by the Fund on each Fund business day on which such an order is
received and on such other days as the Board of Directors deems
appropriate or necessary in order to comply with Rule 22c-1 under
the 1940 Act. The Fund's per share net asset value is calculated
by dividing the value of the Fund's total assets, less its
liabilities, by the total number of its shares then outstanding.
A Fund business day is any weekday on which the Exchange is open
for trading.
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In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Board's duties with respect to the following procedures.
Readily marketable securities listed on the Exchange or on a
foreign securities exchange (other than foreign securities
exchanges whose operations are similar to those of the United
States over-the-counter market) are valued, except as indicted
below, at the last sale price reflected on the consolidated tape
at the close of the Exchange or, in the case of a foreign
securities exchange, at the last quoted sale price, in each case
on the business day as of which such value is being determined.
If there has been no sale on such day, the securities are valued
at the mean of the closing bid and asked prices on such day. If
no bid or asked prices are quoted on such day, then the security
is valued in good faith at fair value by, or in accordance with
procedures established by, the Board of Directors. Readily
marketable securities not listed on the Exchange or on a foreign
securities exchange but listed on other United States national
securities exchanges or traded on The Nasdaq Stock Market, Inc.
are valued in like manner. Portfolio securities traded on the
Exchange and on one or more foreign or other national securities
exchanges, and portfolio securities not traded on the Exchange
but traded on one or more foreign or other national securities
exchanges are valued in accordance with these procedures by
reference to the principal exchange on which the securities are
traded.
Readily marketable securities traded in the over-the-
counter market, securities listed on a foreign securities
exchange whose operations are similar to those of the United
States over-the-counter market, and securities listed on a U.S.
national securities exchange whose primary market is believed to
be over-the-counter (but excluding securities traded on The
Nasdaq Stock Market, Inc.), are valued at the mean of the current
bid and asked prices as reported by Nasdaq or, in the case of
securities not quoted by Nasdaq, the National Quotation Bureau or
another comparable sources.
Listed put or call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that
day, such securities will be valued at the closing bid prices on
that day.
Open futures contracts and options thereon will be
valued using the closing settlement price or, in the absence of
such a price, the most recent quoted bid price, If there are no
quotations available for the day of valuations, the last
available closing settlement price will be used.
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U.S. Government Securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that
this method does not represent fair value).
Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
The prices provided by pricing service take into account many
factors, including institutional size trading in similar groups
of securities and any developments related to specific
securities.
All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund business
day. In addition, trading in foreign markets may not take place
on all Fund business days. Furthermore, trading may take place
in various foreign markets on days that are not Fund business
days. The Fund's calculation of the net asset value per share,
therefore, does not always take place contemporaneously with the
most recent determination of the prices of portfolio securities
in these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are
determined in accordance with the above procedures and the close
of the Exchange will not be reflected in the Fund's calculation
of net asset value unless it is believed that these prices do not
reflect current market value, in which case the securities will
be valued in good faith by, or in accordance with procedures
established by, the Board of Directors at fair value.
The Board of Directors may suspend the determination of
the Fund's, net asset value (and the offering and sale of
shares), subject to the rules of the Commission and other
governmental rules and regulations, at a time when: (1) the
Exchange is closed, other than customary weekend and holiday
closings, (2) an emergency exists as a result of which it is not
reasonably practicable for the Fund to dispose of securities
owned by it or to determine fairly the value of its net assets,
or (3) for the protection of shareholders, the Commission by
order permits a suspension of the right of redemption or a
postponement of the date of payment on redemption.
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For purposes of determining the Fund's net asset value
per share, all assets and liabilities initially expressed in a
foreign currency will be converted into U.S. dollars at the mean
of the current bid and asked prices of such currency against the
U.S. dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class A shares, Class B
shares, Class C shares and Advisor Class shares will be invested
together in a single portfolio. The net asset value of each
class will be determined separately by subtracting the
liabilities allocated to that class from the assets belonging to
that class in conformance with the provisions of a plan adopted
by the Fund in accordance with Rule 18f-3 under the 1940 Act.
_________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_________________________________________________________________
UNITED STATES FEDERAL INCOME TAXATION OF DIVIDENDS AND
DISTRIBUTIONS
General. Each Fund intends to qualify for tax treatment
as a "regulated investment company" under the Code for each
taxable year. In order to qualify as a regulated investment
company, each Fund must, among other things, (1) derive at least
90% of its gross income from dividends, interest, payments with
respect to securities loans, and gains from the sale or other
disposition of stock or securities, foreign currencies or other
income (including gains from options, futures or forward
contracts) derived with respect to its business of investing in
stock, securities or currencies and (2) diversify its holdings
so that at the end of each quarter of its taxable year, the
following two conditions are met: (i) at least 50% of the market
value of the Fund's assets is represented by cash or cash items,
U.S. Government Securities, securities of other regulated
investment companies, and other securities limited, in respect of
any one issuer, to an amount not greater than 5% of the value of
the Fund's assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other
than U.S. Government Securities or securities of other regulated
investment companies) or of two or more issuers that the Fund
controls and that are engaged in the same, similar or related
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trades or businesses. These requirements may limit the range of
the Fund's investments.
If a Fund qualifies as a regulated investment company,
it will not be subject to federal income tax on the part of its
income distributed to shareholders, provided the Fund distributes
during its taxable year at least (a) 90% of its taxable net
investment income (generally, dividends, interest, certain other
income, and the excess, if any, of net short-term capital gain
over net long-term capital loss) and (b) 90% of the excess of
(i) its tax-exempt interest income less (ii) certain deductions
attributable to that income. Each Fund intends to make
sufficient distributions to shareholders to meet this
requirement. Investors should consult their own counsel for a
complete understanding of the requirements the Funds must meet to
qualify for such treatment.
In addition, if a Fund fails to distribute in a calendar
year substantially all of its ordinary income for such year and
substantially all of its capital gain net income for the one-year
period ending October 31 (or later if the Fund is permitted so to
elect and so elects), plus any retained amount from the prior
year, the Fund will be subject to a 4% excise tax on the
undistributed amounts. A dividend paid to shareholders by a Fund
in January of a year generally is deemed to have been paid by the
Fund on December 31 of the preceding year, if the dividend was
declared and payable to shareholders of record on a date in
October, November or December of that preceding year. The Funds
intend generally to make distributions sufficient to avoid
imposition of the 4% excise tax.
The information set forth in the Funds' Prospectus and
the following discussion relates solely to federal income taxes
on dividends and distributions by a Fund and assumes that each
Fund qualifies as a regulated investment company. Investors
should consult their own counsel for further details and for the
application of state and local tax laws to his or her particular
situation.
Dividends out of net ordinary income and distributions
of net short-term capital gains are taxable to shareholders as
ordinary income. The dividends-received deduction for
corporations should also be applicable to a Fund's dividends of
net investment income, but only to the extent so designated by
the Fund. The amount of such dividends and distributions that
may be designated by the Fund as eligible for the dividends-
received deduction is limited to the amount qualifying of
dividends from domestic corporations received by a Fund during
the fiscal year. Furthermore, provisions of the tax law disallow
the dividends- received deduction to the extent a corporation's
investment in shares of a Fund is financed with indebtedness.
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The dividends- received deduction shall also be disallowed with
respect to a dividend unless the corporate shareholder held its
shares without protection from risk of loss on the ex-dividend
date and for at least 45 more days during the 90-day period
beginning 45 days prior to the ex-dividend date.
Distributions of net capital gains designated by the
Fund as such (i.e., the excess of net long-term capital gain over
net short-term capital loss) are taxable as long-term capital
gain (generally at a 20% rate for noncorporate shareholders),
regardless of how long a shareholder has held shares in a
Fund.
Capital gains distributions are not eligible for the
dividends-received deduction referred to above. Any dividend or
distribution received by a shareholder on shares of a Fund (even
if received shortly after the purchase of such shares by him or
her) will have the effect of reducing the net asset value of such
shares by the amount of such dividend or distribution. A loss on
the sale of shares held for six months or less will be treated as
a long-term capital loss for federal income tax purposes to the
extent of any distribution of net capital gain made with respect
to such shares.
Dividends and distributions are taxable in the manner
described above regardless of whether they are paid to the
shareholder in cash or are reinvested in additional shares of a
Fund.
Dividends and distributions on a Fund's shares are
generally subject to federal income tax as described herein to
the extent they do not exceed theFund's realized income and
gains, even though such dividends and distributions may
economically represent a return of a particular shareholder's
investment. Such distributions are likely to occur in respect of
shares purchased at a time when a Fund's net asset value reflects
gains that are either unrealized, or realized but not
distributed. Such realized gains may be required but not
distributed. Such realized gains may be required to be
distributed, even when a Fund's net asset value also reflects
unrealized losses.
For federal income tax purposes, when equity call
options which a Fund has written expire unexercised, the premiums
received by the Fund give rise to short-term capital gains at the
time of expiration. When a call written by a Fund is exercised,
the selling price or purchase price of stock is increased by the
amount of the premium, and the nature of the gain or loss on the
sale of stock depends upon the holding period of the stock.
There may be short-term gains or losses associated with closing
purchase transactions.
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A Fund's hedging transactions, including hedging
transactions in options, futures contracts and straddles, or
other similar transactions, will subject the Fund to special tax
rules (including mark-to-market, straddle, wash sale and short
sale rules), the effect of which may be to accelerate income to a
Fund, defer losses to a Fund, cause adjustments in the holding
periods of a Fund's securities, or convert short-term capital
losses into long-term capital losses. These rules could
therefore affect the amount, timing and character of
distributions to shareholders. Each Fund will endeavor to make
any available elections pertaining to such transactions in a
manner believed to be in the best interest of the Fund.
Each Fund is required to withhold and remit to the U.S.
Treasury 31% of all dividend income paid to any shareholder
account for which an incorrect or no taxpayer identification
number has been provided or where the Fund is notified that the
shareholder has under-reported income in the past (or the
shareholder fails to certify that he or she is not subject to
such withholding). In addition, the Fund will be required to
withhold and remit to the U.S. Treasury 31% of the amount of the
proceeds of any redemption of shares of a shareholder account for
which an incorrect or no taxpayer identification number has been
provided.
The foregoing discussion relates only to U.S. federal
income tax law as it affects U.S. shareholders. The effects of
federal income tax law on non-U.S. shareholders may be
substantially different. Foreign investors should consult their
counsel for further information as to the U.S. tax consequences
of investing in a Fund.
_________________________________________________________________
GENERAL INFORMATION
_________________________________________________________________
DESCRIPTION OF THE TRUST
The Trust is organized as a Massachusetts business trust
under the laws of The Commonwealth of Massachusetts by an
Agreement and Declaration of Trust ("Declaration of Trust") dated
March 26, 1987, a copy of which is on file with the Secretary of
State of The Commonwealth of Massachusetts. The Trust is a
"series" company as described in Rule 18f-2 under the 1940 Act,
having five separate portfolios, each of which is represented by
a separate series of shares. In addition to the Funds, the other
portfolios of the Trust are Alliance Short-Term U.S. Government
Fund, Alliance Conservative Investors Fund and Alliance Growth
Investors Fund.
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The Declaration of Trust permits the Trustees to issue
an unlimited number of full and fractional shares of each series
and of each class of shares thereof. The shares of each Fund and
each class thereof do not have any preemptive rights. Upon
termination of any Fund or any class thereof, whether pursuant to
liquidation of the Trust or otherwise, shareholders of that Fund
or that class are entitled to share pro rata in the net assets of
that Fund or that class then available for distribution to such
shareholders.
The assets received by the Trust for the issue or sale
of the Class A, Class B, Class C and Advisor Class shares of each
Fund and all income, earnings, profits, losses and proceeds
therefrom, subject only to the rights of creditors, are allocated
to, and constitute the underlying assets of, the appropriate
class of that Fund. The underlying assets of each Fund and each
class of shares thereof are segregated and are charged with the
expenses with respect to that Fund and that class and with a
share of the general expenses of the Trust. While the expenses
of the Trust are allocated to the separate books of account of
each series and each class of shares thereof, certain expenses
may be legally chargeable against the assets of all series or a
particular class of shares thereof.
The Declaration of Trust provides for the perpetual
existence of the Trust. The Trust or any Fund, however, may be
terminated at any time by vote of at least a majority of the
outstanding shares of each Fund affected. The Declaration of
Trust further provides that the Trustees may also terminate the
Trust upon written notice to the shareholders.
CAPITALIZATION
Except as noted below under "Shareholder and Trustee
Liability," all shares of the Funds when duly issued will be
fully paid and non-assessable.
Set forth below is certain information as to all persons
who owned of record or beneficially 5% or more of any class of
the Funds' outstanding shares at January 16, 1998 in the case of
Growth Fund, and October 9, 1998 in the case of Strategic
Balanced Fund:
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NAMES AND ADDRESSES NO. OF SHARES % OF CLASS
GROWTH FUND--CLASS A
MLPF&S For The Sole Benefit 2,170,951 10.95%
of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246-6486
CLASS B
Merrill Lynch 21,176,004 19.71%
Mutual Fund Operations
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246-6486
CLASS C
MLPF&S for the Sole 7,203,556 40.16%
Benefit of Customers
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246-6486
ADVISOR CLASS
Merrill Lynch 2,447,991 91.43%
Mutual Fund Operations
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246-6486
Trust for Profit 164,328 6.14%
Sharing Plan For
Employees of Alliance
Capital Management L.P. Plan R
Attn: Jill Smith-32nd Fl.
1345 Avenue of the Americas
New York, NY 10105-0302
STRATEGIC BALANCED FUND--CLASS C
MLPF&S 42,548 21.16%
For the Sole Benefit of its
Customers
ATTN: Fund Admin. (97B77)
4800 Deer Lake Drive East 2nd Floor
Jacksonville, FL 32245-6484
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ADVISOR CLASS
Alliance Fund Services 1,128 47.04%
Audit Output Account
Attn: Corporate Actions
P.O. Box 1520
Secaucus, NJ 07096-1520
Alliance Fund Services 1,424 52.60%
Audit Output Account
Attn: Corporate Actions
P.O. Box 1520
Secaucus, NJ 07096-1520
VOTING RIGHTS
As summarized in the Prospectus, shareholders are
entitled to one vote for each full share held (with fractional
votes for fractional shares held) and will vote (to the extent
provided herein) in the election of Trustees and the termination
of the Trust or a Fund and on other matters submitted to the vote
of shareholders.
The By-Laws of the Trust provide that the shareholders
of any particular series or class shall not be entitled to vote
on any matters as to which such series or class is not affected.
Except with respect to matters as to which the Trustees have
determined that only the interests of one or more particular
series or classes are affected or as required by law, all of the
shares of each series or class shall, on matters as to which such
series or class is entitled to vote, vote with other series or
classes so entitled as a single class. Notwithstanding the
foregoing, with respect to matters which would otherwise be voted
on by two or more series or classes as a single class, the
Trustees may, in their sole discretion, submit such matters to
the shareholders of any or all such series or classes,
separately. Rule 18f-2 under the 1940 Act provides in effect
that a series shall be deemed to be affected by a matter unless
it is clear that the interests of each series in the matter are
substantially identical or that the matter does not affect any
interest of such series. Although not governed by Rule 18f-2,
shares of each class of a Fund will vote separately with respect
to matters pertaining to the respective Distribution Plans
applicable to each class.
The terms "shareholder approval" and "majority of the
outstanding voting securities" as used in the Prospectus and this
Statement of Additional Information mean the lesser of (i) 67% or
more of the shares of the applicable Fund or applicable class
thereof represented at a meeting at which more than 50% of the
outstanding shares of such Fund or such class are represented or
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(ii) more than 50% of the outstanding shares of such Fund or such
class.
There will normally be no meetings of shareholders for
the purpose of electing Trustees, except that in accordance with
the 1940 Act (i) the Trust will hold a shareholders' meeting for
the election of Trustees at such time as less than a majority of
the Trustees holding office have been elected by shareholders,
and (ii) if, as a result of a vacancy on the Board of Trustees,
less than two-thirds of the Trustees holding office have been
elected by the shareholders, that vacancy may only be filled by a
vote of the shareholders. The Funds' shares have non-cumulative
voting rights, which means that the holders of more than 50% of
the shares voting for the election of Trustees can elect 100% of
the Trustees if they choose to do so, and in such event the
holders of the remaining less than 50% of the shares voting for
such election of Trustees will not be able to elect any person or
persons to the Board of Trustees. A special meeting of
shareholders for any purpose may be called by 10% of the Trust's
outstanding shareholders.
Except as set forth above, the Trustees shall continue
to hold office and may appoint successor Trustees.
No amendment may be made to the Declaration of Trust
without the affirmative vote of a majority of the outstanding
shares of the Trust except (i) to change the Trust's name,
(ii) to establish, change or eliminate the par value of shares or
(iii) to supply any omission, cure any ambiguity or cure, correct
or supplement any defective or inconsistent provision contained
in the Declaration of Trust.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law shareholders could, under
certain circumstances, be held personally liable for the
obligations of the Trust. However, the Declaration of Trust
disclaims shareholder liability for acts or obligations of the
Trust and requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or
executed by the Trust or the Trustees. The Declaration of Trust
provides for indemnification out of a Fund's property for all
loss and expense of any shareholder of that Fund held liable on
account of being or having been a shareholder. Thus, the risk of
a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund of which
he or she was a shareholder would be unable to meet its
obligations.
The Declaration of Trust further provides that the
Trustees will not be liable for errors of judgment or mistakes of
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fact or law. However, nothing in the Declaration of Trust
protects a Trustee against any liability to which the Trustee
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his or her office. The By-Laws of the
Trust provide for indemnification by the Trust of the Trustees
and the officers of the Trust but no such person may be
indemnified against any liability to the Trust or the Trust's
shareholders to which he or she would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his
or her office.
COUNSEL
Legal matters in connection with the issuance of the
shares of the Funds offered hereby are passed upon by Ropes &
Gray, One International Place, Boston, Massachusetts 02110.
INDEPENDENT ACCOUNTANTS
The financial statements of the Strategic Balanced Fund
for the fiscal year ended July 31, 1998, and of the Growth Fund
for the fiscal year ended October 31, 1997, which are included in
this Statement of Additional Information, have been audited by
PricewaterhouseCoopers LLP, the Trust's independent accountants
for such period, as stated in their report appearing herein, and
have been so included in reliance upon such report given upon the
authority of that firm as experts in accounting and auditing.
PERFORMANCE INFORMATION
From time to time, a Fund may advertise its "total
return." Total return is computed separately for Class A,
Class B, Class C and Advisor Class shares. Such advertisements
disclose a Fund's average annual compounded total return for its
most recently completed one-, five- and ten-year periods (or the
life of a Fund or class, if shorter). Total return for each such
period is computed by finding, through the use of a formula
prescribed by the SEC, the average annual compounded rate of
return over such 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 received and the maximum
sales charge applicable to purchases of Fund shares is assumed to
have been paid.
The average annual compounded total return for Class A
shares of the Growth Fund was 29.54% for the one-year period
ended October 31, 1997, 21.87% for the five-year period ended
90
<PAGE>
October 31, 1997, and 23.28% for the period September 4, 1990
(commencement of distribution of Class A shares), through
October 31, 1997. The average annual compounded total return for
Class B shares of the Growth Fund was 28.64% for the one-year
period ended October 31, 1997, 21.04% for the five-year period
ended October 31, 1997, and 21.01% for the ten year period
through October 31, 1997. The average annual compounded total
return for Class C shares of the Growth Fund was 28.66% for the
one-year period ended October 31, 1997, and 18.31% for the period
August 2, 1993 (commencement of distribution of Class C shares)
through October 31, 1997. The average annual compounded total
return for Advisor Class shares of the Growth Fund was 30.09% for
the period October 2, 1996 (commencement of operations) through
October 31, 1997.
The average annual compounded total return for Class A
shares of the Strategic Balanced Fund was 10.50% for the one-year
period ended July 31, 1998, 10.54% for the five-year period ended
July 31, 1998, and 12.91% for the period September 4, 1990
(commencement of distribution of Class A shares) through July 31,
1998. The average annual compounded total return for Class B
shares of the Strategic Balanced Fund was 9.78% for the one-year
period ended July 31, 1998, 13.20% for the five-year period ended
July 31, 1998, and 11.72% for the ten-year period ended July 31,
1998. The average annual compounded total return for Class C
shares of the Strategic Balanced Fund was 9.78% for the one-year
period ended July 31, 1998, and was 9.79% for the five-year
period ended July 31, 1998. The average annual compounded total
return for Advisor Class shares of the Strategic Balanced Fund
was 10.32% for the one-year period ended July 31, 1998, and was
6.40% for the period October 2, 1996 (commencement of operations)
through July 31, 1998.
Each Fund's total return is computed separately for
Class A, Class B, Class C and Advisor Class shares. A Fund's
total return is not fixed and will fluctuate in response to
prevailing market conditions or as a function of the type and
quality of the securities in the Fund's portfolio and the Fund's
expenses. Total return information is useful in reviewing the
Fund's performance but such information may not provide a basis
for comparison with bank deposits or other investments which pay
a fixed return for a stated period of time. An investor's
principal invested in the Fund is not fixed and will fluctuate in
response to prevailing market conditions.
Advertisements quoting performance rankings of a Fund as
measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc. and
Morningstar, Inc., and advertisements presenting the historical
performance of such Fund, may also from time to time be sent to
investors or placed in newspapers and magazines such as The
91
<PAGE>
New York Times, The Wall Street Journal, Barrons, Investor's
Daily, Money Magazine, Changing Times, Business Week and Forbes
or other media on behalf of such Fund.
ADDITIONAL INFORMATION
This Statement of Additional Information does not
contain all the information set forth in the Registration
Statement filed by the Trust with the SEC under the Securities
Act of 1933. Copies of the Registration Statement may be
obtained at a reasonable charge from the SEC or may be examined,
without charge, at the offices of the SEC in Washington, D.C.
92
<PAGE>
____________________________________________________________
FINANCIAL STATEMENTS AND REPORT
OF INDEPENDENT ACCOUNTANTS
____________________________________________________________
93
<PAGE>
ALLIANCE GROWTH FUND
SEMI-ANNUAL REPORT
APRIL 30, 1998
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS
APRIL 30, 1998 (UNAUDITED) ALLIANCE GROWTH FUND
_______________________________________________________________________________
COMPANY SHARES VALUE
- ---------------------------------------------------------------------------
COMMON & PREFERRED STOCKS-98.9%
TECHNOLOGY-31.2%
BUSINESS SERVICES-0.7%
Reuters Group Plc (ADR) 657,080 $ 42,586,997
COMMUNICATION EQUIPMENT-0.1%
Ericsson (L.M.) Telephone Co. (ADR) Cl.B 100,000 5,143,750
COMPUTER HARDWARE-0.7%
Compaq Computer Corp. (a)(b) 450,000 12,628,125
International Business Machines Corp. 250,000 28,968,750
-------------
41,596,875
COMPUTER SOFTWARE & SERVICES-5.1%
Ceridian Corp. (a) 2,209,800 124,991,813
First Data Corp. 410,000 13,888,750
Oracle Corp. (a) 200,000 5,175,000
Sterling Commerce, Inc. (a)(b) 2,029,044 86,361,185
Sterling Software, Inc. (a) 3,332,000 88,089,750
-------------
318,506,498
ELECTRONICS-5.8%
3Com Corp. (a)(b) 2,453,700 84,039,225
Applied Magnetics Corp. (a) 100 1,031
EMC Corp. (a) 443,000 20,433,375
SCI Systems, Inc. (a)(b) 400,000 16,475,000
Texas Instruments, Inc. (a)(b) 3,735,000 239,273,438
-------------
360,222,069
NETWORKING PRODUCTS-0.8%
Networks Associates, Inc. (a)(b) 750,000 51,375,000
NETWORKING SOFTWARE-5.3%
Cisco Systems, Inc. (a)(b) 4,474,000 327,720,500
OFFICE EQUIPMENT & SERVICES-0.2%
Xerox Corp. 112,400 12,757,400
SEMI-CONDUCTOR COMPONENTS-0.4%
Intel Corp. (a)(b) 100,000 8,081,250
National Semiconductor Corp. (a)(b) 750,000 16,500,000
-------------
24,581,250
TELECOMMUNICATIONS-11.6%
ADC Telecommunications, Inc.(a) 885,000 26,494,688
Colt Telecom Group Plc (ADR)(a)(c) 587,700 50,615,662
DSC Communications Corp. (a)(b) 3,252,400 58,543,200
Loral Space & Communications (a)(b) 520,000 16,282,500
Millicom International
Cellular, SA (a)(d) 512,800 20,063,300
Nextel Communications, Inc. Cl.A (a)(b) 625,600 17,946,900
Nokia Corp. (ADR) (a)(b) 884,800 59,171,000
Teleport Communications Group,
Inc. Cl.A (a) 933,400 50,286,925
Tellabs, Inc. (a)(b) 765,000 54,219,375
United States Cellular Corp. (a) 363,500 11,904,625
WorldCom, Inc.,
Common (a)(b) 7,137,591 305,355,065
8% cv. pfd. 343,000 50,828,312
-------------
721,711,552
MISCELLANEOUS-0.5%
Solectron Corp. (a)(b) 700,000 31,018,750
-------------
1,937,220,641
FINANCIAL SERVICES-26.3%
BANKING & CREDIT-9.9%
American Express Co. 600,000 61,200,000
Automatic Common Exchange
Security Trust II 337,900 8,785,400
Chase Manhattan Corp. 998,952 138,417,286
First Union Corp. 1,273,000 76,857,375
5
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE GROWTH FUND
_______________________________________________________________________________
COMPANY SHARES VALUE
- ---------------------------------------------------------------------------
MBNA Corp. (a)(b) 4,613,225 $ 156,272,997
Morgan Stanley, Dean Witter,
Discover and Co. 603,400 47,593,175
NationsBank Corp. 1,652,000 125,139,000
-------------
614,265,233
BANKING - MONEY CENTER-0.5%
Citicorp 200,000 30,100,000
BANKING - REGIONAL-0.5%
Fleet Financial Group, Inc. 107,200 9,259,400
Newcourt Credit Group, Inc. 486,300 23,889,488
-------------
33,148,888
INSURANCE-10.3%
20th Century Industries, Inc. 1,063,300 30,304,050
Acceptance Insurance Co. (a) 601,800 13,728,563
American International Group, Inc. 1,719,725 226,251,320
PennCorp Financial Group, Inc. 514,900 13,387,400
PMI Group, Inc. 520,600 42,298,750
Progressive Corp. 358,200 48,513,712
The Hartford Financial Services Group,
Inc. 201,600 22,327,200
Travelers Group, Inc. (b) 3,969,099 242,859,245
-------------
639,670,240
MORTGAGE BANKING-0.1%
Federal National Mortgage Assn. 106,200 6,358,725
REAL ESTATE-4.8%
American General Hospitality Corp. 254,600 6,380,913
Arden Realty Group, Inc. 1,294,700 36,332,519
Boston Properties, Inc. 327,200 10,818,050
CBL & Associates Properties, Inc. 44,000 1,080,750
Entertainment Properties Trust 550,100 10,830,094
Highwoods Properties, Inc. 224,200 7,622,800
JP Realty, Inc. 755,300 18,268,819
Koger Equity, Inc. 1,762,571 37,785,116
Macerich Co. 1,051,400 29,504,912
Prentiss Properties Trust 662,500 16,810,937
Simon DeBartolo Group, Inc. 216,500 7,130,969
Spieker Properties, Inc. 777,200 30,796,550
Starwood Hotels & Resorts 680,879 34,171,615
Storage USA, Inc. 383,700 14,532,637
Summit Properties, Inc. 716,700 14,647,556
Sun Communities, Inc. 520,000 18,200,000
-------------
294,914,237
MISCELLANEOUS-0.2%
Household International, Inc. 102,500 13,472,344
-------------
1,631,929,667
CONSUMER NONCYCLICALS-10.3%
DIVERSIFIED-1.2%
Republic Industries, Inc. (a)(b) 2,722,000 75,705,625
DRUGS-4.2%
Abbott Laboratories 238,300 17,425,688
Astra AB, Series A (e) 545,000 11,192,844
Boston Scientific Corp. (a)(b) 783,400 56,649,612
Gensia, Inc. pfd. (a)(f)(g) 68,500 1,729,625
Merck & Co., Inc. 1,126,200 135,707,100
Schering-Plough Corp. 436,000 34,934,500
-------------
257,639,369
HOSPITAL SUPPLIES & SERVICES-0.7%
Medtronic, Inc. (b) 587,800 30,932,975
Quest Medical, Inc. (a) 265,225 2,552,791
United Healthcare Corp. 125,000 8,781,250
-------------
42,267,016
TOBACCO-4.2%
Loews Corp. 1,150,000 115,071,875
Philip Morris Cos., Inc. (b) 3,923,400 146,391,862
-------------
261,463,737
-------------
637,075,747
6
ALLIANCE GROWTH FUND
_______________________________________________________________________________
COMPANY SHARES VALUE
- ---------------------------------------------------------------------------
BUSINESS SERVICES-8.0%
PRINTING, PUBLISHING & BROADCASTING-7.3%
CBS Corp. (a)(b) 550,000 $ 19,593,750
Comcast Corp. Cl.A 516,500 18,497,156
Cox Communications, Inc. Cl.A (a) 231,300 10,321,763
News Corp., Ltd. (ADR) 400,000 10,925,000
TCI Group Series A (a) 1,477,865 47,661,146
TCI Ventures Group Series A (a) 8,951,670 146,024,117
Tele-Communications, Inc. -
Liberty Media Group Cl.A (a)(b) 2,414,693 80,137,624
Viacom, Inc. Cl.B (a) 2,106,000 122,148,000
-------------
455,308,556
RAILROADS-0.7%
Canadian Pacific, Ltd. (f) 1,220,000 35,913,750
Union Pacific Corp. 72,866 3,989,413
-------------
39,903,163
-------------
495,211,719
ENERGY-6.3%
DOMESTIC PRODUCERS-0.0%
Apache Corp. 34,000 1,202,750
OIL & GAS SERVICES-6.3%
Baker Hughes, Inc. (b) 376,000 15,228,000
BJ Services Co. (a)(b) 1,105,800 41,467,500
Dresser Industries, Inc. (a)(b) 1,117,400 59,082,525
Gulf Canada Resources, Ltd. (a)(f) 16,045,900 85,243,844
Halliburton Co. (b) 1,560,800 85,844,000
Nabors Industries, Inc. (a) 464,700 11,704,631
Rowan Cos., Inc. (a) 83,000 2,443,313
Santa Fe International Corp. 269,600 10,564,950
Schlumberger, Ltd. 300,000 24,862,500
Transocean Offshore, Inc. 700,000 39,112,500
Union Pacific Resources Group, Inc. 623,477 14,885,513
-------------
390,439,276
-------------
391,642,026
CONSUMER CYCLICALS-4.8%
AIRLINES-1.6%
AMR Corp. (a) 100,000 15,237,500
Delta Air Lines, Inc. 437,200 50,824,500
Northwest Airlines Corp. Cl.A (a) 208,300 10,935,750
UAL Corp. (a) 177,400 15,467,063
USAIR Group, Inc. (a) 100,000 7,112,500
-------------
99,577,313
AUTO & RELATED-0.3%
AutoZone, Inc. (a)(b) 472,300 14,257,556
Chrysler Corp. 111,000 4,460,813
-------------
18,718,369
RETAILING - GENERAL-2.9%
Home Depot, Inc. 1,257,500 87,553,437
The Limited, Inc. (b) 1,735,900 58,261,144
Wal-Mart Stores, Inc. 670,000 33,876,875
-------------
179,691,456
-------------
297,987,138
UTILITY-3.0%
TELEPHONE-3.0%
AT&T Corp. 300,000 18,018,750
MCI Communications Corp. 2,029,700 102,119,281
Telecomunicacoes Brasilieras,
SA (ADR) (a)(b) 439,400 53,524,413
Telephone and Data Systems, Inc. 312,600 14,848,500
-------------
188,510,944
CONSUMER SERVICES-3.0%
BUSINESS SERVICES-2.7%
Cendant Corp. (a)(b) 6,614,800 165,370,000
ENTERTAINMENT & LEISURE-0.3%
Carnival Corp. Cl.A 18,900 1,314,731
Royal Caribbean Cruises, Ltd. 276,400 18,898,850
-------------
20,213,581
-------------
185,583,581
7
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE GROWTH FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- ---------------------------------------------------------------------------
CAPITAL GOODS-2.9%
ENVIRONMENTAL CONTROL-0.1%
WMX Technologies, Inc. 207,000 $ 6,934,500
MACHINERY-2.6%
Mannesmann AG 127,500 101,172,996
Mannesmann AG (ADR) (h) 77,000 61,102,341
-------------
162,275,337
MISCELLANEOUS-0.2%
Allied-Signal, Inc. 200,000 8,762,500
-------------
177,972,337
HEALTH CARE-2.0%
DRUGS-2.0%
Bristol-Myers Squibb Co. 1,181,000 125,038,375
MULTI INDUSTRY COMPANIES-1.0%
Tyco International, Ltd. 1,154,112 62,899,104
BASIC INDUSTRY-0.1%
CHEMICALS-0.1%
Monsanto Co. 132,500 7,005,938
Total Common & Preferred Stocks
(cost $4,336,657,775) 6,138,077,217
LONG-TERM DEBT SECURITIES-0.5%
ELECTRONICS-0.4%
Altera Corp. conv.
5.75%, 6/15/02 (g) $15,540 24,825,150
HEALTHCARE-0.1%
Centocor, Inc.
4.75%, 2/15/05 (g) 7,960 7,999,800
Total Long-Term Debt Securities
(cost $27,419,670) 32,824,950
CONTRACTS (I)
OR PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- ---------------------------------------------------------------------------
SHORT-TERM DEBT SECURITIES-2.2%
Federal Agricultural Mortgage Corp.
5.45%, 5/20/98 $13,087 $ 13,049,564
Federal Farm Credit Bank
5.39%, 6/02/98 15,000 14,996,661
Federal Home Loan Mortgage Corp.
5.39%, 5/14/98 10,000 9,980,464
5.45%, 5/01/98 10,500 10,500,000
Federal National Mortgage Assn.
5.45%, 5/18/98 20,000 19,948,811
5.57%, 5/06/98 33,400 33,374,811
5.61%, 6/17/98 36,000 35,745,730
Total Short-Term Debt Securities
(cost $137,596,041) 137,596,041
TOTAL INVESTMENTS-101.6%
(cost $4,501,673,486) 6,308,498,208
OUTSTANDING CALL OPTIONS WRITTEN-(1.5%)
3Com Corp.
expiring April 1998
@ $35.75 (1,000) (6,000)
expiring May 1998
@ $34.94 (1,500) (169,500)
@ $36.31 (1,500) (150,000)
expiring June 1998
@ $32.00 (1,000) (379,000)
@ $32.31 (2,000) (692,000)
@ $33.06 (1,000) (277,000)
@ $33.50 (1,500) (447,000)
@ $34.19 (1,000) (203,140)
@ $35.25 (1,500) (180,855)
@ $35.36 (750) (135,750)
@ $35.72 (750) (125,250)
@ $35.75 (1,000) (182,580)
expiring July 1998
@ $32.75 (1,000) (340,000)
@ $33.33 (1,500) (446,115)
8
ALLIANCE GROWTH FUND
_______________________________________________________________________________
COMPANY CONTRACTS (I) VALUE
- ---------------------------------------------------------------------------
AutoZone, Inc.
expiring May 1998
@ $34.63 (1,000) $ (15,000)
expiring June 1998
@ $30.63 (1,000) (126,000)
@ $31.25 (1,500) (142,500)
Baker Hughes, Inc.
expiring May 1998
@ $40.75 (1,000) (180,000)
@ $42.75 (1,500) (154,500)
expiring June 1998
@ $40.75 (1,000) (287,000)
BJ Services Co.
expiring May 1998
@ $35.25 (1,400) (331,800)
expiring June 1998
@ $36.88 (750) (219,750)
Boston Scientific Corp.
expiring May 1998
@ $68.00 (1,000) (515,000)
@ $69.38 (1,000) (465,000)
expiring June 1998
@ $67.84 (1,140) (726,180)
@ $67.88 (360) (228,240)
CBS Corp.
expiring June 1998
@ $35.38 (2,000) (418,000)
Cendant Corp.
expiring May 1998
@ $23.38 (1,500) (358,500)
@ $37.63 (1,500) -0-
@ $39.56 (1,500) (10,500)
@ $41.13 (1,000) -0-
@ $41.13 (1,500) (9,000)
expiring June 1998
@ $23.38 (1,500) (493,500)
@ $36.63 (1,500) (72,000)
@ $36.63 (1,000) (12,000)
Cisco Systems, Inc.
expiring May 1998
@ $62.75 (1,000) (1,071,410)
@ $63.63 (1,000) (1,005,000)
@ $63.75 (2,500) (2,425,000)
@ $64.25 (1,000) (965,900)
@ $67.31 (1,500) (1,083,000)
expiring June 1998
@ $66.63 (2,000) (1,649,980)
@ $67.75 (1,000) (774,000)
@ $68.00 (1,000) (680,250)
@ $69.44 (1,500) (892,500)
@ $70.06 (2,000) (1,256,000)
@ $71.25 (1,000) (490,000)
Compaq Computer Corp.
expiring May 1998
@ $25.81 (2,500) (653,750)
Dresser Industries, Inc.
expiring May 1998
@ $44.00 (2,000) (1,826,000)
expiring June 1998
@ $50.63 (1,000) (454,000)
DSC Communications Corp.
expiring May 1998
@ $17.06 (2,000) (304,000)
@ $17.25 (1,500) (205,200)
@ $18.13 (2,000) (67,380)
expiring June 1998
@ $17.44 (2,000) (282,000)
@ $17.56 (2,000) (296,000)
@ $17.69 (2,000) (350,000)
@ $18.38 (1,000) (103,000)
Halliburton Co.
expiring May 1998
@ $49.38 (1,500) (879,000)
expiring June 1998
@ $50.63 (1,500) (801,000)
@ $52.21 (1,000) (427,000)
Intel Corp.
expiring May 1998
@ $77.88 (1,000) (471,000)
9
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE GROWTH FUND
_______________________________________________________________________________
COMPANY CONTRACTS (I) VALUE
- ---------------------------------------------------------------------------
Loral Space & Communications
expiring May 1998
@ $28.50 (1,000) $ (301,240)
expiring June 1998
@ $31.88 (1,000) (178,000)
MBNA Corp.
expiring May 1998
@ $33.88 (1,500) (121,500)
@ $35.75 (1,000) (45,000)
expiring June 1998
@ $37.63 (2,000) (120,000)
Medtronic, Inc.
expiring May 1998
@ $52.13 (2,000) (308,000)
National Semiconductor Corp.
expiring May 1998
@ $19.88 (2,000) (528,000)
Networks Associates, Inc.
expiring May 1998
@ $65.00 (1,000) (549,000)
expiring June 1998
@ $63.50 (2,000) (1,554,000)
@ $64.50 (1,500) (949,500)
@ $70.38 (1,500) (624,000)
@ $70.63 (1,500) (576,000)
Nextel Communications, Inc.
expiring May 1998
@ $28.44 (300) (23,100)
@ $28.75 (700) (40,600)
Nokia Corp.
expiring May 1998
@ $99.13 (3,000) (5,221,410)
@ $107.50 (3,000) (3,990,000)
expiring June 1998
@ $64.00 (1,000) (632,000)
Philip Morris Cos., Inc.
expiring May 1998
@ $42.13 (1,000) (9,000)
@ $43.13 (1,000) (4,450)
@ $43.25 (1,000) (9,610)
@ $43.75 (1,500) (7,500)
expiring June 1998
@ $37.38 (1,000) (188,000)
@ $39.50 (1,500) (142,500)
@ $39.88 (2,000) (174,000)
@ $39.94 (2,500) (204,200)
@ $39.94 (2,000) (134,000)
@ $40.06 (1,500) (133,500)
@ $44.13 (1,000) (5,000)
expiring July 1998
@ $37.19 (1,000) (206,000)
Republic Industries, Inc.
expiring May 1998
@ $23.94 (2,000) (777,980)
@ $27.50 (1,000) (123,000)
expiring June 1998
@ $25.75 (2,000) (562,000)
@ $26.50 (2,000) (528,200)
@ $28.38 (1,000) (162,000)
SCI Systems, Inc.
expiring May 1998
@ $37.00 (2,000) (964,000)
expiring June 1998
@ $41.75 (2,000) (576,400)
Solectron Corp.
expiring May 1998
@ $38.63 (1,500) (924,000)
@ $39.25 (2,000) (1,094,000)
expiring June 1998
@ $43.25 (1,500) (550,500)
Sterling Commerce, Inc.
expiring May 1998
@ $43.38 (1,500) (136,500)
@ $45.25 (1,000) (45,000)
@ $46.50 (3,000) (3,000)
expiring June 1998
@ $41.00 (1,000) (326,000)
10
ALLIANCE GROWTH FUND
_______________________________________________________________________________
COMPANY CONTRACTS (I) VALUE
- ----------------------------------------------------------------------------
Tele-Communications, Inc. -
Liberty Media Group
expiring May 1998
@ $16.25 (2,000) $ (198,000)
@ $16.25 (2,000) (68,000)
@ $16.38 (2,500) (150,000)
@ $16.44 (2,000) (182,000)
@ $16.50 (2,000) (156,000)
@ $16.63 (2,000) (116,000)
@ $17.00 (2,000) (88,000)
@ $17.25 (4,000) (52,000)
@ $29.13 (1,500) (474,000)
@ $30.75 (2,000) (390,000)
@ $32.00 (1,000) (128,550)
expiring June 1998
@ $16.38 (1,000) (90,000)
@ $16.75 (2,000) (138,000)
@ $16.75 (1,000) (72,000)
@ $16.88 (3,000) (246,000)
@ $17.13 (2,000) (144,000)
@ $17.13 (1,500) (103,500)
@ $17.25 (2,000) (144,000)
@ $17.63 (1,500) (55,500)
@ $17.63 (1,500) (85,500)
@ $17.88 (2,000) (96,000)
@ $31.25 (1,500) (330,000)
@ $31.31 (1,500) (276,945)
@ $31.69 (1,000) (211,560)
expiring July 1998
@ $17.13 (1,500) (87,000)
Telecomunicacoes Brasileiras, SA
expiring May 1998
@ $126.00 (1,000) (58,000)
expiring June 1998
@ $117.44 (1,000) (1,001,000)
@ $128.63 (1,000) (409,000)
Tellabs, Inc.
expiring May 1998
@ $59.13 (1,500) (1,779,405)
@ $64.44 (1,000) (728,000)
@ $65.63 (1,500) (999,000)
expiring June 1998
@ $67.66 (1,500) (981,000)
@ $69.50 (1,000) (680,000)
@ $71.50 (1,000) (438,630)
Texas Instruments, Inc.
expiring May 1998
@ $52.50 (2,000) (2,332,000)
@ $52.88 (1,000) (1,131,000)
@ $53.38 (2,500) (2,780,000)
@ $53.63 (2,000) (2,202,000)
@ $53.75 (2,000) (2,122,000)
@ $54.75 (2,000) (1,930,000)
@ $55.00 (1,000) (987,000)
@ $56.00 (2,000) (1,784,000)
expiring June 1998
@ $52.25 (2,000) (2,514,000)
@ $53.88 (2,000) (2,202,000)
@ $55.63 (2,000) (1,910,000)
@ $55.75 (1,500) (1,384,500)
@ $56.25 (2,000) (1,912,000)
@ $56.94 (2,000) (1,764,000)
@ $62.63 (2,000) (1,056,000)
The Limited, Inc.
expiring May 1998
@ $28.63 (1,500) (762,000)
expiring June 1998
@ $30.88 (2,000) (668,000)
@ $31.13 (2,000) (584,000)
Travelers Group, Inc.
expiring May 1998
@ $60.63 (1,500) (307,500)
@ $62.88 (1,000) (150,000)
expiring June 1998
@ $60.38 (1,000) (395,000)
@ $65.38 (2,500) (322,500)
@ $69.16 (1,000) (43,000)
11
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE GROWTH FUND
_______________________________________________________________________________
COMPANY CONTRACTS (I) VALUE
- ----------------------------------------------------------------------------
WorldCom, Inc.
expiring May 1998
@ $41.75 (2,000) $ (364,000)
@ $42.94 (1,000) (123,000)
@ $43.94 (2,000) (152,000)
expiring June 1998
@ $44.75 (2,000) (210,200)
Total Outstanding Call
Options Written
(premiums received
69,219,160) (94,911,010)
VALUE
- ----------------------------------------------------------------------------
TOTAL INVESTMENTS NET
OF OUTSTANDING CALL
OPTIONS WRITTEN -100.1%
(cost $4,432,454,326) $ 6,213,587,198
Other assets less liabilities-(0.1%) (6,234,655)
NET ASSETS-100% $ 6,207,352,543
(a) Non-income producing security.
(b) Security on which options are written (shares subject to call have an
aggregate market value of $2,686,569,341).
(c) Country of origin--United Kingdom.
(d) Country of origin--Luxembourg.
(e) Swedish holding.
(f) Country of origin--Canada.
(g) Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At April 30, 1998,
these securities amounted to $34,554,575 or 0.6% of net assets.
(h) Country of origin--Sweden.
(i) One contract relates to 100 shares.
Glossary:
ADR - American Depositary Receipt
See notes to financial statements.
12
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998 (UNAUDITED) ALLIANCE GROWTH FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $4,501,673,486) $ 6,308,498,208
Cash 1,569,860
Receivable for shares of beneficial interest sold 11,575,407
Dividends and interest receivable 5,940,370
Total assets 6,327,583,845
LIABILITIES
Outstanding call options written, at value
(premiums received $69,219,160) 94,911,010
Payable for investment securities purchased 16,484,757
Advisory fee payable 3,566,733
Payable for shares of beneficial interest redeemed 3,323,433
Distribution fee payable 579,245
Accrued expenses 1,366,124
Total liabilities 120,231,302
NET ASSETS $ 6,207,352,543
COMPOSITION OF NET ASSETS
Shares of beneficial interest, at par $ 1,521
Additional paid-in capital 4,007,328,591
Net investment loss (11,760,790)
Accumulated net realized gain on investment transactions 430,732,778
Net unrealized appreciation of investments, options and
foreign currency denominated assets and liabilities 1,781,050,443
$ 6,207,352,543
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share ($982,831,459 /
20,237,065 shares of beneficial interest issued and outstanding) $48.57
Sales charge--4.25% of public offering price 2.16
Maximum offering price $50.73
CLASS B SHARES
Net asset value and offering price per share ($4,352,300,592 /
110,405,449 shares of beneficial interest issued and outstanding) $39.42
CLASS C SHARES
Net asset value and offering price per share ($730,631,094 /
18,526,365 shares of beneficial interest issued and outstanding) $39.44
ADVISOR CLASS SHARES
Net asset value, redemption and offering price per share
($141,589,398 / 2,901,905 shares of beneficial interest issued and
outstanding) $48.79
See notes to financial statements.
13
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED) ALLIANCE GROWTH FUND
_______________________________________________________________________________
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of
$355,591) $ 29,843,303
Interest 6,561,439 $ 36,404,742
EXPENSES
Advisory fee 19,548,755
Distribution fee - Class A 1,307,378
Distribution fee - Class B 19,421,252
Distribution fee - Class C 3,248,886
Transfer agency 3,597,257
Printing 439,795
Custodian 231,841
Registration 230,773
Audit and legal 93,907
Trustees' fees 16,848
Miscellaneous 28,840
Total expenses 48,165,532
Net investment loss (11,760,790)
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions 379,327,202
Net realized gain on written options
transactions 65,871,720
Net realized loss on foreign currency
transactions (299,066)
Net change in unrealized appreciation
(depreciation) of:
Investments 542,161,639
Written options (65,928,857)
Foreign currency denominated assets
and liabilities (13,001)
Net gain on investments and foreign
currency transactions 921,119,637
NET INCREASE IN NET ASSETS FROM OPERATIONS $909,358,847
See notes to financial statements.
14
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE GROWTH FUND
_______________________________________________________________________________
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31,
(UNAUDITED) 1997
---------------- ----------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment loss $ (11,760,790) $ (35,548,097)
Net realized gain on investments,
options and foreign currency
transactions 444,899,856 431,215,641
Net change in unrealized appreciation
(depreciation) of investments,
options, and foreign currency
denominated assets and liabilities 476,219,781 669,531,008
Net increase in net assets from
operations 909,358,847 1,065,198,552
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments
Class A (52,161,970) (14,927,840)
Class B (288,125,446) (89,311,288)
Class C (48,125,286) (14,500,115)
Advisor Class (7,005,557) (20,469)
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Net increase 630,842,321 714,151,085
Total increase 1,144,782,909 1,660,589,925
NET ASSETS
Beginning of year 5,062,569,634 3,401,979,709
End of period $ 6,207,352,543 $5,062,569,634
See notes to financial statements.
15
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1998 (UNAUDITED) ALLIANCE GROWTH FUND
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Growth Fund (the "Fund"), a series of The Alliance Portfolios (the
"Trust"), is registered under the Investment Company Act of 1940 as a
diversified, open-end investment company. The Fund offers Class A, Class B,
Class C and Advisor Class shares. Class A shares are sold with a front-end
sales charge of up to 4.25% for purchases not exceeding $1,000,000. With
respect to purchases of $1,000,000 or more, Class A shares redeemed within one
year of purchase will be subject to a contingent deferred sales charge of 1%.
Class B shares are currently sold with a contingent deferred sales charge which
declines from 4% to zero depending on the period of time the shares are held.
Shares purchased before August 2, 1993 and redeemed within six years of
purchase are subject to different rates than shares purchased after that date.
Class B shares purchased on or after August 2, 1993 and held for a period
ending eight years after the end of the calendar month of purchase will convert
to Class A shares. Class C shares are subject to a contingent deferred sales
charge of 1% on redemptions made within the first year after purchase. Advisor
Class shares are sold without any initial or contingent deferred sales charge
and are not subject to ongoing distribution expenses. Advisor Class shares are
offered to investors participating in fee-based programs and to certain
retirement plan accounts. All four classes of shares have identical voting,
dividend, liquidation and other rights, except that each class bears different
distribution expenses and has exclusive voting rights with respect to its
distribution plan. The financial statements have been prepared in conformity
with generally accepted accounting principles which require management to make
certain estimates and assumptions that affect the reported amounts of assets
and liabilities in the financial statements and amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sale price or if no sale occurred, at the
mean of the closing bid and asked price on that day. Readily marketable
securities traded in the over-the-counter market, securities listed on a
foreign securities exchange whose operations are similar to the U.S.
over-the-counter market, and securities listed on a national securities
exchange whose primary market is believed to be over-the-counter, are valued at
the mean of the current bid and asked price. U.S. government and fixed income
securities which mature in 60 days or less are valued at amortized cost, unless
this method does not represent fair value. Securities for which current market
quotations are not readily available are valued at their fair value as
determined in good faith by, or in accordance with procedures adopted by, the
Board of Directors. Fixed income securities may be valued on the basis of
prices obtained from a pricing service when such prices are believed to reflect
the fair market value of such securities. Listed put and call options purchased
by the Fund are valued at the last sale price. If there has been no sale on
that day, such securities will be valued at the closing bid prices on that day.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the
mean of the quoted bid and asked price of such currencies against the U.S.
dollar. Purchases and sales of portfolio securities are translated into U.S.
dollars at the rates of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated into U.S. dollars at rates of
exchange prevailing when earned or accrued.
Net realized foreign currency gains and losses represent foreign exchange gains
and losses from sales and maturities of debt securities, currency gains and
losses realized between the trade and settlement dates on security transactions
and the difference between the amounts of interest recorded on the Fund's books
and the U.S. dollar equivalent amounts actually received or paid. The Fund does
not isolate the effect of fluctuations in foreign currency exchange rates when
determining the gain or loss upon the sale of equity securities. Net currency
gains and losses from valuing foreign currency denominated assets and
liabilities at period end exchange rates are reflected as a component of net
unrealized appreciation of investments and foreign currency denominated assets
and liabilities.
16
ALLIANCE GROWTH FUND
_______________________________________________________________________________
3. 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.
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Investment transactions are accounted for on the date securities are
purchased or sold. The Fund accretes discounts and amortizes premiums as
adjustments to interest income. Investment gains and losses are determined on
the identified cost basis.
5. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each outstanding class of shares, based on the proportionate interest
in the Fund represented by the net assets of such class, except that the Fund's
Class B and Class C shares bear higher distribution and transfer agent fees
than Class A shares and the Advisor Class shares have no distribution fee.
Expenses attributable to the Fund are charged to the Fund. Expenses of the
Trust are charged to the Fund in proportion to net assets.
6. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Income dividends and capital gains distributions are determined in accordance
with federal tax regulations and may differ from those determined in accordance
with generally accepted accounting principles. To the extent these differences
are permanent, such amounts are reclassified within the capital accounts based
on their federal tax basis treatment; temporary differences, do not require
such reclassification.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Fund pays Alliance
Capital Management L.P. (the "Adviser") an advisory fee equal to the annualized
rate of .75% of the Fund's average daily net assets up to $3 billion, .70% of
the next $1 billion of the Fund's average daily net assets, .65% of the next $1
billion of the Fund's average daily net assets, and .60% of the Fund's average
daily net assets over $5 billion. Such fee is accrued daily and paid monthly.
The Fund compensates Alliance Fund Services, Inc., a wholly-owned subsidiary of
the Adviser, under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such compensation
amounted to $2,484,060 for the six months ended April 30, 1998.
Alliance Fund Distributors, Inc., (the "Distributor"), a wholly-owned
subsidiary of the Adviser, serves as the Distributor of the Fund's shares. The
Distributor received front-end sales charges of $110,692 from the sales of
Class A shares and $4,678, $1,776,856, and $56,341 in contingent deferred sales
charges imposed upon redemptions by shareholders of Class A, Class B and Class
C shares, respectively, for the six months ended April 30, 1998.
Brokerage commissions paid on investment transactions for the six months ended
April 30, 1998 amounted to $2,072,747, of which $5,000 was paid to Donaldson,
Lufkin & Jenrette Securities Corp., an affiliate of the Adviser.
Accrued expenses includes $137,324 owed to two of the trustees under the
Trust's deferred compensation plan.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual
rate of up to .50% of the Fund's average daily net assets attributable to Class
A shares and 1% of the average daily net assets attributable to both Class B
and Class C shares. There is no distribution fee on the Advisor Class shares.
The fees are accrued daily and paid
17
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE GROWTH FUND
_______________________________________________________________________________
monthly. The Trustees currently limit payments under the Class A plan to .30%
of the Fund's average daily net assets attributable to Class A shares.
The Fund is not obligated under the Agreement to pay any distribution services
fee in excess of the amounts set forth above. The purpose of the payments to
the Distributor under the Agreement is to compensate the Distributor for its
distribution services with respect to the sale of the Fund's shares. Since the
Distributor's compensation is not directly tied to its expenses, the amount of
compensation received by it under the Agreement during any year may be more or
less than its actual expenses. For this reason, the Agreement is characterized
by the staff of the Commission as being of the "compensation" variety.
In the event that the Agreement is terminated or not continued, no distribution
services fees (other than current amounts accrued but not yet paid) would be
owed by the Fund to the Distributor with respect to the relevant class.
The Agreement also provides that the Adviser may use its own resources to
finance the distribution of the Fund's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $1,915,367,820 and $1,449,707,727,
respectively, for the six months ended April 30, 1998. Purchases and sales
amounted to zero and $8,932,812, respectively of U.S. government and government
agency obligations for the six months ended April 30, 1998.
At April 30, 1998, the cost of investments for federal income tax purposes was
$4,515,484,764. Accordingly, gross unrealized appreciation of investments was
$1,878,596,515 and gross unrealized depreciation of investments was $85,583,071
resulting in net unrealized appreciation of $1,793,013,444.
1. OPTION TRANSACTIONS
For hedging and investment purposes, the Fund purchases and writes (sells) put
and call options on U.S. and foreign government securities and foreign
currencies that are traded on U.S. and foreign securities exchanges and
over-the-counter markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk
of loss of the premium and change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for in
the same manner as portfolio securities. The cost of securities acquired
through the exercise of call options is increased by premiums paid. The
proceeds from securities sold through the exercise of put options are decreased
by the premiums paid.
When the Fund writes an option, the premium received by the Fund is recorded as
a liability and is subsequently adjusted to the current market value of the
option written. Premiums received from writing options which expire unexercised
are recorded by the Fund on the expiration date as realized gains from option
transactions. The difference between the premium received and the amount paid
on effecting a closing purchase transaction, including brokerage commissions,
is also treated as a realized gain, or if the premium received is less than the
amount paid for the closing purchase transaction, as a realized loss. If a call
option is exercised, the premium received is added to the proceeds from the
sale of the underlying security or currency in determining whether the Fund has
realized a gain or loss. If a put option is exercised, the premium received
reduces the cost basis of the security or currency purchased by the Fund. The
risk involved in writing an option is that, if the option was exercised the
underlying security could then be purchased or sold by the Fund at a
disadvantageous price.
18
ALLIANCE GROWTH FUND
_______________________________________________________________________________
Transactions in options written for the six months ended April 30, 1998 were as
follows:
NUMBER OF
CONTRACTS PREMIUMS
----------- -----------
Options outstanding at beginning of year 264,700 $ 88,568,875
Options written 658,572 177,579,998
Options terminated in closing purchase transactions (231,470) (71,837,460)
Options expired (204,760) (58,178,485)
Options exercised (235,392) (66,913,768)
-------- ------------
Options outstanding at April 30, 1998 251,650 $ 69,219,160
2. FORWARD EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward exchange currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on foreign portfolio
holdings and to hedge certain firm purchase and sale commitments denominated in
foreign currencies. A forward exchange currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The gain or loss arising from the difference between the original
contracts and the closing of such contract is included in net realized gain or
loss on foreign currency transactions.
Fluctuations in the value of forward exchange currency contracts are recorded
for financial reporting purposes as unrealized gains or losses by the Fund.
The Fund's custodian will place and maintain cash not available for investment
or other liquid assets in a separate account of the Fund having a value equal
to the aggregate amount of the Fund's commitments under forward exchange
currency contracts entered into with respect to position hedges.
Risks may arise from the potential inability of a counterparty to meet the
terms of a contract and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
At April 30, 1998, the Fund had no outstanding forward exchange currency
contracts.
19
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE GROWTH FUND
_______________________________________________________________________________
NOTE E: SHARES OF BENEFICIAL INTEREST
There is an unlimited number of $0.00001 par value shares of beneficial
interest authorized, divided into four classes, designated Class A, Class B,
Class C and Advisor Class shares. Transactions in shares of beneficial interest
were as follows:
SHARES AMOUNT
--------------------------- ------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31, APRIL 30, 1998 OCTOBER 31,
(UNAUDITED) 1997 (UNAUDITED) 1997
------------ ------------ -------------- --------------
CLASS A
Shares sold 8,304,832 8,132,661 $377,360,796 $318,891,520
Shares issued
in reinvestment of
distributions 1,103,467 358,984 47,603,829 12,705,352
Shares converted
from Class B 811,942 1,372,219 36,763,274 54,520,447
Shares redeemed (7,799,391) (6,355,236) (355,916,241) (250,784,867)
Net increase 2,420,850 3,508,628 $105,811,658 $135,332,452
CLASS B
Shares sold 10,638,017 23,967,815 $393,705,732 $771,661,032
Shares issued
in reinvestment of
distributions 7,650,992 2,307,390 268,621,380 67,883,610
Shares converted
to Class A (990,645) (1,655,781) (36,763,274) (54,520,447)
Shares redeemed (5,441,889) (11,595,072) (200,713,464) (376,839,188)
Net increase 11,856,475 13,024,352 $424,850,374 $408,185,007
CLASS C
Shares sold 2,321,177 5,404,558 $86,118,815 $173,407,183
Shares issued
in reinvestment of
distributions 1,279,597 278,004 44,952,507 8,181,650
Shares redeemed (1,574,832) (2,988,645) (58,165,865) (97,513,487)
Net increase 2,025,942 2,693,917 $72,905,457 $84,075,346
ADVISOR CLASS
Shares sold 984,667 2,521,405 $44,862,844 $96,902,785
Shares issued
in reinvestment of
distributions 149,933 570 6,490,605 20,184
Shares redeemed (528,401) (253,380) (24,078,617) (10,364,689)
Net increase 606,199 2,268,595 27,274,832 86,558,280
20
FINANCIAL HIGHLIGHTS ALLIANCE GROWTH FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------------
SIX MONTHS
ENDED MAY 1, 1994
APRIL 30, YEAR ENDED OCT. 31, TO YEAR ENDED APRIL 30,
1998 ---------------------------- OCT.31, -------------------------
(UNAUDITED) 1997 1996 1995 1994(A) 1994(B) 1993(B)
---------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $43.95 $34.91 $29.48 $25.08 $23.89 $22.67 $20.31
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) .06(c) (.10)(c) .05 .12 .09 (.01)(d) .05(d)
Net realized and unrealized gain on
investments, options and foreign
currency transactions 7.47 10.17 6.20 4.80 1.10 3.55 3.68
Net increase in net asset
value from operations 7.53 10.07 6.25 4.92 1.19 3.54 3.73
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment
income -0- -0- (.19) (.11) -0- -0- (.14)
Distributions from net realized
gains (2.91) (1.03) (.63) (.41) -0- (2.32) (1.23)
Total dividends and distributions (2.91) (1.03) (.82) (.52) -0- (2.32) (1.37)
Net asset value, end of period $48.57 $43.95 $34.91 $29.48 $25.08 $23.89 $22.67
TOTAL RETURN
Total investment return based on
net asset value (e) 17.96% 29.54% 21.65% 20.18% 4.98% 15.66% 18.89%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $982,831 $783,110 $499,459 $285,161 $167,800 $102,406 $13,889
Ratios to average net assets of:
Expenses, net of waivers/
reimbursements 1.17%(f) 1.26%(g) 1.30% 1.35% 1.35%(f) 1.40% 1.40%
Expenses, before waivers/
reimbursements 1.17%(f) 1.26%(g) 1.30% 1.35% 1.35%(f) 1.46% 1.84%
Net investment income (loss) .24%(f) (.25)% .15% .56% .86%(f) .32% .20%
Portfolio turnover rate 27% 48% 46% 61% 24% 87% 124%
</TABLE>
See footnote summary on page 24.
21
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE GROWTH FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------------------------------
SIX MONTHS
ENDED MAY 1, 1994
APRIL 30, YEAR ENDED OCT. 31, TO YEAR ENDED APRIL 30,
1998 ---------------------------- OCT.31, -------------------------
(UNAUDITED) 1997 1996 1995 1994(A) 1994(B) 1993(B)
---------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $36.31 $29.21 $24.78 $21.21 $20.27 $19.68 $18.16
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.09)(c) (.31)(c) (.12) (.02) .01 (.07)(c)(d) (.06)(d)
Net realized and unrealized gain on
investments, options and foreign
currency transactions 6.11 8.44 5.18 4.01 .93 2.98 3.23
Net increase in net asset
value from operations 6.02 8.13 5.06 3.99 .94 2.91 3.17
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment
income -0- -0- -0- (.01) -0- -0- (.03)
Distributions from net realized
gains (2.91) (1.03) (.63) (.41) -0- (2.32) (1.62)
Total dividends and distributions (2.91) (1.03) (.63) (.42) -0- (2.32) (1.65)
Net asset value, end of period $39.42 $36.31 $29.21 $24.78 $21.21 $20.27 $19.68
TOTAL RETURN
Total investment return based on
net asset value (e) 17.56% 28.64% 20.82% 19.33% 4.64% 14.79% 18.16%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $4,352,301 $3,578,806 $2,498,097 $1,502,020 $751,521 $394,227 $56,704
Ratios to average net assets of:
Expenses, net of waivers/
reimbursements 1.88%(f) 1.96%(g) 1.99% 2.05% 2.05%(f) 2.10% 2.15%
Expenses, before waivers/
reimbursements 1.88%(f) 1.96%(g) 1.99% 2.05% 2.05%(f) 2.13% 2.52%
Net investment income (loss) (.47)%(f) (.94)% (.54)% (.15)% .16%(f) (.36)% (.53)%
Portfolio turnover rate 27% 48% 46% 61% 24% 87% 124%
</TABLE>
See footnote summary on page 24.
22
ALLIANCE GROWTH FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------------------
SIX MONTHS
ENDED MAY 1, 1994 AUGUST 2,
APRIL 30, YEAR ENDED OCTOBER 31, TO 1993(H) TO
1998 ---------------------------------- OCTOBER 31, APRIL 30,
(UNAUDITED) 1997 1996 1995 1994(A) 1994
----------- ----------- ----------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $36.33 $29.22 $24.79 $21.22 $20.28 $21.47
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.09)(c) (.31)(c) (.12) (.03) .01 (.02)(d)
Net realized and unrealized gain on
investments, options and foreign
currency transactions 6.11 8.45 5.18 4.02 .93 1.15
Net increase in net asset value from
operations 6.02 8.14 5.06 3.99 .94 1.13
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment
income -0- -0- -0- (.01) -0- -0-
Distributions from net realized
gains (2.91) (1.03) (.63) (.41) -0- (2.32)
Total dividends and distributions (2.91) (1.03) (.63) (.42) -0- (2.32)
Net asset value, end of period $39.44 $36.33 $29.22 $24.79 $21.22 $20.28
TOTAL RETURN
Total investment return based on
net asset value (e) 17.55% 28.66% 20.81% 19.32% 4.64% 5.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $730,631 $599,449 $403,478 $226,662 $114,455 $64,030
Ratios to average net assets of:
Expenses, net of waivers/
reimbursements 1.88%(f) 1.97%(g) 2.00% 2.05% 2.05%(f) 2.10%(f)
Expenses, before waivers/
reimbursements 1.88%(f) 1.97%(g) 2.00% 2.05% 2.05%(f) 2.13%(f)
Net investment income (loss) (.47)%(f) (.95)% (.55)% (.15)% .16%(f) (.31)%(f)
Portfolio turnover rate 27% 48% 46% 61% 24% 87%
</TABLE>
See footnote summary on page 24.
23
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE GROWTH FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
ADVISOR CLASS
----------------------------------------
SIX MONTHS
ENDED OCTOBER 2,
APRIL 30, YEAR ENDED 1996(H) TO
1998 OCTOBER 31, OCTOBER 31,
(UNAUDITED) 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Net asset value, beginning of period $44.08 $34.91 $34.14
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) .12(c) (.05)(c) -0-
Net realized and unrealized gain on
investments, options and foreign
currency transactions 7.50 10.25 .77
Net increase in net asset value from
operations 7.62 10.20 .77
LESS: DISTRIBUTIONS
Distributions from net realized gains (2.91) (1.03) -0-
Net asset value, end of period $48.79 $44.08 $34.91
TOTAL RETURN
Total investment return based on net
asset value (e) 18.12% 29.92% 2.26%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $141,589 $101,205 $946
Ratios to average net assets of:
Expenses, net of waivers/
reimbursements .87%(f) .98%(g) 1.26%(f)
Expenses, before waivers/
reimbursements .87%(f) .98%(g) 1.26%(f)
Net investment income (loss) .55%(f) (.12)% .50%(f)
Portfolio turnover rate 27% 48% 46%
</TABLE>
(a) The Fund changed its fiscal year end from April 30 to October 31.
(b) Prior to July 22, 1993, Equitable Capital Management Corporation
(Equitable Capital) served as investment adviser to the Trust. On July 22,
1993, Alliance Capital Management L.P. acquired the business and substantially
all of the assets of Equitable Capital and became investment adviser for the
Trust.
(c) Based on average shares outstanding.
(d) Net of fees waived and expenses reimbursed by the Adviser.
(e) 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. Initial sales charges or contingent
deferred sales charges are not reflected in the calculation of total investment
return. Total investment return calculated for a period of less than one year
is not annualized.
(f) Annualized.
(g) Ratio reflects expenses grossed up for expense offset arrangement with the
transfer agent. For the year ended October 31, 1997, the ratios of expenses net
of waiver/reimbursements and before waiver/reimbursements were 1.25%, 1.95%,
1.95% and .96% for Class A, B, C and Advisor Class shares, respectively.
(h) Commencement of distribution.
24
<PAGE>
ALLIANCE GROWTH FUND
ANNUAL REPORT
OCTOBER 31, 1997
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1997 ALLIANCE GROWTH FUND
_______________________________________________________________________________
COMPANY SHARES VALUE
- -------------------------------------------------------------------------
COMMON & PREFERRED STOCKS-95.2%
TECHNOLOGY-28.7%
COMPUTER SOFTWARE & SERVICES-4.1%
Ceridian Corp. (a) 2,209,800 $ 86,320,313
Sterling Commerce, Inc. (a)(b) 2,126,044 70,558,085
Sterling Software, Inc. 1,516,000 51,733,500
------------
208,611,898
ELECTRONICS-3.5%
3Com Corp. (a)(b) 3,217,800 133,337,587
Applied Magnetics Corp. (a) 429,100 9,869,300
EMC Corp. (a)(b) 650,000 36,400,000
------------
179,606,887
NETWORKING SOFTWARE-5.3%
Cabletron Systems, Inc. (a)(b) 250,000 7,250,000
Cisco Systems, Inc. (a)(b) 3,191,000 261,761,719
Fore Systems (a) 41,400 672,750
------------
269,684,469
OFFICE EQUIPMENT & SERVICES-0.7%
Xerox Corp. 437,400 34,691,288
PRINTING, PUBLISHING & BROADCASTING-0.2%
Cox Communications, Inc. Cl.A (a) 281,300 8,649,975
SEMI-CONDUCTOR COMPONENTS-2.8%
Intel Corp. (b) 1,270,000 97,790,000
National Semiconductor Corp. (a)(b) 1,235,300 44,470,800
------------
142,260,800
TELECOMMUNICATIONS-12.1%
ADC Telecommunications, Inc. (b) 1,550,000 51,343,750
Ascend Communications, Inc. (a)(b) 1,020,230 27,546,210
Brooks Fiber Properties, Inc. (a) 16,700 933,112
Colt Telecom Group Plc (ADR) (a)(c) 741,400 25,578,300
DSC Communications Corp. (a)(b) 3,167,400 77,205,375
Loral Space & Communications (a)(b) 770,000 16,170,000
Lucent Technologies, Inc. (b) 150,000 12,365,625
Millicom International
Cellular, S.A. (a)(d) 362,800 15,237,600
Teleport Communications
Group, Inc. Cl.A (a)(b) 1,698,400 82,160,100
Tellabs, Inc. (b) 350,000 18,900,000
United States Cellular Corp. (a) 363,500 11,813,750
WorldCom, Inc., (a)
Common (b) 6,856,696 230,556,403
8% cv. pfd. 343,000 40,131,000
--------------
609,941,225
--------------
1,453,446,542
FINANCIAL SERVICES-25.2%
BANKING & CREDIT-10.8%
American Express Co. (b) 1,870,200 145,875,600
Automatic Common Exchange Security
Trust II 337,900 9,545,675
Chase Manhattan Corp. 980,952 113,177,337
First Union Corp. 1,138,000 55,833,125
Household International, Inc. 102,500 11,608,125
MBNA Corp. (b) 5,643,225 148,487,358
Morgan Stanley, Dean Witter,
Discover and Co. 603,400 29,566,600
NationsBank Corp. 547,000 32,751,625
- ------------
546,845,445
INSURANCE-9.9%
20th Century Industries, Inc. 1,063,300 26,582,500
Acceptance Insurance Co. (a) 601,800 13,991,850
American International Group, Inc. 1,416,525 144,574,083
PennCorp Financial Group, Inc. 514,900 16,766,431
PMI Group, Inc. 476,600 28,804,513
Progressive Corp. 358,200 37,342,350
6
ALLIANCE GROWTH FUND
_______________________________________________________________________________
COMPANY SHARES VALUE
- -------------------------------------------------------------------------
The Hartford Financial Services
Group, Inc. 286,600 $ 23,214,600
Travelers Group, Inc. 2,962,733 207,391,310
-------------
498,667,637
MORTGAGE BANKING-0.2%
Federal National Mortgage Assn. 256,200 12,409,687
REAL ESTATE-4.3%
American General Hospitality Corp. 254,600 6,937,850
Arden Realty Group, Inc. 215,200 6,563,600
CBL & Associates Properties, Inc. 124,000 2,991,500
Highwoods Properties, Inc. 329,200 11,357,400
JP Realty, Inc. 755,300 18,410,437
Koger Equity, Inc. 1,762,571 38,115,598
Macerich Co. 1,051,400 27,862,100
Prentiss Properties Trust 662,500 18,839,844
Simon DeBartolo Group, Inc. 216,500 6,697,969
Spieker Properties, Inc. 777,200 30,407,950
Storage USA, Inc. 383,700 14,556,619
Summit Properties, Inc. 716,700 14,826,731
Sun Communities, Inc. 520,000 18,135,000
--------------
215,702,598
--------------
1,273,625,367
CONSUMER NONCYCLICALS-18.5%
COMMERCIAL SERVICES-5.8%
CUC International, Inc. (a)(b) 9,914,800 292,486,600
DIVERSIFIED-1.9%
Republic Industries, Inc. (b) 3,272,000 96,524,000
DRUGS-4.7%
Abbott Laboratories 400,000 24,525,000
Astra AB, Series A (e) 595,000 9,612,278
Boston Scientific Corp. (a)(b) 839,200 38,183,600
Gensia, Inc. pfd. (a)(f)(g) 68,500 1,755,312
Merck & Co., Inc. 1,126,200 100,513,350
Pfizer, Inc. (b) 550,000 38,912,500
Schering-Plough Corp. 436,000 24,443,250
-------------
237,945,290
HOSPITAL SUPPLIES & SERVICES-1.4%
Medtronic, Inc. (b) 1,329,800 57,846,300
Quest Medical, Inc. (a) 265,225 2,188,106
United Healthcare Corp. (b) 250,000 11,578,125
-------------
71,612,531
TOBACCO-4.7%
Loews Corp. 1,150,000 128,440,625
Philip Morris Cos., Inc. (b) 2,824,000 111,901,000
-------------
240,341,625
-------------
938,910,046
CONSUMER CYCLICALS-7.2%
AIRLINES-1.5%
AMR Corp. (a) 100,000 11,643,750
Delta Air Lines, Inc. 372,200 37,499,150
Northwest Airlines Corp. Cl.A (a) 208,300 9,373,500
UAL Corp. (a) 177,400 15,544,675
USAIR Group, Inc. (a) 100,000 4,687,500
------------
78,748,575
AUTO & RELATED-1.8%
AutoZone, Inc. (a) 1,947,200 57,564,100
Chrysler Corp. 936,000 32,994,000
------------
90,558,100
RESTAURANTS & LODGING-1.0%
ITT Corp. (a) 690,600 51,579,188
RETAILING - GENERAL-2.9%
CompUSA, Inc. (a)(b) 500,000 16,375,000
Home Depot, Inc. 1,257,500 69,948,437
Sears, Roebuck & Co. 330,500 13,839,688
The Limited, Inc. 852,500 20,087,031
Wal-Mart Stores, Inc. 745,000 26,168,125
------------
146,418,281
------------
367,304,144
7
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE GROWTH FUND
_______________________________________________________________________________
COMPANY SHARES VALUE
- -------------------------------------------------------------------------
ENERGY-6.4%
OIL & GAS SERVICES-6.4%
Baker Hughes, Inc. 476,000 $ 21,866,250
BJ Services Co. (a)(b) 462,400 39,188,400
Dresser Industries, Inc. 451,600 19,023,650
Gulf Canada Resources, Ltd. (a)(f) 13,245,900 110,934,413
Halliburton Co. 1,217,800 72,611,325
Nabors Industries, Inc. (a) 33,000 1,357,125
Santa Fe International Corp. (a) 126,200 6,207,463
Transocean Offshore, Inc. 700,000 37,800,000
Union Pacific Resources Group, Inc. 563,277 13,870,696
-------------
322,859,322
BUSINESS SERVICES-5.3%
PRINTING, PUBLISHING & BROADCASTING-4.2%
Comcast Corp. Cl.A 516,500 14,203,750
TCI Group Series A (b) 1,777,865 40,779,779
TCI Ventures Group Series A 2,453,235 56,577,732
Tele-Communications, Inc. - Liberty
Media Group Cl.A 1,476,462 51,399,333
Viacom, Inc. Cl.B (a) 1,586,800 48,000,700
------------
210,961,294
RAILROADS-1.1%
Canadian Pacific, Ltd. (f) 1,270,000 37,861,875
Union Pacific Corp. 322,866 19,775,542
------------
57,637,417
------------
268,598,711
UTILITY-2.0%
TELEPHONE-2.0%
AT&T Corp. 300,000 14,681,250
MCI Communications Corp. (b) 2,029,700 72,054,350
Telephone and Data Systems, Inc. 312,600 13,285,500
------------
100,021,100
DIVERSIFIED-0.8%
Tyco International, Ltd. 1,054,112 39,792,728
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- -------------------------------------------------------------------------
CAPITAL GOODS-0.8%
ENVIRONMENTAL CONTROL-0.1%
Waste Management, Inc. 307,000 $ 7,176,125
MACHINERY-0.7%
Mannesmann AG (ADR) (h) 77,000 32,568,898
------------
39,745,023
BASIC MATERIALS-0.3%
CHEMICALS-0.3%
Monsanto Co. (b) 382,500 16,351,875
Total Common & Preferred Stocks
(cost $3,562,146,648) 4,820,654,858
LONG-TERM DEBT SECURITIES-0.8%
COMPUTER SOFTWARE & SERVICES-0.0%
Applied Magnetics Corp. Conv.
7.00%, 3/15/06 $ 900 1,170,000
ELECTRONICS-0.8%
3Com Corp. Conv.
10.25%, 11/01/01 (g) 8,500 10,965,000
Altera Corp. Conv.
5.75%, 6/15/02 (g) 15,540 26,845,350
------------
37,810,350
Total Long-Term Debt Securities
(cost $32,825,477) 38,980,350
SHORT-TERM DEBT SECURITIES-4.0%
Federal Home Loan Bank
5.50%, 11/03/97 9,400 9,397,128
Federal Home Loan Mortgage Corp.
5.47%, 11/13/97 2,000 1,996,353
5.47%, 11/17/97 6,000 5,985,414
Federal National Mortgage Assn.
5.47%, 11/07/97 2,000 1,998,177
5.47%, 11/12/97 2,000 1,996,657
5.54%, 3/12/98 5,000 5,000,000
8
ALLIANCE GROWTH FUND
_______________________________________________________________________________
CONTRACTS (I)
OR PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- -------------------------------------------------------------------------
Student Loan Marketing Assn.
5.63%, 11/03/97 $177,000 $ 176,944,638
Total Short-Term Debt Securities
(amortized cost $203,318,367) 203,318,367
TOTAL INVESTMENTS-100.0%
(cost $3,798,290,492) 5,062,953,575
OUTSTANDING CALL OPTIONS WRITTEN-(0.9%)
3Com Corp.
expiring Nov 1997
@ $48.00 (1,000) (103,000)
expiring Dec 1997
@ $46.75 (2,000) (362,000)
@ $47.75 (1,500) (262,500)
@ $49.13 (1,000) (145,000)
@ $50.88 (1,000) (115,000)
@ $53.00 (1,000) (93,000)
expiring Jan 1998
@ $53.50 (3,000) (348,000)
ADC Telecommunications, Inc.
expiring Nov 1997
@ $33.50 (1,500) (255,000)
@ $33.50 (1,500) (271,500)
@ $34.75 (1,500) (192,000)
@ $36.75 (1,500) (123,000)
expiring Dec 1997
@ $32.00 (1,500) (495,000)
@ $35.38 (1,500) (258,000)
@ $35.88 (1,500) (222,000)
@ $36.69 (2,000) (238,000)
@ $37.25 (1,500) (132,000)
@ $37.50 (1,500) (168,000)
American Express Co.
expiring Nov 1997
@ $82.38 (1,000) (67,060)
@ $84.63 (1,000) (41,000)
expiring Dec 1997
@ $78.06 (1,500) (526,500)
@ $79.88 (1,000) (288,820)
@ $80.38 (2,000) (882,000)
@ $82.50 (1,000) (212,000)
@ $84.38 (1,000) (148,000)
expiring Jan 1998
@ $77.75 (1,000) $(469,070)
Applied Magnetics Corp.
expiring Nov 1997
@ $35.13 (1,500) (9,000)
Ascend Communications, Inc.
expiring Dec 1997
@ $33.13 (1,000) (106,000)
@ $33.63 (1,500) (162,000)
@ $37.50 (2,000) (90,000)
@ $41.88 (1,500) (22,500)
expiring Jan 1998
@ $33.75 (1,500) (198,000)
@ $34.13 (1,500) (133,500)
BJ Services Co.
expiring Dec 1997
@ $70.69 (1,000) (1,479,000)
Boston Scientific Corp.
expiring Dec 1997
@ $63.00 (1,000) (15,000)
@ $63.25 (1,000) (12,000)
Cabletron Systems, Inc.
expiring Nov 1997
@ $30.00 (1,500) (213,000)
expiring Dec 1997
@ $32.38 (1,000) (107,000)
Cisco Systems, Inc.
expiring Nov 1997
@ $81.75 (1,000) (209,080)
@ $82.63 (1,000) (163,230)
@ $82.75 (2,000) (358,000)
expiring Dec 1997
@ $79.25 (1,000) (678,000)
@ $80.50 (1,000) (542,000)
@ $82.00 (1,000) (564,000)
@ $82.63 (1,000) (549,000)
CompUSA, Inc.
expiring Nov 1997
@ $29.88 (1,000) (392,000)
@ $30.25 (1,500) (529,890)
expiring Dec 1997
@ $32.25 (1,500) (388,500)
@ $33.00 (1,000) (239,530)
9
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE GROWTH FUND
_______________________________________________________________________________
COMPANY CONTRACTS (I) VALUE
- -------------------------------------------------------------------------
CUC International, Inc.
expiring Dec 1997
@ $27.75 (2,000) $ (506,000)
@ $28.13 (1,500) (353,715)
@ $28.50 (2,500) (520,000)
@ $28.56 (1,500) (336,000)
@ $29.13 (2,000) (366,000)
@ $29.44 (1,000) (165,000)
@ $29.75 (1,500) (267,000)
@ $30.13 (1,000) (167,000)
@ $30.63 (2,000) (506,000)
@ $30.75 (2,000) (168,000)
@ $31.13 (3,000) (387,000)
@ $31.75 (1,000) (196,000)
DSC Communications Corp.
expiring Nov 1997
@ $27.63 (1,500) (79,500)
@ $28.25 (1,000) (21,000)
@ $28.38 (1,500) (33,900)
@ $29.00 (1,000) (6,000)
expiring Dec 1997
@ $27.75 (1,500) (163,500)
@ $28.25 (2,000) (156,000)
@ $28.69 (1,500) (150,000)
@ $30.25 (2,000) (38,000)
@ $31.00 (2,500) (65,000)
expiring Jan 1998
@ $29.50 (2,000) (164,000)
EMC Corp.
expiring Nov 1997
@ $52.00 (1,000) (452,000)
@ $53.00 (1,500) (754,500)
@ $53.88 (1,500) (610,500)
expiring Dec 1997
@ $59.44 (500) (109,000)
@ $61.56 (1,000) (265,000)
@ $62.31 (1,000) (175,000)
Intel Corp.
expiring Nov 1997
@ $99.38 (1,000) (6,000)
expiring Dec 1997
@ $86.75 (2,000) (326,000)
@ $92.00 (1,000) (138,000)
@ $96.44 (1,000) (46,000)
@ $96.63 (2,000) (111,440)
expiring Jan 1998
@ $84.63 (2,000) (650,000)
@ $86.50 (2,000) (558,460)
Loral Space & Communications
expiring Nov 1997
@ $17.50 (1,000) (376,000)
expiring Dec 1997
@ $22.44 (1,500) (58,500)
@ $22.63 (1,500) (142,500)
@ $23.25 (1,000) (67,000)
expiring Jan 1998
@ $21.50 (1,200) (162,000)
@ $22.13 (1,500) (181,500)
Lucent Technologies, Inc.
expiring Dec 1997
@ $77.00 (1,500) (1,218,000)
MBNA Corp.
expiring Nov 1997
@ $40.38 (2,250) (189,563)
@ $42.00 (2,250) (83,250)
@ $43.67 (3,000) -0-
@ $45.38 (3,000) (21,000)
expiring Dec 1997
@ $27.63 (3,000) (399,000)
@ $27.75 (2,500) (225,000)
@ $28.25 (2,500) (162,500)
@ $39.63 (3,000) (349,260)
@ $41.88 (1,500) (108,000)
MCI Communications Corp.
expiring Nov 1997
@ $34.25 (1,500) (202,500)
@ $34.44 (1,500) (267,000)
expiring Dec 1997
@ $36.69 (1,500) (196,500)
Medtronic, Inc.
expiring Nov 1997
@ $45.50 (2,000) (200,000)
expiring Dec 1997
@ $46.75 (2,000) (236,000)
@ $49.11 (2,000) (168,780)
@ $49.48 (2,000) (181,360)
@ $49.50 (1,500) (102,180)
10
ALLIANCE GROWTH FUND
_______________________________________________________________________________
COMPANY CONTRACTS (I) VALUE
- -------------------------------------------------------------------------
Monsanto Co.
expiring Dec 1997
@ $40.44 (1,500) $ (495,000)
National Semiconductor Corp.
expiring Nov 1997
@ $33.63 (1,500) (439,500)
expiring Dec 1997
@ $36.00 (1,500) (342,000)
@ $36.13 (2,000) (522,000)
@ $36.75 (2,000) (396,000)
@ $39.56 (1,500) (189,000)
Pfizer, Inc.
expiring Dec 1997
@ $63.38 (1,000) (828,000)
@ $64.81 (2,000) (1,440,000)
@ $67.13 (1,500) (849,000)
@ $69.00 (1,000) (526,000)
Philip Morris Cos., Inc.
expiring Nov 1997
@ $44.38 (1,500) (10,500)
@ $44.60 (1,000) (23,000)
expiring Dec 1997
@ $41.25 (1,500) (205,500)
@ $41.31 (1,500) (175,500)
@ $41.50 (1,000) (138,000)
@ $42.19 (1,000) (97,000)
@ $42.69 (2,000) (144,000)
@ $43.38 (1,500) (133,500)
@ $44.13 (2,000) (134,000)
expiring Jan 1998
@ $40.00 (2,000) (510,000)
@ $40.94 (1,000) (219,000)
@ $41.13 (1,000) (184,060)
@ $41.25 (2,000) (350,000)
Republic Industries, Inc.
expiring Dec 1997
@ $27.69 (2,000) (612,000)
@ $27.88 (1,500) (420,000)
@ $28.00 (1,000) (269,130)
@ $28.06 (1,000) (292,000)
@ $28.31 (1,500) (414,960)
@ $28.38 (1,000) (260,190)
@ $28.50 (2,000) (530,000)
@ $32.19 (1,500) (106,500)
@ $33.75 (1,000) (73,000)
expiring Jan 1998
@ $30.88 (1,000) (216,000)
@ $32.06 (2,000) (370,000)
@ $32.63 (1,000) (141,000)
@ $32.88 (2,000) (304,160)
@ $33.00 (1,500) (213,000)
@ $34.44 (2,000) (173,700)
@ $35.25 (2,000) (124,000)
Sterling Commerce, Inc.
expiring Dec 1997
@ $37.88 (2,000) (154,000)
@ $38.13 (2,000) (110,000)
@ $38.50 (1,000) (60,000)
@ $38.50 (2,000) (140,000)
TCI Group Series A
expiring Dec 1997
@ $23.63 (1,000) (140,000)
@ $23.75 (1,000) (118,000)
Teleport Communications Group, Inc.
expiring Dec 1997
@ $47.00 (1,000) (470,000)
@ $49.13 (1,000) (274,000)
@ $50.50 (1,000) (289,000)
@ $51.00 (1,000) (225,000)
@ $51.63 (1,500) (441,000)
expiring Jan 1998
@ $49.50 (1,000) (386,000)
@ $50.31 (1,500) (543,000)
Tellabs, Inc.
expiring Dec 1997
@ $52.63 (2,000) (932,080)
@ $57.88 (1,500) (418,500)
United Healthcare Corp.
expiring Jan 1998
@ $52.94 (2,500) (320,000)
WorldCom, Inc.
expiring Nov 1997
@ $34.50 (1,000) (25,000)
11
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE GROWTH FUND
_______________________________________________________________________________
COMPANY CONTRACTS (I) VALUE
- -------------------------------------------------------------------------
expiring Dec1997
@ $33.81 (1,500) $ (274,500)
@ $35.13 (2,000) (272,000)
@ $35.94 (2,000) (224,000)
@ $36.00 (1,500) (178,500)
@ $36.00 (2,000) (280,000)
@ $36.13 (1,000) (118,000)
@ $37.75 (2,000) (198,000)
expiring Jan 1998
@ $32.88 (1,000) (289,000)
@ $34.44 (2,000) (482,000)
@ $36.75 (1,500) (208,500)
Total Outstanding Call Options Written
(premiums received $88,568,875) (48,331,868)
TOTAL INVESTMENTS NET OF OUTSTANDING
CALL OPTIONS WRITTEN -99.1%
(cost $3,709,721,617) $5,014,621,707
Other assets less liabilities-0.9% 47,947,927
NET ASSETS-100% $5,062,569,634
(a) Non-income producing security.
(b) Security on which options are written (shares subject to call have an
aggregate market value of $1,051,004,375).
(c) Country of origin--United Kingdom.
(d) Country of origin--Luxembourg.
(e) Swedish holding.
(f) Country of origin--Canada.
(g) Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At October 31, 1997,
these securities amounted to $39,565,662 or 0.78% of net assets.
(h) Country of origin--Sweden.
(i) One contract relates to 100 shares.
Glossary:
ADR - American Depositary Receipt
See notes to financial statements.
12
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997 ALLIANCE GROWTH FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $3,798,290,492) $5,062,953,575
Receivable for investment securities sold 53,005,611
Receivable for shares of beneficial interest sold 30,010,302
Dividends and interest receivable 3,210,538
Total assets 5,149,180,026
LIABILITIES
Due to custodian 201,799
Outstanding call options written, at value (premiums
received $88,568,875) 48,331,868
Payable for investment securities purchased 18,678,413
Payable for shares of beneficial interest redeemed 14,024,342
Advisory fee payable 3,177,714
Distribution fee payable 602,671
Accrued expenses 1,593,585
Total liabilities 86,610,392
NET ASSETS $5,062,569,634
COMPOSITION OF NET ASSETS
Shares of beneficial interest, at par $ 1,352
Additional paid-in capital 3,376,486,439
Accumulated net realized gain on investment transactions 381,251,181
Net unrealized appreciation of investments, options and
foreign currency denominated assets and liabilities 1,304,830,662
$5,062,569,634
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($783,110,177/17,816,215 shares of beneficial interest
issued and outstanding) $43.95
Sales charge--4.25% of public offering price 1.95
Maximum offering price $45.90
CLASS B SHARES
Net asset value and offering price per share
($3,578,805,746/98,548,974 shares of beneficial interest
issued and outstanding) $36.31
CLASS C SHARES
Net asset value and offering price per share
($599,449,178/16,500,423 shares of beneficial interest
issued and outstanding) $36.33
ADVISOR CLASS SHARES
Net asset value, redemption and offering price per share
($101,204,533/2,295,706 shares of beneficial interest
issued and outstanding) $44.08
See notes to financial statements.
13
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1997 ALLIANCE GROWTH FUND
_______________________________________________________________________________
INVESTMENT INCOME
Dividends (net of foreign taxes withheld
of $196,103) $ 36,371,249
Interest 6,511,771
$ 42,883,020
EXPENSES
Advisory fee 31,680,829
Distribution fee - Class A 1,931,232
Distribution fee - Class B 30,755,087
Distribution fee - Class C 5,105,935
Transfer agency 7,070,205
Printing 1,284,106
Custodian 411,153
Registration 393,103
Audit and legal 148,990
Trustees' fees 34,100
Miscellaneous 61,531
Total expenses 78,876,271
Less: expense offset arrangement
(see Note B) (445,154)
Net expense 78,431,117
Net investment loss (35,548,097)
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
Net realized gain on investment transactions 518,827,436
Net realized loss on written options transactions (87,527,539)
Net realized loss on foreign currency transactions (84,256)
Net change in unrealized appreciation (depreciation) of:
Investments 622,894,322
Written options 46,671,257
Foreign currency denominated assets and liabilities (34,571)
Net gain on investments 1,100,746,649
NET INCREASE IN NET ASSETS FROM OPERATIONS $1,065,198,552
See notes to financial statements.
14
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE GROWTH FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1997 1996
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment loss $ (35,548,097) $ (12,013,832)
Net realized gain on investments, options,
and foreign currency transactions 431,215,641 126,231,737
Net change in unrealized appreciation
(depreciation) of investments,
options, and foreign currency
denominated assets and liabilities 669,531,008 396,127,869
Net increase in net assets
from operations 1,065,198,552 510,345,774
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A -0- (1,878,354)
Net realized gain on investments
Class A (14,927,840) (6,274,504)
Class B (89,311,288) (39,764,242)
Class C (14,500,115) (6,015,295)
Advisor Class (20,469) -0-
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Net increase 714,151,085 931,724,109
Total increase 1,660,589,925 1,388,137,488
NET ASSETS
Beginning of year 3,401,979,709 2,013,842,221
End of year $5,062,569,634 $3,401,979,709
See notes to financial statements.
15
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997 ALLIANCE GROWTH FUND
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Growth Fund (the "Fund"), a series of The Alliance Portfolios (the
"Trust"), is registered under the Investment Company Act of 1940, as a
diversified, open-end investment company. The Fund offers Class A, Class B,
Class C and Advisor Class shares. Class A shares are sold with a front-end
sales charge of up to 4.25% for purchases not exceeding $1,000,000. With
respect to purchases of $1,000,000 or more, Class A shares redeemed within one
year of purchase will be subject to a contingent deferred sales charge of 1%.
Class B shares are sold with a contingent deferred sales charge which declines
from 4% to zero depending on the period of time the shares are held. Shares
purchased before August 2, 1993 and redeemed within six years of purchase are
subject to different rates than shares purchased after that date. Class B
shares purchased on or after August 2, 1993 and held for a period ending eight
years after the end of the calendar month of purchase will convert to Class A
shares. Class C shares are subject to a contingent deferred sales charge of 1%
on redemptions made within the first year after purchase. Advisor Class shares
are sold without any initial or contingent deferred sales charge and are not
subject to ongoing distribution expenses. Advisor Class shares are offered to
investors participating in certain fee-based programs and retirement plans. All
four classes of shares have identical voting, dividend, liquidation and other
rights, except that each class bears different distribution expenses and has
exclusive voting rights with respect to its distribution plan. The 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 sales price or, if no sale occurred, at the mean of the bid and asked
price at the regular close of such exchange. Securities traded on the
over-the-counter market are valued at the mean of the closing bid and asked
price. Securities for which current market quotations are not readily available
are valued at their fair value as determined in good faith by the Fund's Board
of Trustees. Call options written or purchased by the Fund are valued at the
last sale price and put options purchased by the Fund are valued at the last
sale price. The Board of Trustees has further determined that the value of
certain portfolio debt securities, other than temporary investments in
short-term securities, be determined by reference to valuations obtained from a
pricing service. Restricted securities are valued at fair value as determined
by the Board of Trustees. Securities which mature in 60 days or less are valued
at amortized cost, which approximates market value. The ability of issuers of
debt securities held by the Fund to meet their obligations may be affected by
economic developments in a specific industry or region.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
foreign exchange currency contracts are translated into U.S. dollars at the
mean of the quoted bid and asked price of such currencies against the U.S.
dollar. Purchases and sales of portfolio securities are translated into U.S.
dollars at the rates of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated into U.S. dollars at rates of
exchange prevailing when earned or accrued.
Net realized foreign currency gains and losses represent foreign exchange gains
from sales and maturities of debt securities, currency gains and losses
realized between the trade and settlement dates on security transactions and
the difference between the amounts of interest recorded on the Fund's books and
the U.S. dollar equivalent amounts actually received or paid. The Fund does not
isolate the effect of fluctuations in foreign currency exchange rates when
determining the gain or loss upon the sale or maturity of equity securities.
Net currency gains and losses from valuing foreign currency denomintaed assets
and liabilities at year end exchange rates are reflected as a component of
unrealized appreciation of investments and foreign currency denominated assets
and liabilities.
3. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Investment transactions are accounted for on the trade date securities
are purchased or sold. Investment gains and losses are determined on the
identified cost basis. The Fund accretes discounts and amortizes premiums as
adjustments to interest income.
16
ALLIANCE GROWTH FUND
_______________________________________________________________________________
5. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each outstanding class of shares, based on the proportionate interest
in the Fund represented by the shares on such class, except that the Fund's
Class B and Class C shares bear higher distribution and transfer agent fees
than Class A shares and the Advisory Class shares have no distribution fee.
Expenses attributable to the Fund are charged to the Fund. Expenses of the
Trust are charged to the Fund in proportion to net assets.
6. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within the capital accounts based on
their federal tax treatment; temporary differences, do not require such
reclassification. During the current fiscal year, permanent differences,
primarily due to net investment loss, resulted in a net decrease in accumulated
net realized gains on investment transactions and accumulated net investment
loss and a corresponding increase in additional paid-in capital. This
reclassification had no effect on net assets.
NOTE B: ADVISORY FEE 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 an annual rate of
.75% of the Fund's average daily net assets. Effective August 1, 1997, the
Board of Trustees approved an advisory fee equal to the annualized rate of .75%
of the Fund's average daily net assets up to $3 billion, .70% of the next $1
billion of the Fund's average daily net assets, .65% of the next $1 billion of
the Fund's average daily net assets, and .60% of the Fund's average daily net
assets over $5 billion. Such fee is accrued daily and paid monthly.
The Fund compensates Alliance Fund Services, Inc., a wholly-owned subsidiary of
the Adviser, under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such compensation
amounted to $4,518,264 for the year ended October 31, 1997.
In addition, for the year ended October 31, 1997, the Fund's expenses were
reduced by $445,154 under an expense offset arrangement with Alliance Fund
Services. Transfer Agency fees reported in the Statement of Operations exclude
these credits.
Alliance Fund Distributors, Inc., (the "Distributor"), a wholly-owned
subsidiary of the Adviser, serves as the Distributor of the Fund's shares. The
Distributor received front-end sales charges of $216,796 from the sale of Class
A shares and $9,882, $4,125,626, and $101,192 in contingent deferred sales
charges imposed upon redemptions by shareholders of Class A, Class B and Class
C shares, respectively, for the year ended October 31, 1997.
Brokerage commissions paid on securities transactions for the year ended
October 31, 1997 amounted to $4,109,583, of which $14,245 was paid to
Donaldson, Lufkin & Jenrette Securities Corp. ("DLJ"), an affiliate of the
Adviser.
Accrued expenses includes an amount owed to two of the trustees, under a
deferred compensation plan, of $121,788.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual
rate of up to .50% of the Fund's average daily net assets attributable to Class
A shares and 1% of the average daily net assets attributable to both Class B
and Class C shares. There is no distribution fee on the Advisor Class Shares.
The fees are accrued daily and paid monthly. The Trustees currently limit
payments under the Class A plan to .30% of the Fund's average daily net assets
attributable to Class A shares.
17
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE GROWTH FUND
_______________________________________________________________________________
The Fund is not obligated under the Agreement to pay any distribution services
fee in excess of the amounts set forth above. The purpose of the payments to
the Distributor under the Agreement is to compensate the Distributor for its
distribution services with respect to the sale of the Fund's shares. Since the
Distributor's compensation is not directly tied to its expenses, the amount of
compensation received by it under the Agreement during any year may be more or
less than its actual expenses. For this reason, the Agreement is characterized
by the staff of the Commission as being of the "compensation" variety.
In the event that the Agreement is terminated or not continued, (i) no
distribution services fees (other than current amounts accrued but not yet
paid) would be owed by the Fund to the Distributor with respect to the relevant
class and (ii) the Fund would not be obligated to pay the Distributor for any
amounts expended by the Distributor not previously recovered by the Distributor
from distribution services fees in respect of shares of such class or, in the
case of Class B shares, recovered through contingent deferred sales charges.
The Agreement also provides that the Adviser may use its own resources to
finance the distribution of the Fund's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $2,488,786,392 and $2,025,218,108,
respectively, for the year ended October 31, 1997. Purchases and sales amounted
to zero and $17,767,427, respectively of U.S. government and government agency
obligations for the year ended October 31, 1997.
At October 31, 1997, the cost of securities for federal income tax purposes was
$3,811,239,082. Accordingly gross unrealized appreciation of investments was
$1,347,248,424 and gross unrealized depreciation of investments was $95,533,931
resulting in net unrealized appreciation of $1,251,714,493.
1. OPTION TRANSACTIONS
For hedging purposes, the Fund purchases and writes (sells) put and call
options on U.S. and foreign government securities and foreign currencies that
are traded on U.S. and foreign securities exchanges and over-the-counter
markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk
of loss of the premium and a change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for in
the same manner as portfolio securities. The cost of securities acquired
through the exercise of call options is increased by premiums paid. The
proceeds from securities sold through the exercise of put options are decreased
by the premiums paid.
When the Fund writes an option, the premium received by the Fund is recorded as
a liability and is subsequently adjusted to the current market value of the
option written. Premiums received from writing options which expire unexercised
are recorded by the Fund on the expiration date as realized gains from option
transactions. The difference between the premium received and the amount paid
on effecting a closing purchase transaction, including brokerage commissions,
is also treated as a realized gain, or if the premium received is less than the
amount paid for the closing purchase transaction, as a realized loss. If a call
option is exercised, the premium received is added to the proceeds from the
sale of the underlying security or currency in determining whether the Fund has
realized a gain or loss. If a put option is exercised, the premium received
reduces the cost basis of the security or currency purchased by the Fund. The
risk involved in writing an option is that, if the option were exercised, the
underlying security would then be purchased or sold by the Fund at a
disadvantageous price.
18
ALLIANCE GROWTH FUND
_______________________________________________________________________________
Transactions in options written for the year ended October 31, 1997 were as
follows:
NUMBER OF
CONTRACTS PREMIUMS
------------ ---------------
Options outstanding at beginning of year 87,800 $ 36,773,825
Options written 831,150 300,751,514
Options terminated in closing
purchase transactions (380,600) (148,507,450)
Options expired (182,300) (62,921,825)
Options exercised (91,350) (37,527,189)
Options outstanding at October 31, 1997 264,700 $ 88,568,875
2. FOREIGN EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward exchange currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings and to hedge certain firm purchases and sale commitments. A forward
exchange currency contract is a commitment to purchase or sell a foreign
currency at a future date at a negotiated forward rate. The gain or loss
arising from the difference between the original contract and the closing of
such contract is included in net realized gain or loss from foreign currency
transactions.
Fluctuations in the value of open forward exchange currency contracts are
recorded for financial reporting purposes as unrealized gains or losses by the
Fund.
The Fund's custodian will place and maintain cash not available for investment
or securities in a separate account of the Fund having a value equal to the
aggregate amount of the Fund's commitments under forward exchange currency
contracts entered into with respect to position hedges.
Risks may arise from the potential inability of a counterparty to meet the
terms of a contract and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
At October 31, 1997, the Fund had no outstanding forward exchange currency
contracts.
19
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE GROWTH FUND
_______________________________________________________________________________
NOTE E: SHARES OF BENEFICIAL INTEREST
There is an unlimited number of $0.00001 par value shares of beneficial
interest authorized divided into four classes, designated Class A, Class B,
Class C and Advisor Class shares. Transactions in shares of beneficial interest
were as follows:
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1997 1996
------------ ------------ -------------- --------------
CLASS A
Shares sold 8,132,661 8,865,553 $ 318,891,520 $ 280,673,093
Shares issued in
reinvestment of
dividends and
distributions 358,984 238,657 12,705,352 7,133,447
Shares converted
from Class B 1,372,219 1,013,764 54,520,447 32,613,812
Shares redeemed (6,355,236) (5,484,207) (250,784,867) (173,773,360)
Net increase 3,508,628 4,633,767 $ 135,332,452 $ 146,646,992
CLASS B
Shares sold 23,967,815 33,339,591 $771,661,032 $887,177,634
Shares issued in
reinvestment of
distributions 2,307,390 1,182,878 67,883,610 29,773,038
Shares converted
to Class A (1,655,781) (1,208,740) (54,520,447) (32,613,812)
Shares redeemed (11,595,072) (8,398,216) (376,839,188) (224,298,136)
Net increase 13,024,352 24,915,513 $ 408,185,007 $ 660,038,724
CLASS C
Shares sold 5,404,558 6,734,641 $ 173,407,183 $ 179,622,559
Shares issued in
reinvestment of
distributions 278,004 125,326 8,181,650 3,155,709
Shares redeemed (2,988,645) (2,196,703) (97,513,487) (58,679,911)
Net increase 2,693,917 4,663,264 $ 84,075,346 $ 124,098,357
YEAR ENDED OCT. 2,1996(A) YEAR ENDED OCT. 2,1996(A)
OCTOBER 31, TO OCTOBER 31, TO
1997 OCT. 31,1996 1997 OCT. 31, 1996
------------ ------------ -------------- --------------
ADVISOR CLASS
Shares sold 2,521,405 27,111 $ 96,902,785 $ 940,036
Shares issued in
reinvestment of
distributions 570 -0- 20,184 -0-
Shares redeemed (253,380) -0- (10,364,689) -0-
Net increase 2,268,595 27,111 $ 86,558,280 $ 940,036
(a) Commencement of distribution.
20
FINANCIAL HIGHLIGHTS ALLIANCE GROWTH FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------
MAY 1, 1994
YEAR ENDED OCTOBER 31, TO YEAR ENDED APRIL 30,
------------------------------------ OCT. 31, ------------------------
1997 1996 1995 1994(A) 1994(B) 1993(B)
------------ ---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $34.91 $29.48 $25.08 $23.89 $22.67 $20.31
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.10)(c) .05 .12 .09 (.01)(d) .05(d)
Net realized and unrealized gain
on investments 10.17 6.20 4.80 1.10 3.55 3.68
Net increase in net asset value
from operations 10.07 6.25 4.92 1.19 3.54 3.73
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- (.19) (.11) -0- -0- (.14)
Distributions from net realized gains (1.03) (.63) (.41) -0- (2.32) (1.23)
Total dividends and distributions (1.03) (.82) (.52) -0- (2.32) (1.37)
Net asset value, end of period $43.95 $34.91 $29.48 $25.08 $23.89 $22.67
TOTAL RETURN
Total investment return based on
net asset value (e) 29.54% 21.65% 20.18% 4.98% 15.66% 18.89%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $783,110 $499,459 $285,161 $167,800 $102,406 $13,889
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 1.26%(f) 1.30% 1.35% 1.35%(g) 1.40% 1.40%
Expenses, before waivers/reimbursements 1.26%(f) 1.30% 1.35% 1.35%(g) 1.46% 1.84%
Net investment income (loss) (.25)% .15% .56% .86%(g) .32% .20%
Portfolio turnover rate 48% 46% 61% 24% 87% 124%
Average commission rate (h) $.0562 $.0584 -- -- -- --
</TABLE>
See footnote summary on page 24.
21
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE GROWTH FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------------------------------
MAY 1, 1994
YEAR ENDED OCTOBER 31, TO YEAR ENDED APRIL 30,
------------------------------------------ OCT. 31, ----------------------------
1997 1996 1995 1994(A) 1994(B) 1993(B)
-------------- ------------ ------------ ------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $29.21 $24.78 $21.21 $20.27 $19.68 $18.16
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.31)(c) (.12) (.02) .01 (.07)(c)(d) (.06)(d)
Net realized and unrealized gain
on investments 8.44 5.18 4.01 .93 2.98 3.23
Net increase in net asset value
from operations 8.13 5.06 3.99 .94 2.91 3.17
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- -0- (.01) -0- -0- (.03)
Distributions from net realized gains (1.03) (.63) (.41) -0- (2.32) (1.62)
Total dividends and distributions (1.03) (.63) (.42) -0- (2.32) (1.65)
Net asset value, end of period $36.31 $29.21 $24.78 $21.21 $20.27 $19.68
TOTAL RETURN
Total investment return based on
net asset value (e) 28.64% 20.82% 19.33% 4.64% 14.79% 18.16%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period(000's omitted) $3,578,806 $2,498,097 $1,502,020 $751,521 $394,227 $56,704
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 1.96%(f) 1.99% 2.05% 2.05%(g) 2.10% 2.15%
Expenses, before waivers/reimbursements 1.96%(f) 1.99% 2.05% 2.05%(g) 2.13% 2.52%
Net investment income (loss) (.94)% (.54)% (.15)% .16%(g) (.36)% (.53)%
Portfolio turnover rate 48% 46% 61% 24% 87% 124%
Average commission rate (h) $.0562 $.0584 -- -- -- --
</TABLE>
See footnote summary on page 24.
22
ALLIANCE GROWTH FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------------
MAY 1, 1994 AUGUST 2,
YEAR ENDED OCTOBER 31, TO 1993(I) TO
-------------------------------------- OCTOBER 31, APRIL 30,
1997 1996 1995 1994(A) 1994
------------ ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $29.22 $24.79 $21.22 $20.28 $21.47
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.31)(c) (.12) (.03) .01 (.02)(d)
Net realized and unrealized gain on
investments 8.45 5.18 4.02 .93 1.15
Net increase in net asset value from
operations 8.14 5.06 3.99 .94 1.13
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- -0- (.01) -0- -0-
Distributions from net realized gains (1.03) (.63) (.41) -0- (2.32)
Total dividends and distributions (1.03) (.63) (.42) -0- (2.32)
Net asset value, end of period $36.33 $29.22 $24.79 $21.22 $20.28
TOTAL RETURN
Total investment return based on
net asset value (e) 28.66% 20.81% 19.32% 4.64% 5.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $599,449 $403,478 $226,662 $114,455 $64,030
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 1.97%(f) 2.00% 2.05% 2.05%(g) 2.10%(g)
Expenses, before waivers/reimbursements 1.97%(f) 2.00% 2.05% 2.05%(g) 2.13%(g)
Net investment income (loss) (.95)% (.55)% (.15)% .16%(g) (.31)%(g)
Portfolio turnover rate 48% 46% 61% 24% 87%
Average commission rate (h) $.0562 $.0584 -- -- --
</TABLE>
See footnote summary on page 24.
23
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE GROWTH FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
ADVISOR CLASS
-------------------------------
OCTOBER 2,
YEAR ENDED 1996(I) TO
OCTOBER 31, OCTOBER 31,
1997 1996
-------------- --------------
Net asset value, beginning of period $34.91 $34.14
INCOME FROM INVESTMENT OPERATIONS
Net investment income (.05)(c) -0-
Net realized and unrealized gain
on investments 10.25 .77
Net increase in net asset value
from operations 10.20 .77
LESS: DISTRIBUTIONS
Distributions from net realized gains (1.03) -0-
Total distributions (1.03) -0-
Net asset value, end of period $44.08 $34.91
TOTAL RETURN
Total investment return based on
net asset value (e) 29.92% 2.26%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $101,205 $946
Ratios to average net assets of:
Expenses, net of waivers/reimbursements .98%(f) 1.26%(g)
Expenses, before waivers/reimbursements .98%(f) 1.26%(g)
Net investment income (.12)% .50%(g)
Portfolio turnover rate 48% 46%
Average commission rate $.0562 $.0584
(a) The Fund changed its fiscal year end from April 30 to October 31.
(b) Prior to July 22, 1993, Equitable Capital Management Corporation
(Equitable Capital) served as investment adviser to the Trust. On July 22,
1993, Alliance Capital Management L.P. acquired the business and substantially
all of the assets of Equitable Capital and became investment adviser for the
Trust.
(c) Based on average shares outstanding.
(d) Net of fee waived and expenses reimbursed by the Adviser.
(e) 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. Initial sales charges or contingent
deferred sales charges are not reflected in the calculation of total investment
return. Total investment return calculated for a period of less than one year
is not annualized.
(f) Ratio reflects expenses grossed up for expense offset arrangement with the
Transfer Agent. For the year ended October 31, 1997, the ratios of expenses net
of waiver/reimbursements and before waiver/reimbursements were 1.25%, 1.95%,
1.95% and .96% for Class A, B, C and Advisor Class shares, respectively.
(g) Annualized.
(h) 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.
(i) Commencement of distribution.
24
REPORT OF INDEPENDENT ACCOUNTANTS ALLIANCE GROWTH FUND
_______________________________________________________________________________
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF ALLIANCE GROWTH FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Alliance Growth Fund (one of the
portfolios of The Alliance Portfolios, hereafter referred to as the "Fund") at
October 31, 1997, 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 periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at October 31, 1997 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
December 12, 1997
25
<PAGE>
________________________________________________________________
APPENDIX A:
DESCRIPTION OF CORPORATE BOND RATINGS
________________________________________________________________
Description of the bond ratings of Moody's Investors
Service, Inc. are as follows:
Aaa-- Bonds which are rated Aaa are judged to be of the
best quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edge." Interest payments
are protected by a large or by an exceptionally stable margin,
and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa-- Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat
greater than the Aaa securities.
A-- Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper-medium-
grade obligations. Factors giving security to principal and
interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the
future.
Baa-- Bonds which are rated Baa are considered as medium
grade obligations, i.e., they are neither highly protected nor
poorly secured. Interest payment and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba-- Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments
may be very moderate and thereby not well safeguarded during both
A-1
<PAGE>
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B-- Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
Caa-- Bonds which are rated Caa are of poor standing.
Such issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca-- Bonds which are rated Ca represent obligations
which are speculative to a high degree. Such issues are often in
default or have other marked shortcomings.
C-- Bonds which are rated C are the lowest class of
bonds and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
Moody's applies modifiers to each rating classification
from Aa through B to indicate relative ranking within its rating
categories. The modifier "1" indicates that a security ranks in
the higher end of its generic rating category; the modifier "2"
indicates a mid-range ranking; and the modifier "3" indicates
that the issue ranks in the lower end of its generic rating
category.
Descriptions of the bond ratings of Standard & Poor's
Ratings Services ("Standard & Poor's") are as follows:
AAA-- Debt rated AAA has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal
is extremely strong.
AA-- Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from the higher rated
issues only in small degree.
A-- 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 debt in higher rated categories.
BBB-- Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than for debt in higher rated
categories.
A-2
<PAGE>
BB, B, CCC, CC, or C -- Debt rated BB, B, CCC, CC or C
is regarded, on balance, as having predominantly speculative
characteristics with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the
obligation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse debt conditions.
C1-- The rating C1 is reserved for income bonds on which
no interest is being paid.
D-- Debt rated D is in default and payment of interest
and/or repayment of principal is in arrears.
The ratings from AAA to CC may be modified by the
addition of a plus (+) or minus (-) sign to show relative
standing within the major rating categories.
Descriptions of the bond ratings of Fitch IBCA, Inc. are
as follows:
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 stability of applicable earnings
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, 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
A-3
<PAGE>
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.
BBB-- BBB rated bonds are considered to be investment
grade and of satisfactory quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to weaken this ability than bonds with
higher ratings.
BB-- BB rated bonds are considered speculative. The
obligor's ability to pay interest and repay principal may be
affected over time by adverse economic changes. However, business
and financial alternatives can be identified which could assist
the obligor in satisfying its debt service requirements.
B-- B rated bonds are considered highly speculative.
While bonds in this class are currently meeting debt service
requirements, the probability of continued timely payment of
principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC-- CCC rated bonds have certain identifiable
characteristics that, if not remedied, may lead to default. The
ability to meet obligations requires an advantageous business and
economic environment.
CC-- CC rated bonds are minimally protected. Default in
payment of interest and/or principal seems probable over time.
C-- C rated bonds are in imminent default in payment of
interest or principal.
DDD, DD and D-- These bonds are in default on interest
and/or principal payments. Such bonds are extremely speculative
and should be valued on the basis of their ultimate recovery
value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and
"D" represents the lowest potential for recovery.
A-4
<PAGE>
Plus (+) and minus (-) signs are used with a rating
symbol to indicate the relative position of a credit within the
rating agency. Plus and minus signs, however, are not used in
the "AAA" and "D" categories.
Descriptions of the bond ratings of Duff & Phelps Credit
Rating Co. are as follows:
AAA-- Highest credit quality. The risk factors are
negligible.
AA+, AA, AA-: High credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
A+, A, A-: Protection factors are average but adequate.
However, risk factors are more variable and greater in periods of
economic stress.
BBB+, BBB, BBB-: Below average protection factors but
still considered sufficient for prudent investment. Considerable
variability in risk during economic cycles.
BB+, BB, BB-: Below investment grade but deemed likely
to meet obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions or
company fortunes. Overall quality may move up or down frequently
within this category.
B+, B, B-: Below investment grade and possessing risk
that obligations will not be met when due. Financial protection
factors will fluctuate widely according to economic cycles,
industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a
higher or lower rating grade.
CCC: Well below investment grade securities.
Considerable uncertainty exists as to timely payment of
principal, interest or preferred dividends. Protection factors
are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company
developments.
DD: Defaulted debt obligations. Issuer failed to meet
scheduled principal and/or interest payments.
A-5
<PAGE>
____________________________________________________________
APPENDIX B:
CERTAIN EMPLOYEE BENEFIT PLANS
____________________________________________________________
Employee benefit plans described below which are
intended to be tax-qualified under section 401(a) of the Internal
Revenue Code of 1986, as amended ("Tax Qualified Plans"), for
which Merrill Lynch, Pierce, Fenner & Smith Incorporated or an
affiliate thereof ("Merrill Lynch") is recordkeeper (or with
respect to which recordkeeping services are provided pursuant to
certain arrangements as described in paragraph (ii) below)
("Merrill Lynch Plans") are subject to specific requirements as
to the Fund shares which they may purchase. Notwithstanding
anything to the contrary contained elsewhere in this Statement of
Additional Information, the following Merrill Lynch Plans are not
eligible to purchase Class A shares and are eligible to purchase
Class B shares of the Fund at net asset value without being
subject to a contingent deferred sales charge:
(i) Plans for which Merrill Lynch is the recordkeeper on a
daily valuation basis, if when the plan is established
as an active plan on Merrill Lynch's recordkeeping
system:
(a) the plan is one which is not already
investing in shares of mutual funds or
interests in other commingled investment
vehicles of which Merrill Lynch Asset
Management, L.P. is investment adviser or
manager ("MLAM Funds"), and either (A) the
aggregate assets of the plan are less than
$3 million or (B) the total of the sum of
(x) the employees eligible to participate in
the plan and (y) those persons, not
including any such employees, for whom a
plan account having a balance therein is
maintained, is less than 500, each of (A)
and (B) to be determined by Merrill Lynch in
the normal course prior to the date the plan
is established as an active plan on Merrill
Lynch's recordkeeping system (an "Active
Plan"); or
(b) the plan is one which is already investing
in shares of or interests in MLAM Funds and
the assets of the plan have an aggregate
value of less than $5 million, as determined
B-1
<PAGE>
by Merrill Lynch as of the date the plan
becomes an Active Plan.
For purposes of applying (a) and (b), there
are to be aggregated all assets of any Tax-
Qualified Plan maintained by the sponsor of
the Merrill Lynch Plan (or any of the
sponsor's affiliates) (determined to be such
by Merrill Lynch) which are being invested
in shares of or interests in MLAM Funds,
Alliance Mutual Funds or other mutual funds
made available pursuant to an agreement
between Merrill Lynch and the principal
underwriter thereof (or one of its
affiliates) and which are being held in a
Merrill Lynch account.
(ii) Plans for which the recordkeeper is not Merrill Lynch,
but which are recordkept on a daily valuation basis by
a recordkeeper with which Merrill Lynch has a
subcontracting or other alliance arrangement for the
performance of recordkeeping services, if the plan is
determined by Merrill Lynch to be so eligible and the
assets of the plan are less than $3 million.
Class B shares of the Fund held by any of the above-
described Merrill Lynch Plans are to be replaced at Merrill
Lynch's direction through conversion, exchange or otherwise by
Class A shares of the Fund on the earlier of the date that the
value of the plan's aggregate assets first equals or exceeds $5
million or the date on which any Class B share of the Fund held
by the plan would convert to a Class A share of the Fund as
described under "Purchase of Shares" and "Redemption and
Repurchase of Shares."
Any Tax Qualified Plan, including any Merrill Lynch
Plan, which does not purchase Class B shares of the Fund without
being subject to a contingent deferred sales charge under the
above criteria is eligible to purchase Class B shares subject to
a contingent deferred sales charge as well as other classes of
shares of the Fund as set forth above under "Purchase of Shares"
and "Redemption and Repurchase of Shares."
B-2
<PAGE>
(LOGO)(R) THE ALLIANCE PORTFOLIOS:
Alliance Short-Term
U. S. Government Fund
___________________________________________________________
P.O. Box 1520, Secaucus, New Jersey 07096-1520
1. Toll Free (800) 221-5672
For Literature Toll Free (800)-227-4618
___________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
November 2, 1998
___________________________________________________________
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the current Prospectus that
offers Class A, Class B and Class C shares and, if the Fund
begins to offer Advisor Class shares, the Prospectus that offers
Advisor Class shares of the Fund (the "Advisor Class Prospectus"
and, together with any Prospectus that offers the Class A, Class
B and Class C shares, the "Prospectus"). The Fund currently does
not offer Advisor Class shares. Copies of the Fund's Prospectus
may be obtained by contacting Alliance Fund Services, Inc. at the
address or the "For Literature" telephone number shown above.
TABLE OF CONTENTS
PAGE
INVESTMENT POLICIES AND RESTRICTIONS......................
ADDITIONAL INVESTMENT TECHNIQUES OF THE FUND..............
INVESTMENT RESTRICTIONS...................................
MANAGEMENT OF THE FUND....................................
PORTFOLIO TRANSACTIONS....................................
EXPENSES OF THE FUND......................................
PURCHASE OF SHARES........................................
REDEMPTION AND REPURCHASE OF SHARES.......................
SHAREHOLDER SERVICES......................................
NET ASSET VALUE...........................................
DIVIDENDS, DISTRIBUTIONS AND TAXES........................
GENERAL INFORMATION.......................................
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT ACCOUNTANTS.........................
APPENDIX A: DESCRIPTION OF CORPORATE BOND RATINGS........ A-1
APPENDIX B: CERTAIN EMPLOYEE BENEFIT PLANS............... B-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
set forth in the Prospectus of the Alliance Short-Term U.S.
Government Fund (the "Fund"), a series of The Alliance Portfolios
(the "Trust"), under the heading "Investment Objective and
Policies." In addition to the investment techniques described in
this section, the Fund may also engage in the investment
techniques described below under the sub-heading "Additional
Investment Techniques of the Fund."
Investment Objective and Policies of the Short-Term U.S.
Government Fund
General. The Fund seeks to provide high current income
consistent with preservation of capital by investing primarily in
a diversified portfolio of U.S. Government Securities. Under
normal circumstances, the Fund will maintain an average dollar-
weighted portfolio maturity of not more than three years and will
invest at least 65% of its total assets in U.S. Government
Securities and repurchase agreements and forward commitments
relating to U.S. Government Securities. In periods of rising
interest rates, the Fund may, to the extent it invests in
mortgage-backed securities, be subject to the risk that its
average dollar weighted portfolio maturity may be extended as a
result of lower than anticipated prepayment rates. The Fund's
investments may include all types of U.S. Government Securities,
including those backed by the full faith and credit of the U.S.
Government, those supported by the right of the issuer to borrow
from the U.S. Treasury and those backed only by the credit of the
issuing agency itself. U.S. Government Securities include,
without limitation, the following:
U.S. Treasury Bills - Direct obligations of the U.S.
Treasury which are issued in maturities of one year or less. No
interest is paid on Treasury Bills; instead, they are issued at a
discount and repaid at full face value when they mature. They
are backed by the full faith and credit of the U.S. Government.
U.S. Treasury Notes - Direct obligations of the U.S.
Treasury issued in maturities which vary between one and ten
years, with interest payable every six months. They are backed
by the full faith and credit of the U.S. Government.
U.S. Treasury Bonds - Direct obligations of the U.S.
Treasury are issued in maturities of more than ten years from the
2
<PAGE>
date of issue, with interest payable every six months. They are
backed by the full faith and credit of the U.S. Government.
"Ginnie Maes" - Ginnie Maes are debt securities issued
by a mortgage banker or other mortgagee and represent an interest
in a pool of mortgages insured by the Federal Housing
Administration or the Farmers' Home Administration or guaranteed
by the Veterans Administration. The Government National Mortgage
Association ("GNMA") guarantees the timely payment of the
principal and interest. The GNMA guarantee is backed by the full
faith and credit of the U.S. Government.
"Fannie Maes" - The Federal National Mortgage
Association ("FNMA"), a government-sponsored corporation, owned
entirely by private stockholders that purchases residential
mortgages from a list of approved seller/servicers. Pass-
through securities issued by FNMA are guaranteed as to timely
payment of principal and interest by FNMA but are not backed by
the full faith and credit of the U.S. Government.
"Freddie Macs" - The Federal Home Loan Mortgage
Corporation ("FHLMC"), a corporate instrumentality of the U.S.
Government, issues participation certificates ("PCs") which
represent interest in residential mortgages from FHLMC's National
Portfolio. FHLMC guarantees the timely payment of interest and
ultimate collection of principal, but PCs are not backed by the
full faith and credit of the U.S. Government.
Governmental Collateralized Mortgage Obligations
("CMOs") - Governmental CMOs are securities issued by a U.S.
Government instrumentality or agency which are backed by a
portfolio of mortgages or mortgage-backed securities held under
an indenture. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of
mortgages or mortgage-backed securities. CMOs are issued with a
number of classes or series which have different maturities and
which may represent interests in some or all of the interest or
principal on the underlying collateral or a combination thereof.
CMOs of different classes are generally retired in sequence as
the underlying mortgage loans in the mortgage pool are repaid.
The Fund may invest in only those privately-issued CMOs which are
collateralized by mortgage-backed securities issued by GNMA,
FHLMC or FNMA, and in CMOs issued by a U.S. Government agency or
instrumentality. CMOs issued by entities other than U.S.
Government agencies or instrumentalities are not considered U.S.
Government Securities for purposes of the investment policies of
the Fund even though the CMOs may be collateralized by U.S.
Government Securities.
Ginnie Maes, Fannie Maes, Freddie Macs and CMOs are
mortgage-backed securities. Interest and principal payments
3
<PAGE>
(including prepayments) on the mortgages underlying mortgage-
backed securities are passed through to the holders of the
mortgage-backed security. Prepayments occur when the mortgagor
on an individual mortgage prepays the remaining principal before
the mortgage's scheduled maturity date. As a result of the pass-
through of prepayments of principal on the underlying securities,
mortgage-backed securities are often subject to more rapid
prepayment of principal than their stated maturity would
indicate. Because the prepayment characteristics of the
underlying mortgages vary, it is not possible to predict
accurately the realized yield or average life of a particular
issue of pass-through certificates. During periods of declining
interest rates, such prepayments can be expected to accelerate
and the Fund would be required to reinvest the proceeds at the
lower interest rates then available. Conversely, during periods
of rising interest rates, a reduction in prepayments may increase
the effective maturities of the securities, subjecting them to a
greater risk of decline in market value in response to rising
interest rates. In addition, prepayments of mortgages which
underlie securities purchased at a premium could result in
capital losses. As a result of these principal payment features,
mortgage-backed securities are generally more volatile
investments than other U.S. Government Securities.
The Fund may also invest in "zero-coupon" U.S.
Government Securities which have been stripped of their unmatured
interest coupons and receipts or in certificates representing
undivided interests in such stripped U.S. Government Securities
and coupons. The Fund may also invest in certificates
representing rights to receive payments of the interest only or
principal only of mortgage-backed U.S. Government Securities
("IO/PO Strips"). These securities tend to be more volatile than
other types of U.S. Government Securities. IO Strips involve the
additional risk of loss of the entire remaining value of the
investment if the underlying mortgages are prepaid. See
"Stripped Mortgage-Related Securities" below.
Guarantees of the Fund's securities by the U.S.
Government or its agencies or instrumentalities guarantee only
the payment of principal and interest on the guaranteed
securities, and do not guarantee the securities' yield or value
or the yield or value of the Fund's shares.
U.S. Government Securities are considered among the
safest of fixed-income investments. As a result, however, their
yields are generally lower than the yields available from
corporate debt securities. As with other mutual funds, the value
of the Fund's shares will fluctuate with the value of its
investments. The value of the Fund's investments will change as
the general level of interest rates fluctuates. During periods
of falling interest rates, the values of U.S. Government
4
<PAGE>
Securities generally rise. Conversely, during periods of rising
interest rates, the values of U.S. Government Securities
generally decline. In an effort to preserve the capital of the
Fund when interest rates are generally rising, Alliance Capital
Management L.P. (the "Adviser") may shorten the average maturity
of the U.S. Government Securities in the Fund's portfolio.
Because the principal values of U.S. Government Securities with
shorter maturities are less affected by rising interest rates, a
portfolio with a shorter average maturity will generally diminish
less in value during such periods than a portfolio of longer
average maturity. Because U.S. Government Securities with
shorter maturities generally have a lower yield to maturity,
however, the Fund's current return and net asset value will
generally be lower as a result of such action than it would have
been had such action not been taken.
In addition to investing in U.S. Government Securities,
the Fund may invest a portion of its assets in bank certificates
of deposit, corporate debt obligations, high quality money market
instruments and CMOs, IO/PO Strips and asset-backed securities of
non-governmental issuers. These investments generally involve
higher levels of credit risk than do U.S. Government Securities,
as well as the risk (present with all fixed-income securities) of
fluctuations in value as market rates of interest change. To
reduce these risks, however, the Fund's investments in fixed-
income securities will be rated at the time of purchase at least
AA by Standard & Poor's ("S&P") or Aa by Moody's Investors
Service, Inc. ("Moodys"), or if unrated will be of comparable
quality as determined by the Adviser. In the event that the
rating of any security held by the Fund falls below Aa by Moody's
and/or AA by S&P (or an unrated security is determined by the
Adviser to no longer be of comparable quality to securities rated
Aa or AA), the Fund will not be obligated to dispose of such
security and may continue to hold the security if, in the opinion
of the Adviser, such investment is appropriate in the
circumstances.
Stripped Mortgage-Related Securities. The Fund may
invest in stripped mortgage-related securities ("SMRS"). SMRS
are derivative multi-class mortgage-related securities. SMRS may
be issued by the U.S. Government, its agencies or
instrumentalities, or by private originators of, or investors in,
mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing.
SMRS are usually structured with two classes that
receive different proportions of the interest and principal
distributions on a pool of GNMA, FNMA or FHLMC certificates,
whole loans or private pass-through mortgage-related securities
("Mortgage Assets"). A common type of SMRS will have one class
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receiving some of the interest and most of the principal from the
Mortgage Assets, while the other class will receive most of the
interest and the remainder of the principal. In the most extreme
case, one class will receive all of the interest (the interest-
only or "IO" class), while the other class will receive all of
the principal (the principal-only or "PO" class). The yield to
maturity on an IO class is extremely sensitive to the rate of
principal payments (including prepayments) on the related
underlying Mortgage Assets, and a rapid rate of principal
prepayments may have a material adverse effect on the yield to
maturity of the IO class. The rate of principal prepayment will
change as the general level of interest rates fluctuates. If the
underlying Mortgage Assets experience greater than anticipated
principal prepayments, the Fund may fail to fully recoup its
initial investment in these securities. Due to their structure
and underlying cash flows, SMRS may be more volatile than
mortgage-related securities that are not stripped.
Although SMRS are purchased and sold by institutional
investors through several investment banking firms acting as
brokers or dealers, these securities were only recently
developed. As a result, established trading markets have not yet
developed and, accordingly, these securities may be illiquid.
Inverse Floating Rate Instruments. The Fund may seek to
increase yield by investing in leveraged inverse floating rate
debt instruments, known as inverse floaters. The interest rate
on an inverse floater resets in the opposite direction from the
market rate of interest to which the inverse floater is indexed.
An inverse floater may be considered to be leveraged to the
extent that its interest rate varies by a multiple of the change
in the index rate of interest. The higher degree of leverage
inherent in inverse floaters is associated with greater
volatility in market value. Accordingly, the duration of an
inverse floater may exceed its stated final maturity.
Short Sales Against-the-Box. The Fund may make short
sales against-the-box for the purpose of deferring realization of
gain or loss for Federal income tax purposes. A short sale
"against-the-box" is a short sale in which the Fund owns an equal
amount of the securities sold short or securities convertible
into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in
amount to, the securities sold short. The Fund may engage in
such short sales only to the extent that not more than 10% of the
Fund's total assets (determined at the time of the short sale) is
held as collateral for such sales. Such short sales may cause the
Fund to recognize gain under tax rules pertaining to constructive
sales.
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Adjustable Rate Securities. The Fund may invest in
adjustable rate securities, which may be U.S. Government
Securities or securities of other issuers. Adjustable rate
securities are securities that have interest rates that are reset
at periodic intervals, usually by reference to some interest rate
index or market interest rate. Some adjustable rate securities
are backed by pools of mortgage loans. Although the rate
adjustment feature may act as a buffer to reduce sharp changes in
the value of adjustable rate securities, these securities are
still subject to changes in value based on changes in market
interest rates or changes in the relevant issuer's
creditworthiness. Because the interest rate is reset only
periodically, changes in the interest rate on adjustable rate
securities may lag behind changes in prevailing market interest
rates. Also, some adjustable rate securities (or the underlying
mortgages) are subject to caps or floors that limit the maximum
change in interest rate during a specified period or over the
life of the security.
Interest Rate Transactions. The Fund may seek to
protect the value of its investments from interest rate
fluctuations by entering into various hedging transactions, such
as interest rate swaps and the purchase or sale of interest rate
caps and floors. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio. The Fund may
also enter into these transactions to protect against an increase
in the price of securities the Fund anticipates purchasing at a
later date. The Fund intends to use these transactions as a
hedge and not as speculative investment. Interest rate swaps
involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an
exchange of floating rate payments for fixed rate payments. The
purchase of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest
rate, to receive payments on a notional principal amount for the
party selling such interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from
the party selling such interest rate floor.
The Fund may enter into interest rate swaps, caps and
floors on either an asset-based or liability-based basis
depending on whether it is hedging its assets or its liabilities.
The Fund will only enter into such swaps, caps and floors on a
net basis, i.e., the two payment streams are netted out, with the
Fund receiving or paying, as the case may be, only the net amount
of the two payments. The net amount of the excess, if any, of
the Fund's obligations over its entitlements with respect to each
interest rate swap, cap or floor will be accrued on a daily basis
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and an amount of liquid securities having an aggregate value at
least equal to the accrued excess will be maintained in a
segregated account by the custodian. The Fund will not enter
into any interest rate swap, cap or floor transaction unless the
unsecured senior debt or the claims-paying ability of the other
party thereto is rated in the highest rating category of at least
one nationally recognized rating organization at the time of
entering into such transaction. If there is a default by the
other party to such transaction, the Fund will have contractual
remedies pursuant to the agreements related to the transaction.
Caps and floors may be illiquid.
Reverse Repurchase Agreements. In order to increase
income, the Fund may enter into reverse repurchase agreements
with commercial banks and registered broker-dealers in an amount
up to 33-1/3% of the Fund's total assets. Reverse repurchase
agreements involve sales by the Fund of portfolio assets
concurrently with an agreement by the Fund to repurchase the same
assets at a later date at a fixed price. During the reverse
repurchase agreement period, the Fund continues to receive
principal and interest payments on these securities. Reverse
repurchase agreements are considered borrowings by the Fund and
require the segregation of liquid assets with the Fund's
custodian in amount equal to the Fund's obligation pending
completion of such transactions. Reverse repurchase agreements
involve the risk that the market value of the securities retained
by the Fund may decline below the price of the securities the
Fund has sold but is obligated to repurchase under the agreement.
In the event the buyer of securities under a reverse repurchase
agreement files for bankruptcy or becomes insolvent, the Fund's
use of the proceeds of the agreement may be restricted pending a
determination by the other party, or its trustee or receiver,
whether to enforce the Fund's obligation to repurchase the
securities.
Options on Securities. The Fund may seek to increase
its current return by writing covered call and put options on
securities it owns or in which it may invest. For more
information on writing options on securities, see "Options -
Options on Securities."
Options on certain U.S. Government Securities are traded
in significant volume on securities exchanges. However, other
options which the Fund may purchase or sell are traded in the
"over-the-counter" market rather than on an exchange. This means
that the Fund will enter into such option contracts with
particular securities dealers who make markets in these options.
The Fund's ability to terminate option positions in the over-the-
counter market may be more limited than for exchange-traded
options and may also involve the risk that securities dealers
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participating in such transactions might fail to meet their
obligations to the Fund.
Portfolio Management
The Adviser manages the Fund's portfolio by buying and
selling securities to help attain its investment objective. The
portfolio turnover rate for the Fund is included under "Financial
Highlights" in the Fund's Prospectus. A high portfolio turnover
rate will involve greater costs to the Fund (including brokerage
commissions and other transaction costs) and may also result in
the realization of taxable capital gains, including short-term
capital gains taxable at ordinary income rates. See "Portfolio
Transactions" and "Dividends, Distributions and Taxes" below.
___________________________________________________________
ADDITIONAL INVESTMENT TECHNIQUES OF THE FUND
___________________________________________________________
Repurchase Agreements
The repurchase agreements referred to in the Fund's
Prospectus are agreements by which the Fund purchases a security
and obtains a simultaneous commitment from the seller to
repurchase the security at an agreed upon price and date. The
resale price is in excess of the purchase price and reflects an
agreed upon market rate unrelated to the coupon rate on the
purchased security. The purchased security serves as collateral
for the obligation of the seller to repurchase the security. The
value of the purchased security is initially greater than or
equal to the amount of the repurchase obligation and the seller
is required to furnish additional collateral on a daily basis in
order to maintain with the purchaser securities with a value
greater than or equal to the amount of the repurchase obligation.
Such transactions afford the Fund the opportunity to earn a
return on temporarily available cash. While at times the
underlying security may be a bill, certificate of indebtedness,
note, or bond issued by an agency, authority or instrumentality
of the U.S. Government, the obligation of the seller is not
guaranteed by the U.S. Government and there is a risk that the
seller may fail to repurchase the underlying security, whether
because of the seller's bankruptcy or otherwise. In such event,
the Fund would attempt to exercise its rights with respect to the
underlying security, including possible disposition in the
market. However, the Fund may be subject to various delays and
risks of loss, including (a) possible declines in the value of
the underlying security during the period while the Fund seeks to
enforce its rights thereto, (b) possible reduced levels of income
and lack of access to income during this period and (c) inability
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to enforce rights and the expenses involved in the attempted
enforcement.
Non-Publicly Traded Securities
The Fund may invest in securities that are not publicly
traded, including securities sold pursuant to Rule 144A under the
Securities Act of 1933 ("Rule 144A Securities"). The sale of
these securities is usually restricted under Federal securities
laws, and market quotations may not be readily available. As a
result, the Fund may not be able to sell these securities (other
than Rule 144A Securities) unless they are registered under
applicable Federal and state securities laws, or may have to sell
such securities at less than fair market value. Investment in
these securities is restricted to 5% of the Fund's total assets
(excluding, to the extent permitted by applicable law, Rule 144A
Securities) and is also subject to the restriction against
investing more than 15% of total assets in "illiquid" securities.
To the extent permitted by applicable law, Rule 144A Securities
will not be treated as "illiquid" for purposes of the foregoing
restriction so long as such securities meet the liquidity
guidelines established by the Trust's Board of Trustees.
Pursuant to these guidelines, the Adviser will monitor the
liquidity of the Fund's investment in Rule 144A Securities and,
in reaching liquidity decisions, will consider: (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).
Descriptions of Certain Money Market Securities in Which the Fund
May Invest
Certificates of Deposit, Bankers' Acceptances and Bank
Time Deposits. Certificates of deposit are receipts issued by a
bank 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 another bank that, in effect,
unconditionally guarantees to pay the face value of the
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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 acceptances can be as long as
270 days, most maturities are six months or less.
Bank time deposits are funds kept on deposit with a bank
for a stated period of time in an interest bearing account. At
present, bank time deposits maturing in more than seven days are
not considered by the Adviser to be readily marketable.
Commercial Paper. Commercial paper consists of short
term (usually from 1 to 270 days) unsecured promissory notes
issued in order to finance their current operations.
Variable Notes. Variable amount master demand notes and
variable amount floating rate notes are obligations that permit
the investment of fluctuating amounts by the Fund at varying
rates of interest pursuant to direct arrangements between the
Fund, as lender, and the borrower. Master demand notes permit
daily fluctuations in the interest rate while the interest rate
under variable amount floating rate notes fluctuates on a weekly
basis. These notes permit daily changes in the amounts borrowed.
The Fund has the right to increase the amount under these notes
at any time up to the full amount provided by the note agreement,
or to decrease the amount, and the borrower may repay up to the
full amount of the note without penalty. Because these types of
notes are direct lending arrangements between the lender and the
borrower, it is not generally contemplated that such instruments
will be traded and there is no secondary market for these notes.
Master demand notes are redeemable (and, thus, immediately
repayable by the borrower) at face value, plus accrued interest,
at any time. Variable amount floating rate notes are subject to
next day redemption 14 days after the initial investment therein.
With both types of notes, therefore, the Fund's right to redeem
depends on the ability of the borrower to pay principal and
interest on demand. In connection with both types of note
arrangements, the Fund considers earning power, cash flow and
other liquidity ratios of the issuer. These notes, as such, are
not typically rated by credit rating agencies. Unless they are
so rated, the Fund may invest in these notes only if at the time
of an investment the issuer has an outstanding issue of unsecured
debt rated Aa or better by Moody's or AA or better by S&P.
Asset-Backed Securities
The Fund may invest in asset backed securities
(unrelated to first mortgage loans) which represent fractional
interests in pools of retail installment loans, leases or
revolving credit receivables, both secured (such as Certificates
for Automobile Receivables or "CARS") and unsecured (such as
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<PAGE>
Credit Card Receivable Securities or "CARDS"). These assets are
generally held by a trust and payments of principal and interest
or interest only are passed through monthly or quarterly to
certificate holders and may be guaranteed up to certain amounts
by letters of credit issued by a financial institution affiliated
or unaffiliated with the trustee or originator of the trust.
Like mortgages underlying mortgage backed securities,
underlying automobile sales contracts or credit card receivables
are subject to prepayment, which may reduce the overall return to
certificate holders. Certificate holders may also experience
delays in payment if the full amounts due on underlying sales
contracts or receivables are not realized by the trust holding
the obligations because of unanticipated legal or administrative
costs of enforcing the contracts or because of depreciation or
damage to the collateral (usually automobiles) securing certain
contracts, or other factors. If consistent with its investment
objectives and policies, the Fund may invest in other types of
asset-backed securities that may be developed in the future.
The staff of the Securities and Exchange Commission (the
"SEC") is of the view that certain asset backed securities may
constitute investment companies under the Investment Company Act
of 1940 (the "1940 Act"). The Fund intends to conduct its
operations in a manner consistent with this view; therefore, the
Fund generally may not invest more than 10% of its total assets
in such securities without obtaining appropriate regulatory
relief.
Lending of Securities
The Fund may seek to increase its income by lending
portfolio securities. Under present regulatory policies,
including those of the Board of Governors of the Federal Reserve
System and the SEC, such loans may be made only to member firms
of the New York Stock Exchange (the "Exchange") and would be
required to be secured continuously by collateral in cash, cash
equivalents, or U.S. Treasury Bills maintained on a current basis
at an amount at least equal to the market value of the securities
loaned. The Fund would have the right to call a loan and obtain
the securities loaned at any time on five days' notice. During
the existence of a loan, the Fund would continue to receive the
equivalent of the interest or dividends paid by the issuer on the
securities loaned and would also receive compensation based on
investment of the collateral. The Fund would not, however, have
the right to vote any securities having voting rights during the
existence of the loan, but would call the loan in anticipation of
an important vote to be taken among holders of the securities or
of the giving or withholding of their consent on a material
matter affecting the investment. As with other extensions of
credit, there are risks of delay in recovery or even loss of
12
<PAGE>
rights in the collateral should the borrower of the securities
fail financially. However, the loans would be made only to firms
deemed by the Adviser to be of good standing, and when, in the
judgment of the Adviser, the consideration that can be earned
currently from securities loans of this type justifies the
attendant risk. The value of the securities loaned will not
exceed 25% of the value of the Fund's total assets at the time
any such loan is made.
Forward Commitments and When-Issued and Delayed Delivery
Securities
The Fund may enter into forward commitments for the
purchase of securities and may purchase securities on a "when
issued" or "delayed delivery" basis. Agreements for such
purchases might be entered into when, for example, the Fund
anticipates a decline in interest rates and is able to obtain a
more advantageous yield by committing currently to purchase
securities to be issued later. When the Fund purchases
securities in this manner (i.e., on a forward commitment, "when
issued" or "delayed delivery" basis), it does not pay for the
securities until they are received, and the Fund is required to
create a segregated account with the Trust's custodian and to
maintain in that account liquid assets in an amount equal to or
greater than, on a daily basis, the amount of the Fund's forward
commitments and "when issued" or "delayed delivery" commitments.
The Fund will enter into forward commitments and make
commitments to purchase securities on a "when issued" or "delayed
delivery" basis only with the intention of actually acquiring the
securities. However, the Fund may sell these securities before
the settlement date if, in the opinion of the Adviser it is
deemed advisable as a matter of investment strategy.
Although the Fund does not intend to make such purchases
for speculative purposes and does intend to adhere to the
provisions of SEC policies, purchases of securities on such bases
may involve more risk than other types of purchases. For
example, by committing to purchase securities in the future, the
Fund subjects itself to a risk of loss on such commitments as
well as on its portfolio securities. Also, the Fund may have to
sell assets which have been set aside in order to meet
redemptions. In addition, if the Fund determines it is advisable
as a matter of investment strategy to sell the forward commitment
or "when issued" or "delayed delivery" securities before
delivery, the Fund may incur a gain or loss because of market
fluctuations since the time the commitment to purchase such
securities was made. Any such gain or loss would be treated as a
capital gain or loss for Federal income tax purposes. When the
time comes to pay for the securities to be purchased under a
forward commitment or on a "when issued" or "delayed delivery"
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<PAGE>
basis, the Fund will meet its obligations from the then available
cash flow or the sale of securities, or, although it would not
normally expect to do so, from the sale of the forward commitment
or "when issued" or "delayed delivery" securities themselves
(which may have a value greater or less than the Fund's payment
obligation).
Options
Options on Securities. In addition to the methods of
"cover" described in the Prospectus, the Fund may write call and
put options and may purchase call and put options on securities.
The Fund intends to write only covered options. This means that
so long as the Fund is obligated as the writer of a call option,
it will own the underlying securities subject to the option or
securities convertible into such securities without additional
consideration (or for additional cash consideration held in a
segregated account by the custodian). In the case of call
options on U.S. Treasury Bills, the Fund might own U.S. Treasury
Bills of a different series from those underlying the call
option, but with a principal amount and value corresponding to
the option contract amount and a maturity date no later than that
of the securities deliverable under the call option. The Fund
will be considered "covered" with respect to a put option it
writes if, so long as it is obligated as the writer of a put
option, it deposits and maintains with its custodian in a
segregated account liquid assets having a value equal to or
greater than the exercise price of the option.
Effecting a closing transaction in the case of a written
call option will permit the Fund to write another call option on
the underlying security with either a different exercise price or
expiration date or both, or in the case of a written put option
will permit the Fund to write another put option to the extent
that the exercise price thereof is secured by deposited liquid
assets. Such transactions permit the Fund to generate additional
premium income, which will partially offset declines in the value
of portfolio securities or increases in the cost of securities to
be acquired. Also, effecting a closing transaction will permit
the cash or proceeds from the concurrent sale of any securities
subject to the option to be used for other investments by the
Fund, provided that another option on such security is not
written. If the Fund desires to sell a particular security from
its portfolio on which it has written a call option, it will
effect a closing transaction in connection with the option prior
to or concurrent with the sale of the security.
The Fund will realize a profit from a closing
transaction if the premium paid in connection with the closing of
an option written by the Fund is less than the premium received
from writing the option, or if the premium received in connection
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<PAGE>
with the closing of an option purchased by the Fund is more than
the premium paid for the original purchase. Conversely, the Fund
will suffer a loss if the premium paid or received in connection
with a closing transaction is more or less, respectively, than
the premium received or paid in establishing the option position.
Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option
previously written by the Fund is likely to be offset in whole or
in part by appreciation of the underlying security owned by the
Fund.
The Fund may purchase a security and then write a call
option against that security or may purchase a security and
concurrently write an option on it. The exercise price of the
call option the Fund determines to write will depend upon the
expected price movement of the underlying security. The exercise
price of a call option may be below ("in-the-money"), equal to
("at-the-money") or above ("out-of-the-money") the current value
of the underlying security at the time the option is written.
In-the-money call options may be used when it is expected that
the price of the underlying security will decline moderately
during the option period. Out-of-the-money call options may be
written when it is expected that the premiums received from
writing the call option plus the appreciation in the market price
of the underlying security up to the exercise price will be
greater than the appreciation in the price of the underlying
security alone. If the call options are exercised in such
transactions, the Fund's maximum gain will be the premium
received by it for writing the option, adjusted upwards or
downwards by the difference between the Fund's purchase price of
the security and the exercise price. If the options are not
exercised and the price of the underlying security declines, the
amount of such decline will be offset in part, or entirely, by
the premium received.
The writing of covered put options is similar in terms
of risk/return characteristics to buy-and-write transactions. If
the market price of the underlying security rises or is otherwise
is above the exercise price, the put option will expire worthless
and the Fund's gain will be limited to the premium received. If
the market price of the underlying security declines or is
otherwise is below the exercise price, the Fund may elect to
close the position or retain the option until it is exercised, at
which time the Fund will be required to take delivery of the
security at the exercise price; the Fund's return will be the
premium received from the put option minus the amount by which
the market price of the security is below the exercise price,
which could result in a loss. Out-of-the money put options may
be written when it is expected that the price of the underlying
security will decline moderately during the option period. In-
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<PAGE>
the-money put options may be used when it is expected that the
premiums received from writing the put option plus the
appreciation in the market price of the underlying security up to
the exercise price will be greater than the appreciation in the
price of the underlying security alone.
The Fund may also write combinations of put and call
options on the same security, known as "straddles," with the same
exercise and expiration date. By writing a straddle, the Fund
undertakes a simultaneous obligation to sell and purchase the
same security in the event that one of the options is exercised.
If the price of the security subsequently rises above the
exercise price, the call will likely be exercised and the Fund
will be required to sell the underlying security at a below
market price. This loss may be offset, however, in whole or
part, by the premiums received on the writing of the two options.
Conversely, if the price of the security declines by a sufficient
amount, the put will likely be exercised. The writing of
straddles will likely be effective, therefore, only where the
price of the security remains stable and neither the call nor the
put is exercised. In those instances where one of the options is
exercised, the loss on the purchase or sale of the underlying
security may exceed the amount of the premiums received.
By writing a call option, the Fund limits its
opportunity to profit from any increase in the market value of
the underlying security above the exercise price of the option.
By writing a put option, the Fund assumes the risk that it may be
required to purchase the underlying security for an exercise
price above its then current market value, resulting in a capital
loss unless the security subsequently appreciates in value.
Where options are written for hedging purposes, such transactions
constitute only a partial hedge against declines in the value of
portfolio securities or against increases in the value of
securities to be acquired, up to the amount of the premium.
The Fund may purchase put options to hedge against a
decline in the value of portfolio securities. If such decline
occurs, the put options will permit the Fund to sell the
securities at the exercise price or to close out the options at a
profit. By using put options in this way, the Fund will reduce
any profit it might otherwise have realized on the underlying
security by the amount of the premium paid for the put option and
by transaction costs.
The Fund may purchase call options to hedge against an
increase in the price of securities that the Fund anticipates
purchasing in the future. If such increase occurs, the call
option will permit the Fund to purchase the securities at the
exercise price, or to close out the options at a profit. The
premium paid for the call option plus any transaction costs will
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<PAGE>
reduce the benefit, if any, realized by a Fund upon exercise of
the option, and, unless the price of the underlying security
rises sufficiently, the option may expire worthless to the Fund
and the Fund will suffer a loss on the transaction to the extent
of the premium paid.
Futures Contracts and Options on Futures Contracts
Futures Contracts. The Fund may enter into interest
rate futures contracts ("Futures Contracts"). Such investment
strategies will be used as a hedge and not for speculation.
Interest rate futures contracts are purchased or sold
for hedging purposes to attempt to protect against the effects of
interest rate changes on the Fund's current or intended
investments in fixed income securities. For example, if the Fund
owned long-term bonds and interest rates were expected to
increase, the Fund might sell interest rate futures contracts.
Such a sale would have much the same effect as selling some of
the long-term bonds in the Fund's portfolio. However, since the
futures market is more liquid than the cash market, the use of
interest rate futures contracts as a hedging technique allows the
Fund to hedge its interest rate risk without having to sell its
portfolio securities. If interest rates did increase, the value
of the debt securities in the Fund's portfolio would decline, but
the value of the Fund's interest rate futures contracts would be
expected to increase at approximately the same rate, thereby
keeping the net asset value of the Fund from declining as much as
it otherwise would have. On the other hand, if interest rates
were expected to decline, interest rate futures contracts could
be purchased to hedge in anticipation of subsequent purchases of
long-term bonds at higher prices. Because the fluctuations in
the value of the interest rate futures contracts should be
similar to those of long-term bonds, the Fund could protect
itself against the effects of the anticipated rise in the value
of long-term bonds without actually buying them until the
necessary cash became available or the market had stabilized. At
that time, the interest rate futures contracts could be
liquidated and the Fund's cash reserves could then be used to buy
long-term bonds on the cash market.
Options on Futures Contracts. The Fund may purchase and
write options on Futures Contracts. The writing of a call option
on a Futures Contract constitutes a partial hedge against
declining prices of the securities in the Fund's portfolio. 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 Fund's portfolio holdings.
The writing of a put option on a Futures Contract constitutes a
partial hedge against increasing prices of the securities or
17
<PAGE>
other instruments required to be delivered under the terms of the
Futures Contract. If the futures price at expiration of the put
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 options on
futures positions, the Fund's losses from exercised options on
futures may to some extent be reduced or increased by changes in
the value of portfolio securities.
The Fund may purchase options on Futures Contracts for
hedging purposes instead of purchasing or selling the underlying
Futures Contracts. For example, where a decrease in the value of
portfolio securities is anticipated as a result of a projected
market-wide decline or changes in interest or exchange rates, a
Fund could, in lieu of selling Futures Contracts, purchase put
options thereon. In the event that such decrease occurs, it may
be offset, in whole or part, by a profit on the option. If the
market decline does not occur, the Fund will suffer a loss equal
to the price of the put. Where it is projected that the value of
securities to be acquired by the Fund will increase prior to
acquisition, due to a market advance or changes in interest or
exchange rates, the Fund could purchase call options on Futures
Contracts, rather than purchasing the underlying Futures
Contracts. If the market advances, the increased cost of
securities to be purchased may be offset by a profit on the call.
However, if the market declines, the Fund will suffer a loss
equal to the price of the call, although the securities which the
Fund intends to purchase may be less expensive.
Risk Factors in Options and Futures
Risk of Imperfect Correlation of Hedging Instruments
With a Fund's Portfolio. The Fund's ability effectively to hedge
all or a portion of its portfolio through transactions in
options, Futures Contracts and options on Futures Contracts,
depends on the degree to which price movements in the underlying
instrument correlate with price movements in the relevant portion
of the Fund's portfolio or securities the Fund intends to
purchase. In the case of futures and options on fixed income
securities, the portfolio securities which are being hedged may
not be the same type of obligation underlying such contract. As
a result, the correlation, to the extent it exists, probably will
not be exact. Consequently, the Fund bears the risk that the
price of the portfolio securities being hedged will not move by
the same amount or in the same direction as the underlying
obligation.
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<PAGE>
The trading of futures and options entails the
additional risk of imperfect correlation between movements in the
futures or option price and the price of the underlying
obligation. The anticipated spread between the prices may be
distorted due to the differences in the nature of the markets,
such as differences in margin requirements, the liquidity of such
markets and the participation of speculators in the futures
market. In this regard, trading by speculators in futures and
options has in the past occasionally resulted in market
distortions, which may be difficult or impossible to predict,
particularly near the expiration of such contracts.
The trading of options on Futures Contracts 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.
Further, with respect to options on securities and
options on Futures Contracts, the Fund is subject to the risk of
market movements between the time that the option is exercised
and the time of performance thereunder. This could increase the
extent of any loss suffered by the Fund in connection with such
transactions.
If the Fund purchases futures or options in order to
hedge against a possible increase in the price of securities the
Fund intends to purchase before the Fund is able to invest its
cash in such securities, the Fund faces the risk that the prices
of such securities may instead decline. If the Fund does not
then invest in such securities because of concern as to possible
further market declines or for other reasons, the Fund may
realize a loss on the futures or option contract that is not
offset by a reduction in the price of securities purchased.
In writing a call option on a security or Futures
Contract, the Fund also incurs the risk that changes in the value
of the assets used to cover the position will not correlate
closely with changes in the value of the option or underlying
instrument. As a result, the Fund could suffer a loss on the
call which is not entirely offset or offset at all by an increase
in the value of the Fund's portfolio securities.
The writing of options on securities or options on
Futures Contracts constitutes only a partial hedge against
fluctuations in the value of the Fund's portfolio. When the Fund
writes an option, it will receive premium income in return for
the holder's purchase of the right to acquire or dispose of the
underlying security or future. In the event that the price of
such obligation does not rise sufficiently above the exercise
price of the option, in the case of a call, or fall below the
exercise price, in the case of a put, the option will not be
exercised and the Fund will retain the amount of the premium,
19
<PAGE>
which will constitute a partial hedge against any decline that
may have occurred in the Fund's portfolio holdings, or against
the increase in the cost of the instruments to be acquired.
When the price of the underlying obligation moves
sufficiently in favor of the holder to warrant exercise of the
option, however, and the option is exercised, the Fund will incur
a loss which may only be partially offset by the amount of the
premium the Fund received. Moreover, by writing an option, the
Fund may be required to forgo the benefits which might otherwise
have been obtained from an increase in the value of portfolio
securities or a decline in the value of securities to be
acquired.
With respect to the writing of straddles on securities,
the Fund incurs the risk that the price of the underlying
security will not remain stable, that one of the options written
will be exercised and that the resulting loss will not be offset
by the amount of the premiums received. Such transactions,
therefore, while creating an opportunity for increased return by
providing the Fund with two simultaneous premiums on the same
security, nonetheless involve additional risk, because the Fund
may have an option exercised against it regardless of whether the
price of the security increases or decreases.
In the event of the occurrence of any of the foregoing
adverse market events, the Fund's overall return may be lower
than if it had not engaged in the transactions described above.
Potential Lack of a Liquid Secondary Market. Prior to
exercise or expiration, a futures or option position can be
terminated only by entering into a closing purchase or sale
transaction. This requires a secondary market for such
instruments on the exchange on which the initial transaction was
entered into. While the Fund will enter into options or futures
positions only if there appears to be a liquid secondary market
therefor, there can be no assurance that such a market will exist
for any particular contracts at any specific time. In that
event, it may not be possible to close out a position held by the
Fund, and the Fund could be required to purchase or sell the
instrument underlying an option, make or receive a cash
settlement or meet ongoing variation margin requirements. Under
such circumstances, if the Fund has insufficient cash available
to meet margin requirements, it may be necessary to liquidate
portfolio securities at a time when it is disadvantageous to do
so. The inability to close out options and futures positions,
therefore, could have an adverse impact on the Fund's ability to
effectively hedge its portfolio, and could result in trading
losses.
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<PAGE>
The liquidity of a secondary market in a Futures
Contract or option thereon may be adversely affected by "daily
price fluctuation limits," established by exchanges, which limit
the amount of fluctuation in the price of a contract during a
single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the
limit, thus preventing the liquidation of open futures or option
positions and requiring traders to make additional margin
deposits. Prices have in the past moved to the daily limit on a
number of consecutive trading days.
The trading of Futures Contracts and options (including
options on Futures Contracts) is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm
or clearing house or other disruptions of normal trading
activity, which could at times make it difficult or impossible to
liquidate existing positions or to recover excess variation
margin payments.
The staff of the SEC has taken the position that over-
the-counter options and the assets used as cover for over-the-
counter options are illiquid securities, unless certain
arrangements are made with the other party to the option
contract, permitting the prompt liquidation of the option
position. The Fund will enter into those special arrangements
only with primary U.S. Government securities dealers recognized
by the Federal Reserve Bank of New York ("primary dealers").
Under these special arrangements, the Trust will enter into
contracts with primary dealers which provide that the Fund has
the absolute right to repurchase an option it writes at any time
at a repurchase price which represents fair market value, as
determined in good faith through negotiation between the parties,
but which in no event will exceed a price determined pursuant to
a formula contained in the contract. Although the specific
details of the formula may vary between contracts with different
primary dealers, the formula will generally be based on a
multiple of the premium received by the Fund for writing the
option, plus the amount, if any, by which the option is "in-the-
money." The formula will also include a factor to account for
the difference between the price of the security and the strike
price of the option if the option is written out-of-the-money.
Under such circumstances the Fund only needs to treat as illiquid
that amount of the "cover" assets equal to the amount by which
(i) the formula price exceeds (ii) any amount by which the market
value of the security subject to the option exceeds the exercise
price of the option (the amount by which the option is "in-the-
money"). Although each agreement will provide that the Fund's
repurchase price shall be determined in good faith (and that it
shall not exceed the maximum determined pursuant to the formula),
the formula price will not necessarily reflect the market value
21
<PAGE>
of the option written; therefore, the Fund might pay more to
repurchase the option contract than the Fund would pay to close
out a similar exchange-traded option.
Margin. Because of low initial margin deposits made
upon the opening of a futures position and the writing of an
option, such transactions involve substantial leverage. As a
result, relatively small movements in the price of the contract
can result in substantial unrealized gains or losses. However,
to the extent the Fund purchases or sells Futures Contracts and
options on Futures Contracts and purchase and write options on
securities for hedging purposes, any losses incurred in
connection therewith should, if the hedging strategy is
successful, be offset, in whole or in part, by increases in the
value of securities held by the Fund or decreases in the prices
of securities the Fund intends to acquire. When the Fund writes
options on securities for other than hedging purposes, the
limited margin requirements associated with such transactions
could expose the Fund to greater risk.
Trading and Position Limits. The exchanges on which
futures and options are traded may impose limitations governing
the maximum number of positions on the same side of the market
and involving the same underlying instrument which may be held by
a single investor, whether acting alone or in concert with others
(regardless of whether such contracts are held on the same or
different exchanges or held or written in one or more accounts or
through one or more brokers). In addition, the Commodity Futures
Trading Commission (the "CFTC") and the various contract markets
have established limits referred to as speculative position
limits on the maximum net long or net short position which any
person may hold or control in a particular futures or option
contract. An exchange may order the liquidation of positions
found to be in violation of these limits and may impose other
sanctions or restrictions. The Adviser does not believe that
these trading and position limits will have any adverse impact on
the strategies for hedging the portfolio of the Fund.
Risks of Options on Futures Contracts. 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 order to profit from an option purchased,
however, it may be necessary to exercise the option and to
liquidate the underlying Futures Contract, subject to the risks
of the availability of a liquid secondary market described
herein. The writer of an option on a Futures Contract is subject
to the risks of commodity futures trading, including the
requirement of initial and variation margin payments, as well as
the additional risk that movements in the price of the option may
not correlate with movements in the price of the underlying
security or Futures Contract.
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<PAGE>
Risks of Over-the-Counter Options on Securities. Unlike
transactions entered into by the Fund in Futures Contracts and
exchange-traded options, over-the-counter options on securities
are not traded on contract markets regulated by the CFTC or (with
the exception of certain foreign currency options) the SEC. Such
instruments are instead 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. 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 could
lose amounts substantially in excess of the initial investment,
due to the margin and collateral requirements associated with
such positions.
In addition, over-the-counter transactions can be
entered into only with a financial institution willing to take
the opposite side, as principal, of the Fund's position unless
the institution acts as broker and is able to find another
counterparty willing to enter into the transaction with the Fund.
Where no such counterparty is available, it will not be possible
to enter into a desired transaction. There also may be no liquid
secondary market in the trading of over-the-counter contracts,
and the Fund could be required to retain options purchased or
written until exercise, expiration or maturity. This in turn
could limit the Fund's ability to profit from open positions or
to reduce losses experienced, and could result in greater losses.
Further, over-the-counter transactions are not subject
to the guarantee of an exchange clearing house, and the Fund will
therefore be subject to the risk of default by, or the bankruptcy
of, the financial institution serving as its counterparty. The
Fund will enter into an over-the-counter transaction only with
parties whose creditworthiness has been reviewed and found
satisfactory by the Adviser.
Restrictions on the Use of Futures and Option Contracts
Under applicable regulations, when the Fund enters into
transactions in Futures Contracts and options on Futures
Contracts other than for bona fide hedging purposes, the Fund
maintains with its custodian in a segregated account liquid
assets, which together with any initial margin deposits, are
equal to the aggregate market value of the Futures Contracts and
options on Futures Contracts that it purchases. In addition, the
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Fund may not purchase or sell such instruments for other than
bona fide hedging purposes if, immediately thereafter, the sum of
the amount of initial margin deposits on such futures and options
positions and premiums paid for options purchased would exceed 5%
of the market value of the Fund's total assets.
The Fund has adopted the additional restriction that it
will not enter into a Futures Contract if, immediately
thereafter, the value of securities and other obligations
underlying all such Futures Contracts would exceed 50% of the
value of the Fund's total assets. Moreover, the Fund will not
purchase put and call options if as a result more than 10% of its
total assets would be invested in such options.
Economic Effects and Limitations
Income earned by the Fund from its hedging activities
will be treated as capital gain and, if not offset by net
realized capital losses incurred by the Fund, will be distributed
to shareholders in taxable distributions. Although gain from
futures and options transactions may hedge against a decline in
the value of the Fund's portfolio securities, that gain, to the
extent not offset by losses, will be distributed in light of
certain tax considerations and will constitute a distribution of
that portion of the value preserved against decline.
The Fund will not "over-hedge," that is, the Fund will
not maintain open short positions in futures or options contracts
if, in the aggregate, the market value of its open positions
exceeds the current market value of its securities portfolio plus
or minus the unrealized gain or loss on such open positions,
adjusted for the historical volatility relationship between the
portfolio and futures and options contracts.
The Fund's ability to employ the options and futures
strategies described above will depend on the availability of
liquid markets in such instruments. Markets in financial futures
and related options are still developing. It is impossible to
predict the amount of trading interest that may hereafter exist
in various types of options or futures. Therefore no assurance
can be given that the Fund will be able to use these instruments
effectively for the purposes set forth above.
The Fund's ability to use options and futures may be
limited by tax considerations. In particular, tax rules might
accelerate or adversely affect the character of the income earned
on such contracts. In addition, differences between the Fund's
book income (upon the basis of which distributions are generally
made) and taxable income arising from its hedging activities may
result in return of capital distributions, and in some
24
<PAGE>
circumstances, distributions in excess of the Fund's book income
may be required in order to meet tax requirements.
Future Developments
The above discussion relates to the Fund's proposed use
of Futures Contracts, options and options on Futures Contracts
currently available. As noted above, the relevant markets and
related regulations are still developing. In the event of future
regulatory or market developments, the Fund may also use
additional types of Futures Contracts or options and other
investment techniques for the purposes set forth above.
______________________________________________________________
INVESTMENT RESTRICTIONS
______________________________________________________________
Except as described below and except as otherwise
specifically stated in the Fund's Prospectus or this Statement of
Additional Information, the investment policies of the Fund set
forth in the Prospectus and in this Statement of Additional
Information are not fundamental and may be changed without
shareholder approval.
The following is a description of restrictions on the
investments to be made by the Fund, which restrictions may not be
changed without the approval of a majority of the outstanding
voting securities of the Fund.
The Fund will not:
(1) Borrow money in excess of 10% of the value (taken
at the lower of cost or current value) of its total
assets (not including the amount borrowed) at the
time the borrowing is made, and then only from
banks as a temporary measure to facilitate the
meeting of redemption requests (not for leverage)
which might otherwise require the untimely
disposition of portfolio investments or pending
settlement of securities transactions or for
extraordinary or emergency purposes, except that
the Fund may enter into reverse repurchase
agreements to the maximum extent permitted by law.
(2) Underwrite securities issued by other persons
except to the extent that, in connection with the
disposition of its portfolio investments, it may be
deemed to be an underwriter under certain federal
securities laws.
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<PAGE>
(3) Purchase or retain real estate or interests in real
estate, although the Fund may purchase securities
which are secured by real estate and securities of
companies which invest in or deal in real estate.
(4) Make loans to other persons except by the purchase
of obligations in which the Fund may invest
consistent with its investment policies and by
entering into repurchase agreements, or by lending
its portfolio securities representing not more than
25% of its total assets.
(5) Issue any senior security (as that term is defined
in the 1940 Act), if such issuance is specifically
prohibited by the 1940 Act or the rules and
regulations promulgated thereunder. For the
purposes of this restriction, collateral
arrangements with respect to options, Futures
Contracts and options on Futures Contracts and
collateral arrangements with respect to initial and
variation margins are not deemed to be the issuance
of a senior security. (There is no intention to
issue senior securities except as set forth in
paragraph 1 above.)
It is also a fundamental policy of the Fund that it may
purchase and sell futures contracts and related options and it is
a fundamental policy of the Fund that it may enter into reverse
repurchase agreements and interest rate swaps to the maximum
extent permitted by law.
In addition, the following is a description of operating
policies which the Trust has adopted on behalf of the Fund but
which are not fundamental and are subject to change without
shareholder approval.
The Fund will not:
(a) Pledge, mortgage, hypothecate or otherwise encumber
an amount of its assets taken at current value in
excess of 15% of its total assets (taken at the
lower of cost or current value) and then only to
secure borrowings permitted by Restriction No. 1
above. For the purpose of this restriction, the
deposit of securities and other collateral
arrangements with respect to reverse repurchase
agreements, options, Futures Contracts, and
payments of initial and variation margin in
connection therewith are not considered pledges or
other encumbrances.
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<PAGE>
(b) Purchase securities on margin, except that the Fund
may obtain such short-term credits as may be
necessary for the clearance of purchases and sales
of securities, and except that the Fund may make
margin payments in connection with Futures
Contracts, options on Futures Contracts or options.
(c) Make short sales of securities or maintain a short
position for the account of the Fund unless at all
times when a short position is open it owns an
equal amount of such securities or unless by virtue
of its ownership of other securities it has at all
such times a right to obtain securities (without
payment of further consideration) equivalent in
kind and amount to the securities sold, provided
that if such right is conditional the sale is made
upon equivalent conditions.
(d) Write, purchase or sell any put or call option or
any combination thereof, provided that this shall
not prevent the Fund from writing, purchasing and
selling puts, calls or combinations thereof with
respect to securities and with respect to Futures
Contracts.
(e) Purchase voting securities of any issuer if such
purchase, at the time thereof, would cause more
than 10% of the outstanding voting securities of
such issuer to be held by the Fund; or purchase
securities of any issuer if such purchase at the
time thereof would cause more than 10% of any class
of securities of such issuer to be held by the
Fund. For this purpose all indebtedness of an
issuer shall be deemed a single class and all
preferred stock of an issuer shall be deemed a
single class.
(f) Invest in securities of any issuer if, to the
knowledge of the Trust, officers and Trustees of
the Trust and officers and directors of the Adviser
who beneficially own more than 0.5% of the shares
of securities of that issuer together own more than
5%.
(g) Purchase securities issued by any other registered
open-end investment company or investment trust
except (A) by purchase in the open market where no
commission or profit to a sponsor or dealer results
from such purchase other than the customary
broker's commission, or (B) where no commission or
profit to a sponsor or dealer results from such
27
<PAGE>
purchase, or (C) when such purchase, though not
made in the open market, is part of a plan of
merger or consolidation; provided, however, that
the Fund will not purchase such securities if such
purchase at the time thereof would cause more than
5% of its total assets (taken at market value) to
be invested in the securities of such issuers; and,
provided further, that the Fund's purchases of
securities issued by such open-end investment
company will be consistent with the provisions of
the 1940 Act.
(h) Make investments for the purpose of exercising
control or management.
(i) Participate on a joint or joint and several basis
in any trading account in securities.
(j) Invest in interests in oil, gas, or other mineral
exploration or development programs, although each
Fund may purchase securities which are secured by
such interests and may purchase securities of
issuers which invest in or deal in oil, gas or
other mineral exploration or development programs.
(k) Purchase warrants, if, as a result, the Fund would
have more than 5% of its total assets invested in
warrants or more than 2% of its total assets
invested in warrants which are not listed on the
New York Stock Exchange or the American Stock
Exchange.
(l) Purchase commodities or commodity contracts,
provided that this shall not prevent the Fund from
entering into interest rate futures contracts,
securities index futures contracts, foreign
currency futures contracts, forward foreign
currency exchange contracts and options (including
options on any of the foregoing) to the extent such
action is consistent with such Funds investment
objective and policies.
(m) Purchase additional securities in excess of 5% of
the value of its total assets until all of the
Fund's outstanding borrowings (as permitted and
described in Restriction No. 1 above) have been
repaid.
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
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<PAGE>
percentage limitation be determined immediately after and as a
result of the Fund's acquisition of such securities or other
assets. Accordingly, any later increase or decrease beyond the
specified limitation resulting from a change in value or net
asset value will not be considered a violation of such percentage
limitation.
___________________________________________________________
MANAGEMENT OF THE FUND
___________________________________________________________
Adviser
Alliance Capital Management L.P. (the "Adviser"), a New
York Stock Exchange listed company with principal offices at 1345
Avenue of the Americas, New York, New York 10105, has been
retained under an investment advisory agreement (the "Investment
Advisory Contract") to provide investment advice and, in general,
to conduct the management and investment program of the Trust
under the supervision and control of the Trust's Board of
Trustees.
The Adviser is a leading international investment
manager supervising client accounts with assets as of June 30,
1998, totaling more than $262 billion (of which more than $107
billion represented the assets of investment companies). The
Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies,
foundations and endowment funds. The 58 registered investment
companies managed by the Adviser, comprising 123 separate
investment portfolios, currently have more than 3.5 million
shareholders. As of September 30, 1998, the Adviser and its
subsidiaries employed approximately 2,000 employees who operate
out of domestic offices and the offices of subsidiaries in
Bahrain, Bangalore, Cairo, Chennai, Hong Kong, Istanbul,
Johannesburg, London, Luxembourg, Madrid, Moscow, Mumbai, New
Delhi, Paris, Pune, Sao Paolo, Seoul, Singapore, Sydney, Tokyo,
Toronto, Vienna and Warsaw. As of June 30, 1998, the Adviser was
retained as an investment manager for employee benefit plan
assets of 32 of the FORTUNE 100 companies.
Alliance Capital Management Corporation ("ACMC"), the
sole general partner of, and the owner of a 1% general
partnership interest in the Adviser, is an indirect wholly-owned
subsidiary of the Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies
in the United States and a wholly-owned subsidiary of the
Equitable Companies Incorporated ("ECI"). ECI is a holding
company controlled by AXA-UAP ("AXA") a French insurance holding
company which at March 1, 1998, beneficially owned approximately
29
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59% of the outstanding voting shares of ECI. As of June 30,
1998, ACMC, Inc. and Equitable Capital Management Corporation,
each a wholly-owned direct or indirect subsidiary of Equitable,
together with Equitable, owned in the aggregate approximately 57%
of the issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser.
AXA is a holding company for an international group of
insurance and related financial services companies. AXA's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities
principally in Western Europe, North America and the Asia/Pacific
area. AXA is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA, as of March 31,
1998, more than 30% of the voting power of AXA was controlled
directly and indirectly by FINAXA, a French holding company. As
of March 31, 1998 approximately 74% of the voting power of FINAXA
was controlled directly and indirectly by four French mutual
insurance companies (the "Mutuelles AXA"), one of which, AXA
Assurances I.A.R.D. Mutuelle, itself controlled directly and
indirectly more than 42% of the voting power of FINAXA. Acting
as a group, the Mutuelles AXA control AXA and FINAXA.
Investment Advisory Contract and Expenses
The Adviser serves as investment manager and adviser of
the Fund, continuously furnishes an investment program for the
Fund and manages, supervises and conducts the affairs of the
Fund. The Investment Advisory Contract also provides that the
Adviser will furnish or pay the expenses of the Trust for office
space, facilities and equipment, services of executive and other
personnel of the Trust and certain administrative services. The
Adviser is compensated for its services to the Fund at an annual
rate equal to .55% of the Fund's average daily net assets. The
Adviser has voluntarily undertaken until further notice to waive
its fees in respect of the Fund, and has agreed to bear certain
expenses of the Class A, Class B and Class C shares of the Fund,
to the extent that expenses exceed an annual rate of 1.40% for
Class A shares and 2.10% for Class B shares and Class C shares.
The Investment Advisory Contract became effective on
July 23, 1993. The Investment Advisory Contract replaced two
earlier agreements (collectively, the "First Investment Advisory
Contract") between the Trust and Equitable Capital Management
Corporation ("Equitable Capital") or Equitable, as the case may
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<PAGE>
be, with respect to the Fund. The First Investment Advisory
Contract terminated because of its technical assignment in
connection with the transfer of substantially all of the assets
comprising Equitable Capital's business to the Adviser and
certain of its subsidiaries in exchange for newly issued limited
partnership interests in the Adviser and the assumption by the
Adviser and such subsidiaries of certain liabilities of Equitable
Capital. Equitable Capital was compensated for its services as
investment manager of the Fund at the same rate as is currently
paid by the Fund to the Adviser.
In anticipation of the assignment of the First
Investment Advisory Contract, the Investment Advisory Contract
was approved by the vote of the Trust's Trustees, including the
Trustees who are not parties to the Investment Advisory Contract
or interested persons of any such party, at meetings called for
the purpose and held on February 16, 1993 and March 31, 1993. At
a meeting held on April 8, 1993, a majority of the outstanding
voting securities of the Fund approved the Investment Advisory
Contract. Most recently, the continuance of the Investment
Advisory Contract until July 31, 1999 was approved by a vote,
cast in person, of the Board of Trustees, including a majority of
the Trustees who are not parties to the Investment Advisory
Contract or interested persons of any such party, at their
Regular Meeting held on July 16, 1998.
During the fiscal year ended August 31, 1998, the
Adviser earned $89,353 in advisory fees from the Fund (all of
which was waived, and an additional $78,479 in expenses were
reimbursed by the Adviser). During the fiscal year ended August
31, 1997, the Adviser earned $91,527 in advisory fees from the
Fund (all of which was waived, and an additional $73,336 in
expenses were reimbursed by the Adviser). During the fiscal year
ended August 31, 1996, the Adviser earned $83,317 in advisory
fees from the Fund (all of which was waived, and an additional
$145,095 in expenses were reimbursed by the Adviser).
The Adviser is, under the Investment Advisory Contract,
responsible for certain expenses incurred by the Funds,
including, for example, office facilities and certain
administrative services, and any expenses incurred in promoting
the sale of Fund shares (other than the portion of the
promotional expenses borne by the Fund in accordance with an
effective plan pursuant to Rule 12b-1 under the 1940 Act, and the
costs of printing Fund prospectuses and other reports to
shareholders and fees related to registration with the Securities
and Exchange Commission and with state regulatory authorities).
The Investment Advisory Contract provides that it will
continue in effect for two years from its date of execution and
thereafter from year to year if its continuance is approved at
31
<PAGE>
least annually (i) by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund, and
(ii) by vote of a majority of the Trustees who are not interested
persons of the Adviser cast in person at a meeting called for the
purpose of voting on such approval. Any amendment to the
Investment Advisory Contract must be approved by vote of a
majority of the outstanding voting securities of the Fund and by
vote of a majority of the Trustees who are not such interested
persons, cast in person at a meeting called for the purpose of
voting on such approval. The Investment Advisory Contract may be
terminated without penalty by the Adviser, by vote of the
Trustees or by vote of a majority of the outstanding voting
securities of the Fund upon sixty days' written notice, and it
terminates automatically in the event of its assignment. The
Adviser controls the word "Alliance" in the names of the Trust
and the Fund, and if Alliance should cease to be the investment
manager of the Fund, the Trust and the Fund may be required to
change its name and delete the word "Alliance" from their names.
The Investment Advisory Contract provides that the
Adviser shall not be subject to any liability in connection with
the performance of its services thereunder in the absence of
willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
Trustees and Officers
The Trustees and principal officers of the Trust, their
ages as of the date of this Statement of Additional Information
and their primary occupations during the past five years are set
forth below.
Trustees
John D. Carifa,*** 53, Chairman of the Board, is the
President, Chief Operating Officer, and a Director of ACMC, with
which he has been associated since prior to 1993. His address is
1345 Avenue of the Americas, New York, New York 10105.
Ruth Block, 67, was formerly an Executive Vice President
and the Chief Insurance Officer of The Equitable Life Assurance
Society of the United States. She is a Director of Ecolab
Incorporated (specialty chemicals) and Amoco Corporation (oil and
gas). Her address is P.O. Box 4623, Stamford, Connecticut 06903.
Richard W. Couper, 75, is President Emeritus and Trustee
of The Woodrow Wilson Fellowship Foundation and President
____________________
*** An "interested person" of the Trust, as defined by the
1940 Act.
32
<PAGE>
Emeritus of the New York Public Library. His address is Box 345,
Clinton, New York, 13323-0345.
William H. Foulk, Jr., 66, is an Investment Adviser and
an independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1993. His address is
Room 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
Brenton W. Harries, 70, is a Director of Enhance
Reinsurance Co. and was formerly the President and Chief
Executive Officer of Global Electronic Markets Company. His
address is 14 Point Road, Wilson Point, South Norwalk,
Connecticut 06854.
Donald J. Robinson, 64, is Senior Counsel to the law
firm of Orrick, Herrington & Sutcliffe and was formerly a senior
partner and a member of the Executive Committee of that firm. He
was also a Trustee of the Museum of the City of New York from
1977 to 1995. His address is 98 Hell's Peak Road, Weston,
Vermont 05161.
Officers
*John D. Carifa, President, see biography above.
Edmund P. Bergan, Jr., 48, Clerk, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD") and Alliance Fund Services, Inc. ("AFS"), with which
he has been associated since prior to 1993. His address is 1345
Avenue of the Americas, New York, New York 10105.
Mark D. Gersten, 48, Treasurer and Chief Financial
Officer, is a Senior Vice President of AFS, with which he has
been associated since prior to 1993. His address is 500 Plaza
Drive, Secaucus, New Jersey 07094.
Vincent S. Noto, 33, Controller and Chief Accounting
Officer, is a Vice President of AFS, with which he has been
associated since prior to 1993. His address is 500 Plaza Drive,
Secaucus, New Jersey 07094.
Bruce W. Calvert, 51, Vice President, is the Vice
Chairman and Chief Investment Officer of ACMC, with which he has
been associated since prior to 1993. His address is 1345 Avenue
of the Americas, New York, New York 10105.
Kathleen A. Corbet, 38, Vice President, is an Executive
Vice President of ACMC, with which she has been associated since
July, 1993.
33
<PAGE>
Wayne D. Lyski, 57, Vice President, is an Executive Vice
President of ACMC, with which he has been associated since prior
to 1993. His address is 1345 Avenue of the Americas, New York,
New York 10105.
Patricia J. Young, 44, Vice President, is a Senior Vice
President of ACMC, with which she has been associated since July,
1993. Her address is 1345 Avenue of the Americas, New York, New
York 10105.
Andrew L. Gangolf, 44, Assistant Clerk, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since December 1994. Prior thereto, he was vice
president and Assistant Secretary of Delaware Management Co.,
Inc. His address is 1345 Avenue of the Americas, New York, New
York 10105.
Domenick Pugliese, 37, Assistant Clerk, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since May 1995. Prior thereto, he was Vice
president and Counsel of Concorde Holding Corporation since 1994
and Vice President and Associate General Counsel of Prudential
Securities since prior to 1993. His address is 1345 Avenue of
the Americas, New York, New York 10105.
Emilie D. Wrapp, 42, Assistant Clerk, is a Vice
President and Assistant General Counsel of AFD, with which she
has been associated since prior to 1993. Her address is 1345
Avenue of the Americas, New York, New York 10105.
The aggregate compensation paid to each of the Trustees
by the Fund during the fiscal year ended August 31, 1998, and the
aggregate compensation paid to each of the Trustees during
calendar year 1997 by the Trust and by all of the registered
investment companies to which the Adviser provides investment
advisory services (collectively, the "Alliance Fund Complex"),
and the total number of registered investment companies (and
separate investment portfolios within the companies) in the
Alliance Fund Complex with respect to which each Trustee serves
as a director or trustee, are set forth below. Neither the Fund
nor any Fund in the Alliance Fund Complex provides compensation
in the form of pension or retirement benefits to any of its
trustees or directors. Each of the Trustees is a trustee or
director of one or more other registered investment companies in
the Alliance Fund Complex.
34
<PAGE>
Total Number
Total Number of Investment
of Funds in Portfolios
the Alliance Within the
Fund Complex, Funds,
Compensation Including the Including the
from the Fund, as to Fund, as to
Aggregate Alliance Fund which the which the
Compensation Complex, Director is a Director is a
from Including Director or Director or
Name of Trustee the Fund the Fund* Trustee Trustee
____________________ ____________ _____________ _____________ _____________
John D. Carifa $ -0- $ -0- 53 118
Ruth Block $4,407 $164,000 40 81
Richard W. Couper $5,500 $ 94,000 2 19
William H. Foulk, Jr. $4,407 $149,145 48 113
Brenton W. Harries $5,400 $102,000 2 19
Donald J. Robinson $ -0- $217,358 44 107
As of October 9, 1998, the Trustees and officers of the
Fund as a group owned less than 1% of the shares of the Fund.
The Trust undertakes to provide assistance to
shareholders in communications concerning the removal of any
Trustee of the Trust in accordance with Section 16 of the 1940
Act.
________________________________________________________________
PORTFOLIO TRANSACTIONS
________________________________________________________________
Subject to the general supervision of the Board of
Trustees of the Trust, the Adviser is responsible for the
investment decisions and the placing of the orders for portfolio
transactions for the Fund. The Fund's portfolio transactions
occur primarily with issuers, underwriters or major dealers
acting as principals. Such transactions are normally on a net
basis which do not involve payment of brokerage commissions. The
cost of securities purchased from an underwriter usually includes
a commission paid by the issuer to the underwriter; transactions
with dealers normally reflect the spread between bid and asked
prices. Premiums are paid with respect to options purchased by
the Fund, and brokerage commissions are payable with respect to
transactions in exchange-traded interest rate futures contracts.
The Adviser makes the decisions for the Fund and
determines the broker or dealer to be used in each specific
transaction. Most transactions for the Fund, including
35
<PAGE>
transactions in listed securities, are executed in the over-the-
counter market by approximately fifteen (15) principal market
maker dealers with whom the Adviser maintains regular contact.
Most transactions made by the Fund will be principal transactions
at net prices and the Fund will incur little or no brokerage
costs. Where possible, securities will be purchased directly
from the issuer or from an underwriter or market maker for the
securities unless the Adviser believes a better price and
execution is available elsewhere. Purchases from underwriters of
newly-issued securities for inclusion in the Fund usually will
include a concession paid to the underwriter by the issuer and
purchases from dealers serving as market makers will include the
spread between the bid and asked price.
The Fund has no obligation to enter into transactions in
securities 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 relationship to the value of the brokerage and
research and statistical services provided by the executing
broker.
No transactions for the Fund are executed through any
broker or dealer affiliated with the Fund's Adviser, or with
Donaldson, Lufkin & Jenrette Securities Corporation, an affiliate
of the Adviser. During the fiscal years ended August 31, 1996,
1997 and 1998, the Fund incurred no brokerage commissions.
______________________________________________________________
EXPENSES OF THE FUND
______________________________________________________________
In addition to the payments to the Adviser under the
Investment Advisory Contract described above, the Trust pays
certain other costs including (a) brokerage and commission
expenses, (b) Federal, state and local taxes, including issue and
transfer taxes incurred by or levied on Fund, (c) interest
charges on borrowing, (d) fees and expenses of registering the
shares of the Fund under the appropriate Federal securities laws
36
<PAGE>
and of qualifying shares of the Fund under applicable state
securities laws including expenses attendant upon renewing and
increasing such registrations and qualifications, (e) expenses of
printing and distributing the Fund's prospectus and other reports
to shareholders, (f) costs of proxy solicitations, (g) transfer
agency fees described below, (h) charges and expenses of the
Trust's custodian, (i) compensation of the Trust's officers,
Trustees and employees who do not devote any part of their time
to the affairs of the Adviser or its affiliates, (j) costs of
stationery and supplies, and (k) such promotional expenses as may
be contemplated by the Distribution Services Agreement described
below.
Distribution Arrangements
Rule 12b-1 adopted by the SEC under the 1940 Act permits
an investment company to directly or indirectly pay expenses
associated with the distribution of its shares in accordance with
a duly adopted and approved plan. The Trust has adopted a plan
for each class of shares of the Fund pursuant to Rule 12b-1 (each
a "Plan" and collectively the "Plans"). Pursuant to the Plans,
the Fund pays Alliance Fund Distributors, Inc. (the "Principal
Underwriter") a Rule 12b-1 distribution services fee which may
not exceed an annual rate of .50% of the Funds aggregate average
daily net assets attributable to the Class A shares, 1.00% of the
Fund's aggregate average daily net assets attributable to the
Class B shares and 1.00% of the Fund's aggregate average daily
net assets attributable to the Class C shares to compensate the
Principal Underwriter for distribution expenses. The Trustees
currently limit payments under the Class A Plan to .30% of the
Fund's aggregate average daily net assets attributable to the
Class A shares. The Plans provide that a portion of the
distribution services fee in an amount not to exceed .25% of the
aggregate average daily net assets of the Fund attributable to
each of the Class A shares, Class B shares and Class C shares
constitutes a service fee that the Principal Underwriter will use
for personal service and/or the maintenance of shareholder
accounts. The Plans also provide that the Adviser may use its
own resources, which may include management fees received by the
Adviser from the Trust or other investment companies which it
manages and the Adviser's past profits, to finance the
distribution of the Fund's shares.
Each Plan may be terminated with respect to the class of
shares of the Fund to which the Plan relates by vote of a
majority of the Trustees who are not "interested persons" of the
Trust and who have no direct or indirect financial interest in
the operation of the Plans or in any agreement related to the
Plans (the "Qualified Trustees"), or by vote of a majority of the
outstanding voting securities of that class. Each Plan may be
amended by vote of the Trustees, including a majority of the
37
<PAGE>
Qualified Trustees, cast in person at a meeting called for that
purpose. Any change in a Plan that would materially increase the
distribution costs to the class of shares of the Fund to which
the Plan relates requires approval by the affected class of
shareholders of the Fund. The Trustees review quarterly a
written report of such distribution costs and the purposes for
which such costs have been incurred with respect to the Fund's
Class A, Class B and Class C shares. For so long as the Plans
are in effect, selection and nomination of those Trustees who are
not interested persons of the Trust shall be committed to the
discretion of such disinterested persons.
The Plans may be terminated with respect to the Fund or
any class of shares thereof at any time on 60 days' written
notice without payment of any penalty by the Principal
Underwriter or by vote of a majority of the outstanding voting
securities of the Fund or that class (as appropriate) or by vote
of a majority of the Qualified Trustees.
The Plans will continue in effect with respect to the
Fund and each class of shares thereof for successive one-year
periods, provided that each such continuance is specifically
approved (i) by the vote of a majority of the Qualified Trustees
and (ii) by the vote of a majority of the entire Board of
Trustees cast in person at a meeting called for that purpose.
For services rendered by the Principal Underwriter in
connection with the distribution of Class A shares pursuant to
the Plan applicable to such shares, the Principal Underwriter
received $15,938 in 12b-1 fees, pursuant to the Plan applicable
to such shares, and $0 in sales charges with respect to the
Class A shares of the Fund for the fiscal year ended August 31,
1998.
For services rendered by the Principal Underwriter in
connection with the distribution of Class B shares the Principal
Underwriter received $64,165 in 12b-1 fees, pursuant to the Plan
applicable to such shares, and $18,771 in contingent deferred
sales charges with respect to the Class B shares of the Fund for
the fiscal year ended August 31, 1998.
For services rendered by the Principal Underwriter in
connection with the distribution of Class C shares the Principal
Underwriter received $45,169 in 12b-1 fees, pursuant to the Plan
applicable to such shares, and $2,286 in contingent deferred
sales charges with respect to the Class C shares of the Fund for
the fiscal year ended August 31, 1998.
The Principal Underwriter has informed the Trust that
expenses incurred by it and costs allocated to it in connection
with activities primarily intended to result in the sale of
38
<PAGE>
Class A, Class B, and Class C shares, respectively, were as
follows for the period indicated:
Amount of Expense and Allocated Cost
Class A Shares Class B Shares Class C Shares
(for the Fiscal (for the Fiscal (for the Fiscal
Category year ended year ended year ended
of Expense August 31, 1998) August 31, 1998) August 31, 1998)
Advertising/
Marketing $60,145 $12,529 $12,842
Printing and
Mailing of
Prospectuses
and Semi-Annual
and Annual Reports
to Other than
Current
Shareholders $9,208 $(540) $774
Compensation
to Underwriters $119,002 $30,782 $31,793
Compensation
to Dealers $55,294 $49,903 $57,812
Compensation
to Sales
Personnel $10,682 $2,981 $3,382
Interest,
Carrying or
Other
Financing
Charges $0 $7,662 $5,131
39
<PAGE>
Other
(includes
personnel
costs of those
home office
employees
involved in
the distribution
effort and the
travel-related
expenses incurred
by the marketing
personnel
conducting
seminars) $214,482 $44,048 $46,106
________ _______ _______
$472,813 $147,365 $157,480
========== ========= ========
Custodial Arrangements
State Street Bank and Trust Company ("State Street
Bank"), 225 Franklin Street, Boston, MA, 02110 acts as the Trust's
custodian, but plays no part in deciding the purchase or sale of
portfolio securities. Subject to the supervision of the Funds
Trustees, State Street Bank may enter into subcustodial agreements
for the holding of the Funds securities outside the United States.
Transfer Agency Arrangements
AFS, an indirect wholly-owned subsidiary of the Adviser,
receives a transfer agency fee per account holder of each of the
Class A, Class B, Class C shares and Advisor Class shares of the
Fund, plus reimbursement for out-of-pocket expenses. The transfer
agency fee with respect to the Class B and Class C shares is
higher than the transfer agency fee with respect to the Class A
shares and Advisor Class shares. For the fiscal year ended
August 31, 1998, the Fund paid Alliance Fund Services, Inc.
$20,680 for transfer agency services.
_______________________________________________________________
PURCHASE OF SHARES
_______________________________________________________________
The following information supplements that set forth in
the Prospectus under "Purchase and Sale of Shares -- How To Buy
Shares."
40
<PAGE>
General
Shares of the Fund are offered on a continuous basis at a
price equal to their net asset value plus an initial sales charge
at the time of purchase ("Class A shares"), with a contingent
deferred sales charge ("Class B shares"), without any initial
sales charge and, as long as the shares are held for one year or
more, without any contingent deferred sales charge ("Class C
shares"), or, to investors eligible to purchase Advisor Class
shares, without any initial, contingent deferred or asset-based
sales charge ("Advisor Class Shares"), in each case, as described
below. Shares of the Fund that are offered subject to a sales
charge are offered through (i) investment dealers that are members
of the National Association of Securities Dealers, Inc. and have
entered into selected dealer agreements with the Principal
Underwriter ("selected dealers"), (ii) depository institutions and
other financial intermediaries or their affiliates that have
entered into selected agent agreements with the Principal
Underwriter ("selected agents"), and (iii) the Principal
Underwriter.
Advisor Class shares of the Fund may be purchased and
held solely (i) through accounts established under fee-based
programs, sponsored and maintained by registered broker-dealers or
other financial intermediaries and approved by the Principal
Underwriter, (ii) through self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that have at least
1,000 participants or $25 million in assets, (iii) by the
categories of investors described in clauses (i) through (ii) and
(iii) below under "--Sales at Net Asset Value" (other than
officers, directors and present and full-time employees of
selected dealers or agents, or relatives of such person, or any
trust, individual retirement account or retirement plan account
for the benefit of such relative, none of whom is eligible on the
basis solely of such status to purchase and hold Advisor Class
shares) or (iv) by directors and present or retired full-time
employees of CB Richard Ellis, Inc. Generally, a fee-based
program must charge an asset-based or other similar fee and must
invest at least $250,000 in Advisor Class shares of the Fund in
order to be approved by the Principal Underwriter for investment
in Advisor Class shares.
Investors may purchase shares of the Fund either through
selected broker-dealers, agents, financial intermediaries or other
financial representatives, or directly through the Principal
Underwriter. A transaction, service, administrative or other
similar fee may be charged by your broker-dealer, agent, financial
intermediary or other financial representative with respect to the
purchase, sale or exchange of Class A, Class B, Class C or Advisor
Class shares made through such financial representative. Such
financial representative may also impose requirements with respect
41
<PAGE>
to the purchase, sale or exchange of shares that are different
from, or in addition to, those imposed by the Fund, including
requirements as to the minimum initial and subsequent investment
amounts. Sales personnel of selected dealers and agents
distributing the Fund's shares may receive differing compensation
for selling Class A, Class B, Class C or Advisor Class shares.
The Fund may refuse any order for the purchase of shares.
The Fund reserves the right to suspend the sale of its shares to
the public in response to conditions in the securities markets or
for other reasons.
The public offering price of shares of the Fund is their
net asset value, plus, in the case of Class A shares, a sales
charge which will vary depending on the purchase alternative
chosen by the investor, as shown in the table below under "Class A
Shares." On each Fund business day on which a purchase or
redemption order is received by the Fund and trading in the types
of securities in which the Fund invests might materially affect
the value of Fund shares, the per share net asset value is
computed in accordance with the Trust's Agreement and Declaration
of Trust and By-Laws as of the next close of regular trading on
the New York Stock Exchange (the "Exchange") (currently 4:00 p.m.
Eastern time) by dividing the value of the Fund's total assets,
less its liabilities, by the total number of its shares then
outstanding. A Fund business day is any day on which the Exchange
is open for trading.
The respective per share net asset values of the Class A,
Class B, Class C and Advisor Class shares are expected to be
substantially the same. Under certain circumstances, however, the
per share net asset values of the Class B shares and Class C
shares may be lower than the per share net asset value of the
Class A and Advisor Class shares as a result of the differential
daily expense accruals of the distribution and transfer agency
fees applicable with respect to those classes of shares. Even
under those circumstances, the per share net asset values of the
four classes eventually will tend to converge immediately after
the payment of dividends, which will differ by approximately the
amount of the expense accrual differential among the classes.
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined (plus applicable Class A sales
charges), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange
on each day the Exchange is open for trading are priced at the net
asset value computed as of the close of regular trading on the
Exchange on that day (plus applicable Class A share sales
charges). In the case of orders for purchase of shares placed
through selected dealers, agents or financial representatives, as
42
<PAGE>
applicable, the applicable public offering price will be the net
asset value as so determined, but only if the selected dealer,
agent or financial representative receives the order prior to the
close of regular trading on the Exchange and transmits it to the
Principal Underwriter prior to 5:00 p.m. Eastern time. The
selected dealer, agent or financial representative, as applicable,
is responsible for transmitting such orders by 5:00 p.m. Eastern
time (certain selected dealers, agents or financial
representatives may enter into operating agreements permitting
them to transmit purchase information to the Principal Underwriter
after 5:00 p.m. Eastern time and receive that day's net asset
value). If the selected dealer, agent or financial
representative fails to do so, the investor's right to that day's
closing price must be settled between the investor and the
selected dealer, agent or financial representative, as applicable.
If the selected dealer, agent or financial representative, as
applicable, receives the order after the close of regular trading
on the Exchange, the price will be based on the net asset value
determined as of the close of regular trading on the Exchange on
the next day it is open for trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate portion
of the Subscription Application or an "Autobuy" application both
of which may be obtained by calling the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Except with respect to certain omnibus accounts,
telephone purchase orders may not exceed $500,000. Payment for
shares purchased by telephone can be made only by Electronic Funds
Transfer from a bank account maintained by the shareholder at a
bank that is a member of the National Automated Clearing House
Association ("NACHA"). If a shareholder's telephone purchase
request is received before 3:00 p.m. Eastern time on a Fund
business day, the order to purchase shares is automatically placed
the following Fund business day, and the applicable public
offering price will be the public offering price determined as of
the close of business on such following business day.
Full and fractional shares are credited to a subscriber's
account in the amount of his or her subscription. As a
convenience to the subscriber, and to avoid unnecessary expense to
the Fund, share certificates representing shares of the Fund are
not issued except upon written request to the Fund by the
shareholder or his or her authorized selected dealer or agent.
This facilitates later redemption and relieves the shareholder of
the responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
although such shares remain in the shareholder's account on the
books of the Fund.
43
<PAGE>
In addition to the discount or commission amount paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents, in
connection with the sale of shares of the Fund. Such additional
amounts may be utilized, in whole or in part, to provide
additional compensation to registered representatives who sell
shares of the Fund. On some occasions, cash or other incentives
will be conditioned upon the sale of a specified minimum dollar
amount of the shares of the Fund and/or other Alliance Mutual
Funds, as defined below, during a specific period of time. On
some occasions, such cash or other incentives may take the form of
payment for attendance at seminars, meals, sporting events or
theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel taken by persons
associated with a dealer or agent to urban or resort locations
within or outside the United States. Such dealer or agent may
elect to receive cash incentives of equivalent amount in lieu of
such payments.
Class A, Class B, Class C and Advisor Class shares.
Shares of each of the classes represent an interest in the same
portfolio of investments, have the same rights and are identical
in all respects, except that (i) Class A shares bear the expense
of the initial sales charge (or contingent deferred sales charge,
when applicable) and Class B and Class C shares generally bear the
expense of the deferred sales charge, (ii) Class B shares and
Class C shares each bear the expense of a higher distribution
services fee than that borne by Class A shares, and Advisor Class
shares do not bear such a fee, (iii) Class B and Class C shares
bear higher transfer agency costs than those borne by Class A and
Advisor Class shares, (iv) each of Class A, Class B and Class C
shares has exclusive voting rights with respect to provisions of
the Rule 12b-1 Plan pursuant to which its distribution services
fee is paid and other matters for which separate class voting is
appropriate under applicable law, provided that if the Fund
submits to a vote of the Class A shareholders, an amendment to the
Rule 12b-1 Plan that would materially increase the amount to be
paid thereunder with respect to the Class A shares, then such
amendment will also be submitted to the Class B and Advisor Class
shareholders, and the Class A, the Class B and the Advisor Class
shareholders will vote separately by class and (v) Class B and
Advisor Class shares are subject to a conversion feature. Each
class has different exchange privileges and certain different
shareholder service options available.
The Trustees of the Fund have determined that currently
no conflict of interest exists between or among the Class A,
Class B, Class C and Advisor Class shares. On an ongoing basis,
the Trustees of the Fund, pursuant to their fiduciary duties under
the 1940 Act and state law, will seek to ensure that no such
conflict arises.
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<PAGE>
Alternative Retail Purchase Arrangements - Class A, Class B and
Class C Shares****
The alternative purchase arrangements available with
respect to Class A shares, Class B shares and Class C shares
permit an investor to choose the method of purchasing shares that
is most beneficial given the amount of the purchase, the length of
time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the
anticipated life of their investment in a Fund, the accumulated
distribution services fee and contingent deferred sales charges on
Class B shares prior to conversion, or the accumulated
distribution services fee and contingent deferred sales charge on
Class C shares, would be less than the initial sales charge and
accumulated distribution services fee on Class A shares purchased
at the same time, and to what extent such differential would be
offset by the higher return of Class A shares. Class A shares
will normally be more beneficial than Class B shares to the
investor who qualifies for reduced initial sales charges on
Class A shares, as described below. In this regard, the Principal
Underwriter will reject any order (except orders from certain
retirement plans and certain employee benefit plans) for more than
$250,000 for Class B shares. (See Appendix B for information
concerning the eligibility of certain employee benefit plans to
purchase Class B shares at net asset value without being subject
to a contingent deferred sales charge and the ineligibility of
certain such plans to purchase Class A shares.) Class C shares
will normally not be suitable for the investor who qualifies to
purchase Class A shares at net asset value. For this reason, the
Principal Underwriter will reject any order for more than
$1,000,000 for Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time of
purchase, investors purchasing Class A shares would not have all
their funds invested initially and, therefore, would initially own
fewer shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended
period of time might consider purchasing Class A shares because
the accumulated continuing distribution charges on Class B shares
or Class C shares may exceed the initial sales charge on Class A
shares during the life of the investment. Again, however, such
investors must weigh this consideration against the fact that,
because of such initial sales charges, not all their funds will be
invested initially.
____________________
**** Advisor Class Shares are sold only to investors described
above in this section under "--General."
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<PAGE>
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and
being subject to a contingent deferred sales charge for a three-
year period and one-year period, respectively. For example, based
on current fees and expenses, an investor subject to the 4.25%
initial sales charge would have to hold his or her investment
approximately seven years for the Class C distribution services
fee to exceed the initial sales charge plus the accumulated
distribution services fee of Class A shares. In this example, an
investor intending to maintain his or her investment for a longer
period might consider purchasing Class A shares. This example
does not take into account the time value of money, which further
reduces the impact of the Class C distribution services fees on
the investment, fluctuations in net asset value or the effect of
different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
three-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
Class A Shares
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below:
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Sales Charge
Discount or
Commission
As % of to Dealers
As % of the Public or Agents
Amount of Net Amount Offering As % of
Purchase Invested Price Offering Price
Less than
$100,000. . . 4.44% 4.25% 4.00%
$100,000 but
less than
$250,000. . . 3.36 3.25 3.00
$250,000 but
less than
$500,000. . . 2.30 2.25 2.00
$500,000 but
less than
$1,000,000*. . 1.78 1.75 1.50
________________
* There is no initial sales charge on transactions of $1,000,000
or more.
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class A shares will be waived
on certain redemptions, as described below under "--Class B
Shares." In determining the contingent deferred sales charge
applicable to a redemption of Class A shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because an
initial sales charge was paid with respect to the shares, or they
have been held beyond the period during which the charge applies
or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the time
they are subject to the sales charge. Proceeds from the
contingent deferred sales charge on Class A shares are paid to the
Principal Underwriter and are used by the Principal Underwriter to
defray the expenses of the Principal Underwriter related to
providing distribution-related services to the Fund in connection
with sales of Class A shares, such as the payment of compensation
to selected dealers or agents for selling Class A shares. With
respect to purchases of $1,000,000 or more made through selected
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<PAGE>
dealers or agents, the Adviser may, pursuant to the Distribution
Services Agreement described above, pay such dealers or agents
from its own resources a fee of up to 1% of the amount invested to
compensate such dealers or agents for their distribution
assistance in connection with such purchases.
No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, (ii) in exchange for
Class A shares of other "Alliance Mutual Funds" (as that term is
defined under "Combined Purchase Privilege" below), except that an
initial sales charge will be imposed on Class A shares issued in
exchange for Class A shares of AFD Exchange Reserves ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge or (iii) upon the automatic conversion of Class B
shares or Advisor Class shares as described below under "--Class B
Shares--Conversion Feature" and "--Conversion of Advisor Class
Shares to Class A Shares." The Fund receives the entire net asset
value of its Class A shares sold to investors. The Principal
Underwriter's commission is the sales charge shown above less any
applicable discount or commission "reallowed" to selected dealers
and agents. The Principal Underwriter will reallow discounts to
selected dealers and agents in the amounts indicated in the table
above. In this regard, the Principal Underwriter may elect to
reallow the entire sales charge to selected dealers and agents for
all sales with respect to which orders are placed with the
Principal Underwriter. A selected dealer who receives a
reallowance in excess of 90% of such a sales charge may be deemed
to be an "underwriter" under the Securities Act.
Set forth below is an example of the method of computing
the offering price of the Class A shares. The example assumes a
purchase of Class A shares of the Fund aggregating less than
$100,000 subject to the schedule of sales charges set forth above
at a price based upon the net asset value of Class A shares of the
Fund on August 31, 1998.
Net Asset Value per Class A
Share at August 31, 1998 $ 9.48
Per Share Sales Charge - 4.25%
of offering price (4.45% of
net asset value per share) $ .43$ .42
Class A Per Share Offering Price
to the Public $ 9.90
======
Investors choosing the initial sales charge alternative
may under certain circumstances be entitled to pay (i) no initial
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<PAGE>
sales charge (but be subject in most such cases to a contingent
deferred sales charge) or (ii) a reduced initial sales charge.
The circumstances under which investors may pay a reduced initial
sales charge are described below.
Combined Purchase Privilege. Certain persons may qualify
for the sales charge reductions indicated in the schedule of such
charges shown above by combining purchases of shares of the Fund
into a single "purchase," if the resulting "purchase" totals at
least $100,000. The term "purchase" refers to: (i) a single
purchase by an individual, or two concurrent purchases, which in
the aggregate are at least equal to the prescribed amounts, by an
individual, his or her spouse and their children under the age of
21 years purchasing shares of a Fund for his, her or their own
account(s); (ii) a single purchase by a trustee or other fiduciary
purchasing shares for a single trust, estate or single fiduciary
account although more than one beneficiary is involved; or (iii) a
single purchase for the employee benefit plans of a single
employer. The term "purchase" also includes purchases by any
"company", as the term is defined in the 1940 Act, but does not
include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term "purchase"
does not include purchases by any group of individuals whose sole
organizational nexus is that the participants therein are credit
card holders of a company, policy holders of an insurance company,
customers of either a bank or broker-dealer or clients of an
investment adviser. A "purchase" may also include shares,
purchased at the same time through a single selected dealer or
agent, of any other "Alliance Mutual Fund." Currently, the
Alliance Mutual Funds include:
The Alliance Fund, Inc.
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China 97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
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<PAGE>
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Portfolios
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Growth Fund
-Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting AFS at the address or the
"For Literature" telephone number shown on the front cover of this
Statement of Additional Information.
Cumulative Quantity Discount (Right of Accumulation). An
investor's purchase of additional Class A shares of the Fund may
qualify for a Cumulative Quantity Discount. The applicable sales
charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on the
previous day) of (a) all shares of the Fund held by
the investor and (b) all shares of any other
Alliance Mutual Fund held by the investor; and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder eligible
50
<PAGE>
to combine his or her purchase with that of the
investor into a single "purchase" (see above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the sales charge for the $100,000 purchase
would be at the 2.25% rate applicable to a single $300,000
purchase of shares of the Fund, rather than the 3.25% rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or agent
must provide the Principal Underwriter with sufficient information
to verify that each purchase qualifies for the privilege or
discount.
Statement of Intention. Class A investors may also
obtain the reduced sales charge shown in the table above by means
of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B,
Class C and/or Advisor Class shares) of the Fund or any other
Alliance Mutual Fund. Each purchase of shares under a Statement
of Intention will be made at the public offering price or prices
applicable at the time of such purchase to a single transaction of
the dollar amount indicated in the Statement of Intention. At the
investor's option, a Statement of Intention may include purchases
of shares of the Fund or any other Alliance Mutual Fund made not
more than 90 days prior to the date that the investor signs the
Statement of Intention; however, the 13-month period during which
the Statement of Intention is in effect will begin on the date of
the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at least
$100,000 in Class A shares of the Fund, the investor and the
investor's spouse each purchase shares of the Fund worth $20,000
(for a total of $40,000), it will only be necessary to invest a
total of $60,000 during the following 13 months in shares of the
Fund or any other Alliance Mutual Fund, to qualify for the 3.25 %
sales charge on the total amount being invested (the sales charge
applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5% of
such amount. Shares purchased with the first 5% of such amount
will be held in escrow (while remaining registered in the name of
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<PAGE>
the investor) to secure payment of the higher initial sales charge
applicable to the shares actually purchased if the full amount
indicated is not purchased, and such escrowed shares will be
involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Fund shares, are not subject to escrow.
When the full amount indicated has been purchased, the escrow will
be released. To the extent that an investor purchases more than
the dollar amount indicated on the Statement of Intention and
qualifies for a further reduced sales charge, the sales charge
will be adjusted for the entire amount purchased at the end of the
13-month period. The difference in the sales charge will be used
to purchase additional shares of the Fund subject to the rate of
the sales charge applicable to the actual amount of the aggregate
purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
a Fund should complete the appropriate portion of the Subscription
Application found in the Prospectus while current Class A
shareholders desiring to do so can obtain a form of Statement of
Intention by contacting AFS at the address or the telephone
numbers shown on the cover of this Statement of Additional
Information.
Certain Retirement Plans. Multiple participant payroll
deduction retirement plans may also purchase shares of the Fund or
any other Alliance Mutual Fund at a reduced sales charge on a
monthly basis during the 13-month period following such a plan's
initial purchase. The sales charge applicable to such initial
purchase of shares of a Fund will be that normally applicable,
under the schedule of the sales charges set forth in this
Statement of Additional Information, to an investment 13 times
larger than such initial purchase. The sales charge applicable to
each succeeding monthly purchase will be that normally applicable,
under such schedule, to an investment equal to the sum of (i) the
total purchases previously made during the 13-month period and
(ii) the current month's purchase multiplied by the number of
months (including the current month) remaining in the 13-month
period. Sales charges previously paid during such period will not
be retroactively adjusted on the basis of later purchases.
Reinstatement Privilege. A shareholder who has caused
any or all of his or her Class A or Class B shares of the Fund to
be redeemed or repurchased may reinvest all or any portion of the
redemption or repurchase proceeds in Class A shares of the Fund at
net asset value without any sales charge, provided that (i) such
reinvestment is made within 120 calendar days after the redemption
or repurchase date and (ii) for Class B shares, a contingent
deferred sales charge has been paid and the Principal Underwriter
has approved, at its discretion, the reinvestment of such shares.
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<PAGE>
Shares are sold to a reinvesting shareholder at the net asset
value next determined as described above. A reinstatement
pursuant to this privilege will not cancel the redemption or
repurchase transaction; therefore, any gain or loss so realized
will be recognized for Federal income tax purposes except that no
loss will be recognized to the extent that the proceeds are
reinvested in shares of the Fund within 30 calendar days after the
redemption or repurchase transaction. Investors may exercise the
reinstatement privilege by written request sent to the Fund at the
address shown on the cover of this Statement of Additional
Information.
Sales at Net Asset Value. The Fund may sell its Class A
shares at net asset value (i.e., without any initial sales charge)
and without a contingent deferred sales charge to certain
categories of investors including: (i) investment management
clients of the Adviser or its affiliates; (ii) officers and
present or former Trustees of the Trust; present or former
directors and trustees of other investment companies managed by
the Adviser; present or retired full-time employees of the
Adviser, the Principal Underwriter, AFS and their affiliates;
officers and directors of ACMC, the Principal Underwriter, AFS and
their affiliates; officers, directors and present and full-time
employees of selected dealers or agents; the spouse, sibling,
direct ancestor or direct descendant (collectively, "relatives")
of any such person; or any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative; or the estate of any such person or relative, if such
shares are purchased for investment purposes (such shares may not
be resold except to the Fund); (iii) the Adviser, Principal
Underwriter, AFS and their affiliates; certain employee benefit
plans for employees of the Adviser, the Principal Underwriter, AFS
and their affiliates; (iv) registered investment advisers or other
financial intermediaries who charge a management, consulting or
other fee for their service and who purchase shares through a
broker or agent approved by the Principal Underwriter and clients
of such registered investment advisers or financial intermediaries
whose accounts are linked to the master account of such investment
adviser or financial intermediary on the books of such approved
broker or agent; (v) persons participating in a fee-based program,
sponsored and maintained by a registered broker-dealer or other
financial intermediary and approved by the Principal Underwriter,
pursuant to which such persons pay an asset-based fee to such
broker-dealer or other financial intermediary, or its affiliate or
agent, for services in the nature of investment advisory or
administrative services; (vi) persons who establish to the
Principal Underwriter's satisfaction that they are investing,
within such time period as may be designated by the Principal
Underwriter, proceeds of redemption of shares of such other
registered investment companies as may be designated from time to
time by the Principal Underwriter; and (vii) employer-sponsored
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<PAGE>
qualified pension or profit-sharing plans (including Section
401(k) plans), custodial accounts maintained pursuant to Section
403(b)(7), retirement plans and individual retirement accounts
(including individual retirement accounts to which simplified
employee pension (SEP) contributions are made), if such plans or
accounts are established or administered under programs sponsored
by administrators or other persons that have been approved by the
Principal Underwriter.
Class B Shares
Investors may purchase Class B shares at the public
offering price equal to the net asset value per share of the
Class B shares on the date of purchase without the imposition of a
sales charge at the time of purchase. The Class B shares are sold
without an initial sales charge so that the Fund will receive the
full amount of the investor's purchase payment.
Proceeds from the contingent deferred sales charge on the
Class B shares are paid to the Principal Underwriter and are used
by the Principal Underwriter to defray the expenses of the
Principal Underwriter related to providing distribution-related
services to the Fund in connection with the sale of the Class B
shares, such as the payment of compensation to selected dealers
and agents for selling Class B shares. The combination of the
contingent deferred sales charge and the distribution services fee
enables the Fund to sell Class B shares without a sales charge
being deducted at the time of purchase. The higher distribution
services fee incurred by Class B shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares.
Contingent Deferred Sales Charge. Class B shares that
are redeemed within three years of purchase will generally be
subject to a contingent deferred sales charge at the rates set
forth below charged as a percentage of the dollar amount subject
thereto. The charge will be assessed on an amount equal to the
lesser of the cost of the shares being redeemed or their net asset
value at the time of redemption. Accordingly, no sales charge
will be imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on shares
derived from reinvestment of dividends or capital gains
distributions.
To illustrate, assume that an investor purchased 100
Class B shares at $10 per share (at a cost of $1,000) and in the
second year after purchase the net asset value per share is $12
and, during such time, the investor has acquired 10 additional
Class B shares upon dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 Class B shares
(proceeds of $600), 10 Class B shares will not be subject to
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<PAGE>
charge because of dividend reinvestment. With respect to the
remaining 40 Class B shares, the charge is applied only to the
original cost of $10 per share and not to the increase in net
asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 3.0% (the
applicable rate in the second year after purchase, as set forth
below).
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
Year Contingent Deferred Sales Charge as a %
Since Purchase of Dollar Amount Subject to Charge
First 3.00%
Second 2.00%
Third 1.00%
Fourth None
In determining the contingent deferred sales charge
applicable to a redemption of Class B shares, it will be assumed
that the redemption is, first, of any shares that were acquired
upon the reinvestment of dividends or distributions and, second,
of shares held longest during the time they are subject to the
sales charge. When shares acquired in an exchange are redeemed,
the applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of
purchase of shares of the corresponding class of the Alliance
Mutual Fund originally purchased by the shareholder.
The contingent deferred sales charge is waived on
redemptions of shares (i) following the death or disability, as
defined in the Internal Revenue Code of 1986, as amended (the
"Code"), of a shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who
has attained the age of 70-1/2, (iii) that had been purchased by
present or former Trustees of the Trust, by the relative of any
such person, by any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative, or (iv) pursuant to a systematic withdrawal plan (see
Appendix B and "Shareholder Services--Systematic Withdrawal Plan"
below).
Conversion Feature. Six years after the end of the
calendar month in which the shareholders purchase order was
accepted, Class B shares will automatically convert to Class A
shares and will no longer be subject to a higher distribution
55
<PAGE>
services fee. Such conversions will occur on the basis of the
relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose of
the conversion feature is to reduce the distribution services fee
paid by holders of Class B shares that have been outstanding long
enough for the Principal Underwriter to have been compensated for
distribution expenses incurred in the sale of such shares.
For purposes of conversion to Class A shares, Class B
shares purchased through the reinvestment of dividends and
distributions paid in respect of Class B shares in a shareholder's
account will be considered to be held in a separate sub-account.
Each time any Class B shares in the shareholder's account (other
than those in the sub-account) convert to Class A shares, an equal
pro-rata portion of the Class B shares in the sub-account will
also convert to Class A shares.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel to
the effect that the conversion of Class B shares to Class A shares
does not constitute a taxable event under Federal income tax law.
The conversion of Class B shares to Class A shares may be
suspended if such an opinion is no longer available at the time
such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee for
an indefinite period which may extend beyond the period ending six
years after the end of the calendar month in which the
shareholder's purchase order was accepted.
Class C Shares
Investors may purchase Class C shares at the public
offering price equal to the net asset value per share of the
Class C shares on the date of purchase without the imposition of a
sales charge either at the time of purchase or, as long as the
shares are held for one year or more, upon redemption. Class C
shares are sold without an initial sales charge so that the Fund
will receive the full amount of the investor's purchase payment
and, as long as the shares are held for one year or more, without
a contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of
his or her Class C shares. Class C distribution services fee
enables the Fund to sell Class C shares without either an initial
or contingent deferred sales charge, as long as the shares are
held for one year or more. Class C shares do not convert to any
other class of shares of the Fund and incur higher distribution
services fees and transfer agency costs than Class A shares and
Advisor Class shares, and will thus have a higher expense ratio
and pay correspondingly lower dividends than Class A shares and
Advisor Class shares.
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<PAGE>
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1% charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial purchase
price. In addition, no charge will be assessed on shares derived
from reinvestment of dividends or capital gains distributions.
The contingent deferred sales charge on Class C shares will be
waived on certain redemptions, as described above under "--Class B
Shares. In determining the contingent deferred sales charge
applicable to a redemption of Class C shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because the
shares have been held beyond the period during which the charge
applies or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the time
they are subject to the sales charge.
Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class C shares, such as the
payment of compensation to selected dealers and agents for selling
Class C shares. The combination of the contingent deferred sales
charge and the distribution services fee enables the Fund to sell
the Class C shares without a sales charge being deducted at the
time of purchase. The higher distribution services fee incurred
by Class C shares will cause such shares to have a higher expense
ratio and to pay lower dividends than those paid with respect to
Class A and Advisor Class shares.
Conversion of Advisor Class Shares to Class A Shares
Advisor Class shares may be held solely through the fee-
based program accounts and employee benefit plans and registered
investment advisory or other financial intermediary relationship,
described above under "Purchase of Shares--General," and by
investment advisory clients of, and certain other persons
associated with, the Adviser and its affiliates or the Fund. If
(i) a holder of Advisor Class shares ceases to participate in a
fee-based program or plan, or to be associated with the investment
adviser or financial intermediary, in each case that satisfies the
requirements to purchase shares set forth under "Purchase of
Shares--General" or (ii) the holder is otherwise no longer
eligible to purchase Advisor Class shares as described in the
Advisor Class Prospectus and this Statement of Additional
Information (each, a "Conversion Event"), then all Advisor Class
shares held by the shareholder will convert automatically and
57
<PAGE>
without notice to the shareholder, other than the notice contained
in the Advisor Class Prospectus and this Statement of Additional
Information, to Class A shares of same the Fund during the
calendar month following the month in which the Fund is informed
of the occurrence of the Conversion Event. The failure of a
shareholder or a fee-based program to satisfy the minimum
investment requirements to purchase Advisor Class shares will not
constitute a Conversion Event. The conversion would occur on the
basis of the relative net asset values of the two classes and
without the imposition of any sales load, fee or other charge.
Class A shares currently bear a .30% distribution services fee and
have a higher expense ratio than Advisor Class shares. As a
result, Class A shares may pay correspondingly lower dividends and
have a lower net asset value than Advisor Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Advisor Class shares to
Class A shares does not constitute a taxable event under Federal
income tax law. The conversion of Advisor Class shares to Class A
shares may be suspended if such an opinion is no longer available
at the time such conversion is to occur. In that event, the
Advisor Class shareholders would be required to redeem
shareholders Advisor Class shares, which would constitute a
taxable event under Federal income tax law.
________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares -- How to Sell Shares." If you are an Advisor Class
shareholder through an account established under a fee-based
program, your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
Redemption
Subject only to the limitations described below, the Fund
will redeem the shares tendered to it, as described below, at a
redemption price equal to its net asset value as next computed
following the receipt of shares tendered for redemption in proper
form. Except for any contingent deferred sales charge which may
be applicable to Class A, Class B or Class C shares, there is no
redemption charge. Payment of the redemption price will be made
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within seven days after the Fund's receipt of such tender for
redemption. If a shareholder is in doubt about what documents are
required by his or her fee-based program or employee benefit plan,
the shareholder should contact his or her financial
representative.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the SEC determines that
trading thereon is restricted, or for any period during which an
emergency (as determined by the SEC) exists as a result of which
disposal by the Fund of securities owned by it is not reasonably
practicable or as a result of which it is not reasonably
practicable for the Fund fairly to determine the value of its net
assets, or for such other periods as the SEC may by order permit
for the protection of security holders of the Fund.
Payment of the redemption price will be made in cash. The
value of a shareholder's shares on redemption or repurchase may be
more or less than the cost of such shares to the shareholder,
depending upon the market value of the Fund's portfolio securities
at the time of such redemption or repurchase. Redemption proceeds
from Class A, Class B and Class C shares will reflect the
deduction of the contingent deferred sales charge, if any.
Payment received by a shareholder upon redemption or repurchase of
the shareholders shares, assuming the shares constitute capital
assets in the shareholders hands, will result in long-term or
short-term capital gains (or loss) depending upon the
shareholder's holding period and basis in respect of the shares
redeemed.
To redeem shares of the Fund for which no 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 "eligible guarantor institution" as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended.
To redeem shares of the Fund represented by 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 share 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 share
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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.
Telephone Redemption by Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer of shares for which no share certificates have been
issued by telephone at (800) 221-5672 by a shareholder who has
completed the appropriate portion of the Subscription Application
found in the Prospectus or, in the case of an existing
shareholder, an "Autosell" application obtained from AFS. A
telephone redemption request may not exceed $100,000 (except for
certain omnibus accounts), and must be made by 4:00 p.m. Eastern
time on a Fund business day as defined above. Proceeds of
telephone redemptions will be sent by electronic funds transfer to
a shareholder's designated bank account at a bank selected by the
shareholder that is a member of the NACHA.
Telephone Redemption By Check. Except for certain
omnibus accounts or as noted below, each Fund shareholder is
eligible to request redemption by check of Fund shares for which
no share certificates have been issued by telephone at (800) 221-
5672 before 4:00 p.m. Eastern time on a Fund business day in an
amount not exceeding $50,000. Proceeds of such redemptions are
remitted by check to the shareholder's address of record. A
shareholder otherwise eligible for telephone redemption by check
may cancel the privilege by written instruction to AFS, or by
checking the appropriate box on the Subscription Application found
in the Prospectus.
Telephone Redemptions--General. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching AFS by telephone (although no such
difficulty was apparent at any time in connection with the 1987
market break). If a shareholder were to experience such
difficulty, the shareholder should issue written instructions to
AFS at the address shown on the cover of this Statement of
Additional Information. The Fund reserves the right to suspend or
terminate their telephone redemption service at any time without
notice. Telephone redemption is not available with respect to
shares (i) for which certificates have been issued, (ii) held in
nominee or "street name" accounts, (iii) held by a shareholder who
has changed his or her address of record within the preceding 30
calendar days or (iv) held in any retirement plan account.
Neither the Fund nor the Adviser, the Principal Underwriter nor
AFS will be responsible for the authenticity of telephone requests
for redemptions that the Fund reasonably believes to be genuine.
The Fund will employ reasonable procedures in order to verify that
telephone requests for redemptions are genuine, including, among
others, recording such telephone instructions and causing written
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confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or fraudulent
telephone instructions. Selected dealers or agents may charge a
commission for handling telephone requests for redemptions.
Repurchase
The Fund may repurchase shares through the Principal
Underwriter, selected financial intermediaries, selected dealers
or agents. The repurchase price will be the net asset value next
determined after the Principal Underwriter receives the request
(less the contingent deferred sales charge, if any, with respect
to the Class A, Class B and Class C shares), except that requests
placed through selected dealers or agents before the close of
regular trading on the Exchange on any day will be executed at the
net asset value determined as of the close of regular trading on
that day if received by the Principal Underwriter prior to its
close of business on that day (normally 5:00 p.m. Eastern time).
The financial intermediary or selected dealer or agent is
responsible for transmitting the request to the Principal
Underwriter by 5:00 p.m. Eastern time (certain selected dealers,
agents or financial representatives may enter into operating
agreements permitting them to transmit purchase information to the
Principal Underwriter after 5:00 p.m. Eastern time and receive
that day's net asset value). If the financial intermediary or
selected dealer or agent fails to do so, the shareholder's right
to receive that day's closing price must be settled between the
shareholder and the dealer or agent. A shareholder may offer
shares of the Fund to the Principal Underwriter either directly or
through a selected dealer or agent. Neither the Fund nor the
Principal Underwriter charges a fee or commission in connection
with the repurchase of shares (except for the contingent deferred
sales charge, if any, with respect to Class A, Class B and Class C
shares). Normally, if shares of the Fund are offered through a
financial intermediary or selected dealer or agent, the repurchase
is settled by the shareholder as an ordinary transaction with or
through the selected dealer or agent, who may charge the
shareholder for this service. The repurchase of shares of the
Fund as described above is a voluntary service of the Fund and the
Fund may suspend or terminate this practice at any time.
General
The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days' written notice to increase the
account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
of the Fund recently purchased by check, redemption proceeds will
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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.
___________________________________________________________
SHAREHOLDER SERVICES
___________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set forth
below are applicable to Class A, Class B, Class C and Advisor
Class shares unless otherwise indicated. If you are an Advisor
Class shareholder through an account established under a fee-based
program, your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
Automatic Investment Program
Investors may purchase shares of the Fund through an
automatic investment program utilizing Electronic Funds Transfer
drawn on the investor's own bank account. Under such a program,
pre-authorized monthly drafts for a fixed amount (at least $25)
are used to purchase shares through the selected dealer or
selected agent designated by the investor at the public offering
price next determined after the Principal Underwriter receives the
proceeds from the investor's bank. In electronic form, drafts can
be made on or about a date each month selected by the shareholder.
Investors wishing to establish an automatic investment program in
connection with their initial investment should complete the
appropriate portion of the Subscription Application found in the
Prospectus. Current shareholders should contact AFS at the
address or telephone numbers shown on the cover of this Statement
of Additional Information to establish an automatic investment
program.
Exchange Privilege
You may exchange your investment in the Fund for shares
of the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by the Adviser).
In addition, (i) present officers and full-time employees of the
Adviser, (ii) present Directors or Trustees of any Alliance Mutual
Fund and (iii) certain employee benefit plans for employees of the
Adviser, the Principal Underwriter, AFS and their affiliates may,
on a tax-free basis, exchange Class A shares of the Fund for
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Advisor Class shares of the Fund. Exchanges of shares are made at
the net asset value next determined and without sales or service
charges. Exchanges may be made by telephone or written request.
Telephone exchange requests must be received by AFS by 4:00 p.m.
Eastern time on a Fund business day in order to receive that day's
net asset value.
Shares will continue to age without regard to exchanges
for purpose of determining the CDSC, if any, upon redemption and,
in the case of Class B shares, for the purpose of conversion to
Class A shares. After an exchange, your Class B shares will
automatically convert to Class A shares in accordance with the
conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original
shares"). When redemption occurs, the CDSC applicable to the
original shares is applied.
Please read carefully the prospectus of the Alliance
Mutual Fund into which you are exchanging before submitting the
request. Call AFS at (800) 221-5672 to exchange uncertificated
shares. An exchange is a are taxable capital transactions for
Federal income tax purposes. The exchange service may be changed,
suspended or terminated on 60 days' written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's Prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose shares
have been tendered for exchange is reasonably assured that the
check has cleared, normally up to 15 calendar days following the
purchase date. Exchanges of shares of Alliance Mutual Funds will
generally result in the realization of a capital gain or loss for
federal income tax purposes.
Each Fund shareholder and the shareholder's selected
dealer, agent or financial representative, as applicable, are
authorized to make telephone requests for exchanges unless
AFS receives written instruction to the contrary from the
shareholder, or the shareholder declines the privilege by checking
the appropriate box on the Subscription Application found in the
Prospectus. Such telephone requests cannot be accepted with
respect to shares then represented by share certificates. Shares
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acquired pursuant to a telephone request for exchange will be held
under the same account registration as the shares redeemed through
such exchange.
Eligible shareholders desiring to make an exchange should
telephone AFS with their account number and other details of the
exchange at (800) 221-5672 before 4:00 p.m. Eastern time on a Fund
business day as defined above. Telephone requests for exchange
received before 4:00 p.m. Eastern time on a Fund business day will
be processed as of the close of business on that day. During
periods of drastic economic or market developments (such as the
market break of October 1987) it is possible that shareholders
would have difficulty in reaching AFS by telephone (although no
such difficulty was apparent at any time in connection with the
1987 market break). If a shareholder were to experience such
difficulty, the shareholder should issue written instructions to
AFS at the address shown on the cover of this Statement of
Additional Information.
A shareholder may elect to initiate a monthly "Auto
Exchange" whereby a specified dollar amounts worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares of
another Alliance Mutual Fund. Auto Exchange transactions normally
occur on the 12th day of each month, or the following Fund
business day prior thereto.
None of the Alliance Mutual Funds, the Adviser, the
Principal Underwriter or AFS will be responsible for the
authenticity of telephone requests for exchanges that the Fund
reasonably believes to be genuine. The Fund will employ
reasonable procedures in order to verify that telephone requests
for exchanges are genuine, including, among others, recording such
telephone instructions and causing written confirmations of the
resulting transactions to be sent to shareholders. If the Fund
did not employ such procedures, it could be liable for losses
arising from unauthorized or fraudulent telephone instructions.
Selected dealers, agents or financial representatives, as
applicable, may charge a commission for handling telephone
requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Fund being acquired may legally be
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
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Retirement Plans
The Fund may be a suitable investment vehicle for part or
all of the assets held in various types of retirement plans, such
as those listed below. The Fund has available forms of such plans
pursuant to which investments can be made in the Fund and other
Alliance Mutual Funds. Persons desiring information concerning
these plans should contact AFS at the "For Literature" telephone
number on the cover of this Statement of Additional Information,
or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 07096-1520
Individual Retirement Account ("IRA"). Individuals who
receive compensation, including earnings from self-employment, are
entitled to establish and make contributions to an IRA. Taxation
of the income and gains paid to an IRA by the Fund is deferred
until distribution from the IRA. An individual's eligible
contribution to an IRA will be deductible if neither the
individual nor his or her spouse is an active participant in an
employer-sponsored retirement plan. If the individual or his or
her spouse is an active participant in an employer-sponsored
retirement plan, the individual's contributions to an IRA may be
deductible, in whole or in part, depending on the amount of the
adjusted gross income of the individual and his or her spouse.
Employer-Sponsored Qualified Retirement Plans. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including Section
401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals. The minimum
initial investment requirement may be waived with respect to
certain of these qualified plans.
If the aggregate net asset value of shares of the
Alliance Mutual Funds held by a qualified plan reaches $1 million
on or before December 15 in any year, all Class B or Class C
shares of the Fund held by the plan can be exchanged at the plan's
request, without any sales charge, for Class A shares of the Fund.
Simplified Employee Pension Plan ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP under
which they make annual tax-deductible contributions to an IRA
established by each eligible employee within prescribed limits
based on employee compensation.
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403(b)(7) Retirement Plan. Certain tax-exempt
organizations and public educational institutions may sponsor
retirement plans under which an employee may agree that monies
deducted from his or her compensation (minimum $25 per pay period)
may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable, which serves as custodian or trustee
under the retirement plan prototype forms available from the Fund,
charges certain nominal fees for establishing an account and for
annual maintenance. A portion of these fees is remitted to AFS as
compensation for its services to the retirement plan accounts
maintained with the Fund.
Distributions from retirement plans are subject to
certain Code requirements in addition to normal redemption
procedures. For additional information please contact AFS at the
address or "For Literature" telephone number shown on the cover of
this Statement of Additional Information.
Dividend Direction Plan
A shareholder who already maintains, in addition to his
or her Class A, Class B, Class C or Advisor Class Fund account, a
Class A, Class B, Class C or Advisor Class account with one or
more other Alliance Mutual Funds may direct that income dividends
and/or capital gains distributions paid on the shareholder's
Class A, Class B, Class C or Advisor Class Fund shares be
automatically reinvested, in any amount, without the payment of
any sales or service charges, in shares of the same class of such
other Alliance Mutual Fund(s). Further information can be
obtained by contacting AFS at the address or the "For Literature"
telephone number shown on the cover of this Statement of
Additional Information. Investors wishing to establish a dividend
direction plan in connection with their initial investment should
complete the appropriate section of the Subscription Application
found in the Prospectus. Current shareholders should contact AFS
to establish a dividend direction plan.
Systematic Withdrawal Plan
General. Any shareholder who owns or purchases shares of
the Fund having a current net asset value of at least $4,000 (for
quarterly or less frequent payments), $5,000 (for bi-monthly
payments) or $10,000 (for monthly payments) may establish a
systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less than
$50 on a selected date. Systematic withdrawal plan participants
must elect to have their dividends and distributions from the Fund
automatically reinvested in additional shares of the Fund.
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Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such payments will be subject to any taxes
applicable to redemptions and, except as discussed below, any
applicable contingent deferred sales charge. Shares acquired with
reinvested dividends and distributions will be liquidated first to
provide such withdrawal payments and thereafter other shares will
be liquidated to the extent necessary, and depending upon the
amount withdrawn, the investors principal may be depleted. A
systematic withdrawal plan may be terminated at any time by the
shareholder or the Fund.
Withdrawal payments will not automatically end when a
shareholder's account reaches a certain minimum level. Therefore,
redemptions of shares under the plan may reduce or even liquidate
a shareholder's account and may subject the shareholder to the
Fund's involuntary redemption provisions. See " Redemption and
Repurchase of Shares--General." Purchases of additional shares
concurrently with withdrawals are undesirable because of sales
charges when the purchases are made. While an occasional lump-
sum investment may be made by a holder of Class A shares who is
maintaining a systematic withdrawal plan, such investment should
normally be an amount equivalent to three times the annual
withdrawal or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made
by check or electronically via the Automated Clearing House
("ACH") network. Investors wishing to establish a systematic
withdrawal plan in conjunction with their initial investment in
shares of the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus, while current
Fund shareholders desiring to do so can obtain an application form
by contacting AFS at the address or the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information.
CDSC Waiver for Class B and Class C Shares. Under a
systematic withdrawal plan, up to 1% monthly, 2% bi-monthly or 3%
quarterly of the value at the time of redemption of the Class B or
Class C shares in a shareholder's account may be redeemed free of
any contingent deferred sales charge.
With respect to Class B shares, the waiver applies only
with respect to shares acquired after July 1, 1995. Class B
shares that are not subject to a contingent deferred sales charge
(such as shares acquired with reinvested dividends or
distributions) will be redeemed first and will count toward the
foregoing limitations. Remaining Class B shares that are held the
longest will be redeemed next. Redemptions of Class B shares in
excess of the foregoing limitations will be subject to any
otherwise applicable contingent deferred sales charge.
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With respect to Class C shares, shares held the longest
will be redeemed first and will count toward the foregoing
limitations. Redemptions in excess of those limitations will be
subject to any otherwise applicable contingent deferred sales
charge.
Statements and Reports
Each shareholder receives semi-annual and annual reports
which include a portfolio of investments, financial statements
and, in the case of the annual report, the report of the Trust's
independent accountants, PricewaterhouseCoopers LLP, as well as a
confirmation of each purchase and redemption. By contacting his
or her broker or AFS, a shareholder can arrange for copies of his
or her account statements to be sent to another person.
Checkwriting
A new Class A or Class C investor may fill out the
Signature Card which is included in the Prospectus to authorize
the Fund to arrange for a checkwriting service through State
Street Bank and Trust Company (the "Bank") to draw against Class A
or Class C shares of the Fund redeemed from the investor's
account. Under this service, checks may be made payable to any
payee in any amount not less than $500 and not more than 90% of
the net asset value of the Class A or Class C shares in the
investor's account (excluding for this purpose the current month's
accumulated dividends and shares for which certificates have been
issued). A Class A or Class C shareholder wishing to establish
this checkwriting service subsequent to the opening of his or her
Fund account should contact the Fund by telephone or mail.
Corporations, fiduciaries and institutional investors are required
to furnish a certified resolution or other evidence of
authorization. This checkwriting service will be subject to the
Bank's customary rules and regulations governing checking
accounts, and the Fund and the Bank each reserve the right to
change or suspend the checkwriting service. There is no charge to
the shareholder for the initiation and maintenance of this service
or for the clearance of any checks.
When a check is presented to the Bank for payment, the
Bank, as the shareholder's agent, causes the Fund to redeem, at
the net asset value next determined, a sufficient number of full
and fractional shares of the Fund in the shareholder's account to
cover the check. Because the level of net assets in a
shareholder's account constantly changes due, among various
factors, to market fluctuations, a shareholder should not attempt
to close his or her account by use of a check. In this regard,
the Bank has the right to return checks (marked "insufficient
funds") unpaid to the presenting bank if the amount of the check
exceeds 90% of the assets in the account. Canceled (paid) checks
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are returned to the shareholder. The checkwriting service enables
the shareholder to receive the daily dividends declared on the
shares to be redeemed until the day that the check is presented to
the Bank for payment.
_______________________________________________________________
NET ASSET VALUE
_______________________________________________________________
The per share net asset value is computed in accordance
with the Fund's Articles of Incorporation and By-Laws at the next
close of regular trading on the Exchange (ordinarily 4:00 p.m.
Eastern time) following receipt of a purchase or redemption order
by the Fund on each Fund business day on which such an order is
received and on such other days as the Board of Directors deems
appropriate or necessary in order to comply with Rule 22c-1 under
the 1940 Act. The Fund's per share net asset value is calculated
by dividing the value of the Fund's total assets, less its
liabilities, by the total number of its shares then outstanding.
A Fund business day is any weekday on which the Exchange is open
for trading.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at fair
value as determined in good faith by the Board of Directors. The
Board of Directors has delegated to the Adviser certain of the
Board's duties with respect to the following procedures. Readily
marketable securities listed on the Exchange or on a foreign
securities exchange (other than foreign securities exchanges whose
operations are similar to those of the United States over-the-
counter market) are valued, except as indicted below, at the last
sale price reflected on the consolidated tape at the close of the
Exchange or, in the case of a foreign securities exchange, at the
last quoted sale price, in each case on the business day as of
which such value is being determined. If there has been no sale
on such day, the securities are valued at the mean of the closing
bid and asked prices on such day. If no bid or asked prices are
quoted on such day, then the security is valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors. Readily marketable securities not listed
on the Exchange or on a foreign securities exchange but listed on
other United States national securities exchanges or traded on The
Nasdaq Stock Market, Inc. are valued in like manner. Portfolio
securities traded on the Exchange and on one or more foreign or
other national securities exchanges, and portfolio securities not
traded on the Exchange but traded on one or more foreign or other
national securities exchanges are valued in accordance with these
procedures by reference to the principal exchange on which the
securities are traded.
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Readily marketable securities traded in the over-the-
counter market, securities listed on a foreign securities exchange
whose operations are similar to those of the United States over-
the-counter market, and securities listed on a U.S. national
securities exchange whose primary market is believed to be over-
the-counter (but excluding securities traded on The Nasdaq Stock
Market, Inc.), are valued at the mean of the current bid and asked
prices as reported by Nasdaq or, in the case of securities not
quoted by Nasdaq, the National Quotation Bureau or another
comparable sources.
Listed put or call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that
day, such securities will be valued at the closing bid prices on
that day.
Open futures contracts and options thereon will be valued
using the closing settlement price or, in the absence of such a
price, the most recent quoted bid price, If there are no
quotations available for the day of valuations, the last available
closing settlement price will be used.
U.S. Government Securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that this
method does not represent fair value).
Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed
to reflect the fair market value of such securities. The prices
provided by pricing service take into account many factors,
including institutional size trading in similar groups of
securities and any developments related to specific securities.
All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund business
day. In addition, trading in foreign markets may not take place
on all Fund business days. Furthermore, trading may take place in
various foreign markets on days that are not Fund business days.
The Fund's calculation of the net asset value per share,
therefore, does not always take place contemporaneously with the
most recent determination of the prices of portfolio securities in
these markets. Events affecting the values of these portfolio
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securities that occur between the time their prices are determined
in accordance with the above procedures and the close of the
Exchange will not be reflected in the Fund's calculation of net
asset value unless it is believed that these prices do not reflect
current market value, in which case the securities will be valued
in good faith by, or in accordance with procedures established by,
the Board of Directors at fair value.
The Board of Directors may suspend the determination of
the Fund's, net asset value (and the offering and sale of shares),
subject to the rules of the Commission and other governmental
rules and regulations, at a time when: (1) the Exchange is
closed, other than customary weekend and holiday closings, (2) an
emergency exists as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it or
to determine fairly the value of its net assets, or (3) for the
protection of shareholders, the Commission by order permits a
suspension of the right of redemption or a postponement of the
date of payment on redemption.
For purposes of determining the Fund's net asset value
per share, all assets and liabilities initially expressed in a
foreign currency will be converted into U.S. dollars at the mean
of the current bid and asked prices of such currency against the
U.S. dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class A shares, Class B
shares, Class C shares and Advisor Class shares will be invested
together in a single portfolio. The net asset value of each class
will be determined separately by subtracting the liabilities
allocated to that class from the assets belonging to that class in
conformance with the provisions of a plan adopted by the Fund in
accordance with Rule 18f-3 under the 1940 Act.
_______________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_______________________________________________________________
The Fund intends to qualify for tax treatment as a
"regulated investment company" under the Internal Revenue Code of
1986, as amended (the "Code") for each taxable year. In order to
qualify as a regulated investment company, the Fund must, among
other things, (1) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans,
71
<PAGE>
and gains from the sale or other disposition of stock or
securities, foreign currencies or other income (including gains
from options, futures or forward contracts) derived with respect
to its business of investing in stock, securities or currencies
and (2) diversify its holdings so that at the end of each quarter
of its taxable year, the following two conditions are met: (i) at
least 50% of the market value of the Fund's assets is represented
by cash or cash items, U.S. Government Securities, securities of
other regulated investment companies, and other securities
limited, in respect of any one issuer, to an amount not greater
than 5% of the value of the Fund's assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government Securities or the
securities of other regulated investment companies) or of two or
more issuers that the Fund controls and that are engaged in the
same, similar, or related trades or businesses. These
requirements may limit the range of the Fund's investments.
If the Fund qualifies as a regulated investment company,
it will not be subject to Federal income tax on the part of its
income distributed to shareholders, provided the Fund distributes
during its taxable year at least (a) 90% of its taxable net
investment income (generally, dividends, interest, certain other
income, and the excess, if any, of net short-term capital gain
over net long-term capital loss) and (b) 90% of the excess of
(i) its tax-exempt interest income less (ii) certain deductions
attributable to that income. The Fund intends to make sufficient
distributions to shareholders to meet this requirement. Investors
should consult their own counsel for a complete understanding of
the requirements the Fund must meet to qualify for such treatment.
In addition, if the Fund fails to distribute in a
calendar year substantially all of its ordinary income for such
year and substantially all of its capital gain net income for the
one-year period ending October 31, plus any retained amount from
the prior year, the Fund will be subject to a 4% excise tax on the
undistributed amounts. A dividend paid to shareholders by the
Fund in January of a year generally is deemed to have been paid by
the Fund on December 31 of the preceding year, if the dividend was
declared and payable to shareholders of record on a date in
October, November or December of that preceding year. The Fund
intends generally to make distributions sufficient to avoid
imposition of the 4% excise tax.
The information set forth in the Prospectus and the
following discussion relates solely to Federal income taxes on
dividends and distributions by the Fund and assumes that the Fund
qualifies as a regulated investment company. Investors should
consult their own counsel for further details and for the
72
<PAGE>
application of state and local tax laws to his or her particular
situation.
Dividends out of net ordinary income and distributions of
net short-term capital gains are taxable to shareholders as
ordinary income. Distributions of net capital gain designated by
the Fund as such (i.e., the excess of net long-term capital gain
over net short-term capital loss) are taxable as long-term capital
gain (generally at a 20% rate for noncorporate shareholders),
regardless of how long a shareholder has held shares in the Fund.
The investment objective of the Fund is such that only a small
portion, if any, of the Fund's distributions is expected to
qualify for the dividends-received deduction for corporate
shareholders.
Any dividend or distribution received by a shareholder on
shares of the Fund (even if received shortly after the purchase of
such shares by him or her) will have the effect of reducing the
net asset value of such shares by the amount of such dividend or
distribution. A loss on the sale of shares held for six months or
less will be treated as a long-term capital loss for Federal
income tax purposes to the extent of any distribution of net
capital gain made with respect to such shares.
Dividends and distributions are taxable in the manner
described above regardless of whether they are paid to the
shareholder in cash or are reinvested in additional shares of the
Fund.
Under current federal tax law, the Fund will receive net
investment income in the form of interest by virtue of holding
Treasury bills, notes and bonds, and will recognize interest
attributable to it under the original issue discount rules of the
Code from holding zero coupon Treasury securities. Current
federal tax law requires that a holder (such as the Fund) of a
zero coupon security accrue a portion of the discount at which the
security was purchased as income each year even though the Fund
receives no interest payment in cash on the security during the
year. Accordingly, the Fund may be required to pay out as an
income distribution each year an amount which is greater than the
total amount of cash interest the Fund actually received. Such
distributions will be made from the cash assets of the Fund or by
liquidation of portfolio securities, if necessary. If a
distribution of cash necessitates the liquidation of portfolio
securities, the Adviser will select which securities to sell. The
Fund may realize a gain or loss from such sales. In the event the
Fund realizes net capital gains from such transactions, its
shareholders may receive a larger capital gain distribution, if
any, than they would have in the absence of such transactions.
73
<PAGE>
The Fund's hedging transactions, including hedging
transactions in options, futures contracts and straddles, or other
similar transactions, including short sales against-the-box, will
subject the Fund to special tax rules (including mark-to-market,
straddle, wash sale, short sale and constructive sales rules), the
effect of which may be to accelerate income to the Fund, defer
losses to the Fund, cause adjustments in the holding periods of
the Funds securities, or convert short-term capital losses into
long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders.
The Fund will endeavor to make any available elections pertaining
to such transactions in a manner believed to be in the best
interest of the Fund.
The Fund is required to withhold and remit to the U.S.
Treasury 31% of all dividend income paid to any shareholder
account for which an incorrect or no taxpayer identification
number has been provided or where the Fund is notified that the
shareholder has under-reported income in the past (or the
shareholder fails to certify that he or she is not subject to such
withholding). In addition, the Fund will be required to withhold
and remit to the U.S. Treasury 31% of the amount of the proceeds
of any redemption of shares of a shareholder account for which an
incorrect or no taxpayer identification number has been provided.
The foregoing discussion relates only to U.S. Federal
income tax law as it affects U.S. shareholders. The effects of
Federal income tax law on non-U.S. shareholders may be
substantially different. Foreign investors should consult their
counsel for further information as to the U.S. tax consequences of
investing in the Fund.
____________________________________________________________
GENERAL INFORMATION
____________________________________________________________
Description of the Trust
The Trust is organized as a Massachusetts business trust
under the laws of The Commonwealth of Massachusetts by an
Agreement and Declaration of Trust ("Declaration of Trust") dated
March 26, 1987, a copy of which is on file with the Secretary of
State of The Commonwealth of Massachusetts. The Trust is a
"series" company as described in Rule 18f-2 under the 1940 Act,
having five separate portfolios, each of which is represented by a
separate series of shares. In addition to the Fund, the other
portfolios of the Trust are the Alliance Growth Fund, the Alliance
Strategic Balanced Fund, the Alliance Conservative Investors Fund
and the Alliance Growth Investors Fund.
74
<PAGE>
The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of each series and
of each class of shares thereof. The shares of the Fund and each
class thereof do not have any preemptive rights. Upon termination
of the Fund or any class thereof, whether pursuant to liquidation
of the Trust or otherwise, shareholders of the Fund or that class
are entitled to share pro rata in the net assets of the Fund or
that class then available for distribution to such shareholders.
The assets received by the Trust for the issue or sale of
the Class A, Class B, Class C and Advisor Class shares of the Fund
and all income, earnings, profits, losses and proceeds therefrom,
subject only to the rights of creditors, are allocated to, and
constitute the underlying assets of, the appropriate class of that
Fund. The underlying assets of the Fund and each class of shares
thereof are segregated and are charged with the expenses with
respect to the Fund and that class and with a share of the general
expenses of the Trust. While the expenses of the Trust are
allocated to the separate books of account of each series and each
class of shares thereof, certain expenses may be legally
chargeable against the assets of all series or a particular class
of shares thereof.
The Declaration of Trust provides for the perpetual
existence of the Trust. The Trust or Fund, however, may be
terminated at any time by vote of at least a majority of the
outstanding shares of the Fund. The Declaration of Trust further
provides that the Trustees may also terminate the Trust upon
written notice to the shareholders.
Capitalization
Except as noted below under "Shareholder and Trustee
Liability", all shares of the Fund when duly issued will be fully
paid and non-assessable.
Set forth below is certain information as to all persons
who owned of record or beneficially 5% or more of any class of the
Fund's outstanding shares at October 9, 1998:
Names and Addresses % of Class
Class A
MLPF&S 118,899 17.44%
For the Sole Benefit of its
Customers
Attn: Fund Admin (97B72)
4800 Deer Lake Drive East 2nd Floor
Jacksonville, FL 3224606484
75
<PAGE>
Alliance Plans Div/FTC 45,561 6.68%
C/F Albert AC Noakes IRA R/O
Heatherside-Heather Way
Storrington
West Sussex RH20 4DD
United Kingdom
Interra Clearing Services FBO 49,123 7.21%
Ruth Sandler
Adele Rothenstein
JT TEN/WROS
100 Oxford #902
Interra Clearing Services FBO 45,434 6.67%
Pearl Lewis
Harvey Rothenstein
JTTEN TEN/WROS
2610 Timothy Dr.
Export, PA 15632-2623
Class B
MLPF&S 1,220,660 66.53%
For the Sole Benefit of its
Customers
Attn: Fund Admin (97B72)
4800 Deer Lake Drive East 2nd Floor
Jacksonville, FL 32246-6484
Class C
Everen Clearing Corp. 61,612 9.31%
A/C 1551-5975
Marilyn Katherine Blake Tr.
111 East Kilbourn Avenue
Milwaukee, WI 53202-6611
Everen Clearing Corp. 36,889 5.58%
A/C 1554-9134
Todd A. Blake Tr.
111 E. Kilbourn Avenue
Milwaukee, WI 53202-6611
Voting Rights
As summarized in the Prospectus, shareholders are
entitled to one vote for each full share held (with fractional
votes for fractional shares held) and will vote (to the extent
provided herein) in the election of Trustees and the termination
of the Trust or the Fund and on other matters submitted to the
vote of shareholders.
76
<PAGE>
The By-Laws of the Trust provide that the shareholders of
any particular series or class shall not be entitled to vote on
any matters as to which such series or class is not affected.
Except with respect to matters as to which the Trustees have
determined that only the interests of one or more particular
series or classes are affected or as required by law, all of the
shares of each series or class shall, on matters as to which such
series or class is entitled to vote, vote with other series or
classes so entitled as a single class. Notwithstanding the
foregoing, with respect to matters which would otherwise be voted
on by two or more series or classes as a single class, the
Trustees may, in their sole discretion, submit such matters to the
shareholders of any or all such series or classes, separately.
Rule 18f-2 under the 1940 Act provides in effect that a series
shall be deemed to be affected by a matter unless it is clear that
the interests of each series in the matter are substantially
identical or that the matter does not affect any interest of such
series. Although not governed by Rule 18f-2, shares of each class
of the Fund will vote separately with respect to matters
pertaining to the respective Distribution Plans applicable to each
class.
The terms "shareholder approval" and "majority of the
outstanding voting securities" as used in the Prospectus and this
Statement of Additional Information mean the lesser of (i) 67% or
more of the shares of the applicable Fund or the applicable class
thereof represented at a meeting at which more than 50% of the
outstanding shares of the Fund or such class are represented or
(ii) more than 50% of the outstanding shares of the Fund or such
class.
There will normally be no meetings of shareholders for
the purpose of electing Trustees, except that in accordance with
the 1940 Act (i) the Trust will hold a shareholders' meeting for
the election of Trustees at such time as less than a majority of
the Trustees holding office have been elected by shareholders, and
(ii) if, as a result of a vacancy on the Board of Trustees, less
than two-thirds of the Trustees holding office have been elected
by the shareholders, that vacancy may only be filled by a vote of
the shareholders. The Fund's shares have non-cumulative voting
rights, which means that the holders of more than 50% of the
shares voting for the election of Trustees can elect 100% of the
Trustees if they choose to do so, and in such event the holders of
the remaining less than 50% of the shares voting for such election
of Trustees will not be able to elect any person or persons to the
Board of Trustees. A special meeting of shareholders for any
purpose may be called by 10% of the Trust's outstanding
shareholders.
Except as set forth above, the Trustees shall continue to
hold office and may appoint successor Trustees.
77
<PAGE>
No amendment may be made to the Declaration of Trust
without the affirmative vote of a majority of the outstanding
shares of the Trust except (i) to change the Trust's name, (ii) to
establish, change or eliminate the par value of shares or (iii) to
supply any omission, cure any ambiguity or cure, correct or
supplement any defective or inconsistent provision contained in
the Declaration of Trust.
Shareholder and Trustee Liability
Under Massachusetts law shareholders could, under certain
circumstances, be held personally liable for the obligations of
the Trust. However, the Declaration of Trust disclaims
shareholder liability for acts or obligations of the Trust and
requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by
the Trust or the Trustees. The Declaration of Trust provides for
indemnification out of the Fund's property for all loss and
expense of any shareholder of the Fund held liable on account of
being or having been a shareholder. Thus, the risk of a
shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund of which
he or she was a shareholder would be unable to meet its
obligations.
The Declaration of Trust further provides that the
Trustees will not be liable for errors of judgment or mistakes of
fact or law. However, nothing in the Declaration of Trust
protects a Trustee against any liability to which the Trustee
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his or her office. The By-Laws of the
Trust provide for indemnification by the Trust of the Trustees and
the officers of the Trust but no such person may be indemnified
against any liability to the Trust or the Trust's shareholders to
which he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office.
Counsel
Legal matters in connection with the issuance of the
shares of the Fund offered hereby are passed upon by Ropes & Gray,
One International Place, Boston, Massachusetts 02110.
Independent Accountants
The financial statements of the Fund for the fiscal year
ended August 31, 1998 which are included in this Statement of
Additional Information, have been audited by
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York,
78
<PAGE>
New York 10036, the Trust's independent accountantsand have been
so included in reliance upon such report given upon the authority
of that firm as experts in accounting and auditing.
Total Return and Yield Quotations
From time to time, the Fund advertises its "total
return". Total return is computed separately for Class A,
Class B, Class C and Advisor Class shares. Such advertisements
disclose the Fund's average annual compounded total return for
recent one-, five- and ten-year periods (or the life of the Fund
or class, if shorter). Total return for each such period is
computed by finding, through the use of a formula prescribed by
the SEC, the average annual compounded rate of return over such
period that would equate an assumed initial amount invested to the
value of such investment at the end of the period. For purposes
of computing total return, income dividends and capital gains
distributions paid on shares of the Fund are assumed to have been
reinvested when received and the maximum sales charge applicable
to purchases of Fund shares is assumed to have been paid.
From time to time, the Fund may advertise the "yield" or
"actual distribution rate" of each class of shares. Yield for any
30-day (or one month) period is computed by dividing the net
investment income per share earned during such period by the
maximum public offering price per share on the last day of the
period, and then annualizing such 30-day (or one month) yield in
accordance with a formula prescribed by the SEC which provides for
compounding on a semi-annual basis. "Actual distribution rate,"
which may be advertised in items of sales literature, is computed
in the same manner as yield except that actual income dividends
declared per share during the period in question is substituted
for net investment income per share.
The yield of Class A shares of the Short-Term U.S.
Government Fund was 4.85% for the 30-day period ended August 31,
1998. The yield of Class B shares of the Short-Term U.S.
Government Fund was 4.29% for the 30-day period ended August 31,
1998. The yield of Class C shares of the Short-Term U.S.
Government Fund was 4.28% for the 30-day period ended August 31,
1998.
The average annual compounded total return for Class A
shares of the Fund was (4.04)% for the one-year period ended
August 31, 1998, 3.55% for the five-year period ended August 31,
1998, and 4.47% for the period May 4, 1992 (commencement of
distribution of Class A shares) through August 31, 1998. The
average annual compounded total return for Class B shares of the
Fund was 3.52% for the one-year period ended August 31, 1998,
2.86% for the five-year period ended August 31, 1998, and 3.79%
for the period May 4, 1992 (commencement of distribution of
79
<PAGE>
Class B shares) through August 31, 1998. The average annual
compounded total return for Class C shares of the Fund was 3.53%
for the one-year period ended August 31, 1998, 2.85% for the five
year period ended August 31, 1998, and 2.91% for the period
August 2, 1993 (commencement of distribution of Class C shares)
through August 31, 1998.
The Fund's total return is not fixed and will fluctuate
in response to prevailing market conditions or as a function of
the type and quality of the securities in the Funds portfolio and
the Fund's expenses. Total return information is useful in
reviewing the Fund's performance but such information may not
provide a basis for comparison with bank deposits or other
investments which pay a fixed return for a stated period of time.
An investor's principal invested in the Fund is not fixed and will
fluctuate in response to prevailing market conditions.
Advertisements quoting performance rankings of a Fund as
measured by financial publications or by independent organizations
such as Lipper Analytical Services, Inc. and Morningstar, Inc.,
and advertisements presenting the historical performance of such
Fund, may also from time to time be sent to investors or placed in
newspapers and magazines, such as The New York Times, The Wall
Street Journal, Barron's, Investor's Daily, Money Magazine,
Changing Times, Business Week and Forbes or other media on behalf
of such Fund.
Additional Information
This Statement of Additional Information does not contain
all the information set forth in the Registration Statement filed
by the Trust with the SEC under the Securities Act of 1933.
Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge,
at the offices of the SEC in Washington, D.C.
80
<PAGE>
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
ANNUAL REPORT
AUGUST 31, 1998
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1998 ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------------
MORTGAGE-RELATED SECURITIES-75.3%
COLLATERALIZED MORTGAGE OBLIGATIONS-40.6%
FIXED RATE-24.6%
CMC Securities Corp.
Series 1993-E Cl. ES4
5.75%, 11/25/08 $ 60 $ 60,265
Countrywide Funding Corp.
Series 1994-9 Cl. A2
6.50%, 5/25/24 565 564,450
Federal Home Loan Mortgage Corp.
Series 1903 Cl. B
6.75%, 10/15/03 600 599,628
Series 1923 Cl. B
7.00%, 1/15/23 600 604,500
Series 2072 Cl. CA
7.50%, 10/15/27 494 500,468
Federal National Mortgage Association
Series 1996-68 Cl. B
6.50%, 5/18/17 449 451,255
Series 1997-53 Cl. PA
6.50%, 10/18/15 500 500,940
Series 1997-24 Cl. C
7.00%, 9/18/22 414 416,714
Series 1997-42 Cl. EA
7.25%, 3/18/26 520 526,141
Government National Mortgage Association
Series 1996-25 Cl. A
7.50%, 7/20/17 407 407,200
ICI Funding Corp.
Series 1997-1 Cl. A2
9.00%, 3/25/28 345 348,496
Series 1997-2 Cl. 1A9
9.50%, 7/25/28 198 200,514
Residential Funding Mortgage
Securities Co.
Series 1992-S31 Cl. A4
7.50%, 9/25/06 86 85,413
------------
5,265,984
ADJUSTABLE RATE-16.0%
Bear Stearns Mortgage Securities, Inc.
Series 1996-8 Cl. A7
6.19%, 11/25/27 (a) 88 88,039
Commercial Loan Funding Trust
Series I Cl. A
5.89%, 8/15/05 (a) (b) 163 163,261
Federal Home Loan Mortgage Corp.
Series 1928 Cl. F
6.13%, 12/15/24 (a) 363 364,465
Federal National Mortgage Association
Series 1993-639 Cl. F
6.04%, 8/25/16 (a) 479 481,562
Series 1992-204 Cl. FA
6.44%, 10/25/22 (a) 535 545,711
Imperial CMB Trust
Series 1997-2 Cl. M1
6.19%, 12/25/27 (a) 497 496,693
Prudential Securities Financial Asset
Funding Corp.
Series 1993-7 Cl. A2
7.65%, 2/26/23 (a) 600 612,936
Salomon Brothers Mortgage
Securities VII, Inc.
Series 1996-AFF1 Cl. A1
6.16%, 1/25/26 (a) 360 360,529
Sears Mortgage Securities
Corp.
Series 1992-16B Cl. A2
6.71%, 9/25/22 (a) 324 326,031
------------
3,439,227
5
PORTFOLIO OF INVESTMENTS (CONTINUED)
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations
(cost $8,722,405) $ 8,705,211
FEDERAL NATIONAL MORTGAGE
ASSOCIATION-24.9%
5.96%, 5/01/27 (a) $ 149 151,887
7.48%, 7/01/25 (a) 1,017 1,043,087
7.50%, 12/01/99 900 925,308
7.51%, 1/01/27 (a) 184 186,233
7.58%, 6/01/26 (a) 360 368,174
7.60%, 9/01/27 (a) 327 333,917
7.64%, 11/01/26 (a) 400 409,329
8.00%, 10/01/99-12/01/99 865 886,706
12.00%, 3/01/13-5/01/15 899 1,035,189
Total Federal National Mortgage
Association
(cost $5,332,328) 5,339,830
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION-5.6%
6.88%, 4/20/23 (a) 484 493,579
7.00%, 11/20/26-12/20/26 (a) 681 691,147
Total Government National Mortgage
Association
(cost $1,187,032) 1,184,726
FEDERAL HOME LOAN MORTGAGE CORP.-4.2%
7.87%, 2/01/26 (a) 710 724,670
12.00%, 2/01/14 153 175,733
Total Federal Home Loan Mortgage Corp.
(cost $910,371) 900,403
Total Mortgage-Related Securities
(cost $16,152,136) 16,130,170
ASSET BACKED SECURITIES-9.6%
Access Financial Mortgage Loan Trust
Series 1997-3 Cl. A7
5.89%, 10/18/27 (a) 405 405,459
Advanta Credit Card Master Trust
Series 1996-C Cl. A
5.81%, 11/15/03 (a) 350 349,888
AFC Mortgage Loan Trust
Series 1998-2 Cl. 1A
5.75%, 7/25/28 (a) 391 390,912
Countrywide Home Equity Loan Trust
Series 1998-Cl. CTFS
5.83%, 10/15/24 (a) 400 400,000
Equicon Home Equity Loan Trust
Mortgage Loan
Series 1994-2 Cl. A7
6.24%, 11/18/25 (a) 293 292,711
ITT Federal Bank, fsb
Series 1994-P1 Cl. A1
7.68%, 6/25/24 (a) (b) 224 226,400
Total Asset Backed Securities
(cost $2,067,331) 2,065,370
REPURCHASE AGREEMENTS-15.5%
Goldman, Sachs & Co.
5.81%, dated 8/31/98,
$400,065 due 9/01/98,
collateralized by
$423,000 FGLMC,
7.00%, 2/01/28 400 400,000
PaineWebber, Inc.
5.70%, dated 8/31/98,
$975,154 due 9/01/98,
collateralized by
$983,000 FNMA,
6.50%, 8/01/13 975 975,000
6
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------------
Prudential Securities, Inc.
5.83%, dated 8/31/98,
$975,158 due 9/01/98,
collateralized by
$985,000 FHLM,
6.25%, 12/15/22 $ 975 $ 975,000
State Street Bank and Trust Co.
5.82%, dated 8/31/98,
$975,158 due 9/01/98,
collateralized by
$980,000 FNMA,
5.96%, 11/16/99 975 975,000
Total Repurchase Agreements
(cost $3,325,000) 3,325,000
TOTAL INVESTMENTS-100.4%
(cost $21,544,467) 21,520,540
Other assets less liabilities-(0.4%) (84,673)
NET ASSETS-100% $ 21,435,867
(a) Adjustable rate mortgages; stated interest rate in effect at August 31,
1998.
(b) Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At August 31, 1998,
these securities amounted to $389,661 or 1.8% of net assets.
See notes to financial statements.
7
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1998 ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $18,219,467) $ 18,195,540
Repurchase agreements (cost $3,325,000) 3,325,000
Cash 14,285
Receivable for shares of beneficial interest sold 1,739,336
Receivable for investment securities sold 1,217,912
Interest receivable 326,887
Receivable due from Adviser 36,875
Total assets 24,855,835
LIABILITIES
Payable for investment securities purchased 3,237,982
Payable for shares of beneficial interest redeemed 63,727
Dividends payable 27,533
Distribution fee payable 11,197
Accrued expenses 79,529
Total liabilities 3,419,968
NET ASSETS $ 21,435,867
COMPOSITION OF NET ASSETS
Shares of beneficial interest, at par $ 22
Additional paid-in capital 22,259,136
Distributions in excess of net investment income (42,209)
Accumulated net realized loss on investment transactions (750,635)
Net unrealized depreciation of investments and other assets (30,447)
$ 21,435,867
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($5,534,521/583,743 shares of beneficial interest
issued and outstanding) $9.48
Sales charge--4.25% of public offering price .42
Maximum offering price $9.90
CLASS B SHARES
Net asset value and offering price per share
($10,827,357/1,125,064 shares of beneficial interest
issued and outstanding) $9.62
CLASS C SHARES
Net asset value and offering price per share
($5,073,989/528,056 shares of beneficial interest
issued and outstanding) $9.61
See notes to financial statements.
8
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1998 ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
INVESTMENT INCOME
Interest $ 1,131,931
EXPENSES
Advisory fee $ 89,353
Distribution fee - Class A 15,938
Distribution fee - Class B 64,165
Distribution fee - Class C 45,169
Custodian 95,580
Audit and legal 37,999
Transfer agency 35,846
Registration 35,722
Printing 29,028
Trustees' fees 23,284
Miscellaneous 1,433
Total expenses 473,517
Less: expenses waived and reimbursed
by Adviser (See Note B) (167,832)
Less: expense offset arrangement (See Note B) (1,705)
Net expenses 303,980
Interest expense 71,757
Total expenses including interest expense 375,737
Net investment income 756,194
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investment transactions (133,830)
Net change in unrealized depreciation of
investments and other assets (28,689)
Net loss on investments (162,519)
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 593,675
See notes to financial statements.
9
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1998 1997
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 756,194 $ 712,010
Net realized gain (loss) on investment
transactions (133,830) 41,888
Net change in unrealized depreciation of
investments and other assets (28,689) 5,742
Net increase in net assets from operations 593,675 759,640
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (274,620) (175,837)
Class B (281,947) (293,780)
Class C (199,627) (234,511)
Tax return of capital
Class A (18,747) (25,833)
Class B (19,247) (43,161)
Class C (13,628) (34,454)
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Net increase 6,278,281 333,768
Total increase 6,064,140 285,832
NET ASSETS
Beginning of year 15,371,727 15,085,895
End of year $ 21,435,867 $ 15,371,727
See notes to financial statements.
10
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1998 ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Short-Term U.S. Government Fund (the "Fund"), a series of The Alliance
Portfolios (the "Trust"), organized as a Massachusetts Business Trust on March
29, 1987, is registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The Fund offers Class A,
Class B and Class C shares. Class A shares are sold with a front-end sales
charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to
purchases of $1,000,000 or more, Class A shares redeemed within one year of
purchase will be subject to a contingent deferred sales charge of 1%. Class B
shares are currently sold with a contingent deferred sales charge which
declines from 3% to zero depending on the period of time the shares are held.
Class B shares will automatically convert to Class A shares six years after the
end of the calendar month of purchase. Class C shares are subject to a
contingent deferred sales charge of 1% on redemptions made within the first
year after purchase. All three classes of shares have identical voting,
dividend, liquidation and other rights, except that each class bears different
distribution expenses and has exclusive voting rights with respect to its
distribution plan. The financial statements have been prepared in conformity
with generally accepted accounting principles which require management to make
certain estimates and assumptions that affect the reported amounts of assets
and liabilities in the financial statements and amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange are valued at the
last sale price on such exchange on the day of valuation or, if there was no
sale on such day, the mean of the bid and asked prices on that day's closing.
Securities traded on the over-the-counter market are valued at the mean of the
current bid and asked prices reported by NASDAQ, the National Quotation Bureau
or other comparable sources deemed appropriate to reflect the fair market value
thereof. U.S. government securities and other debt securities which mature in
60 days or less are valued at amortized cost unless this method does not
represent fair value. Securities for which market quotations are not readily
available are valued at fair value as determined in good faith by the Trustees.
Fixed income securities may be valued on the basis of prices provided by a
pricing service when such prices are believed to reflect the fair market value
of such securities.
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 INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date securities are purchased or sold. The Fund accretes discount as an
adjustment to interest income. Investment gains and losses are determined on
the identified cost basis.
4. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each settled class of shares, based on the proportionate interest in
the Fund represented by the shares of such class, except that the Fund's Class
B and Class C shares bear higher distribution fees and, in the case of Class B
shares, higher transfer agent fees than Class A. Expenses of the Trust are
charged to each Fund in proportion to settled shares.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Income dividends and capital gains distributions are determined in accordance
with federal tax regulations and may differ from those determined in accordance
with generally accepted accounting principles. To the extent these differences
are permanent, such amounts are reclassified within the capital accounts based
on their federal tax basis treatment; temporary differences, do not require
such reclassification. During the current fiscal year, permanent differences,
primarily due to a tax return of capital resulted in a net decrease in
distributions in excess of net investment income and a corresponding decrease
in additional paid-in capital. This reclassification had no effect on net
assets.
11
NOTES TO FINANCIAL STATEMENTS (CONT.)
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
6. REPURCHASE AGREEMENT
The Fund's custodian takes possession of collateral pledged for investments in
repurchase agreements, the market value of which is required to be at least
102% of the resale amount at the time of purchase. The value of the collateral
is marked-to-market on a daily basis and additional collateral is requested
from the counterparty, as necessary, to ensure that its value is at least equal
at all times to the total amount of the repurchase obligation, including
interest. If the seller defaults and the value of the collateral declines or if
bankruptcy proceedings commence with the respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
NOTE B: ADVISORY FEE 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 an annual rate of
.55 of 1% of the Fund's average daily net assets. Such fee is accrued daily and
paid monthly. The Adviser has agreed to voluntarily waive its fees and bear
certain expenses so that total operating expenses do not exceed on an annual
basis 1.40%, 2.10% and 2.10% of the daily average net assets for the Class A,
Class B and Class C shares, respectively. For the year ended August 31, 1998,
the Adviser waived all advisory fees and bore additional operating expenses in
the amount of $167,832.
The Fund compensates Alliance Fund Services, Inc., a wholly-owned subsidiary of
the Adviser, under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such compensation
amounted to $20,680 for the year ended August 31, 1998.
In addition, for the year ended August 31, 1998, the Fund's expenses were
reduced by $1,705 under an expense offset arrangement with Alliance Fund
Services. Transfer agency fees reported in the statement of operations exclude
these credits.
Alliance Fund Distributors, Inc., (the "Distributor"), a wholly-owned
subsidiary of the Adviser, serves as the Distributor of the Fund's shares. The
Distributor received $18,771, and $2,286 in contingent deferred sales charges
imposed upon redemptions by shareholders of Class B and Class C shares,
respectively, for the year ended August 31, 1998.
Accrued expenses includes $14,676 owed to a Trustee under the Trust's deferred
compensation plan.
NOTE C: DISTRIBUTION PLANS
The Trust has adopted a plan of distribution for each class of shares of the
Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940 (each a
"Plan" and collectively the "Plans"). Under the Plans, the Fund pays a
distribution fee to the Distributor at an annual rate of up to .50 of 1% of the
Fund's average daily net assets attributable to Class A shares and 1% of the
average daily net assets attributable to both Class B and Class C shares. The
Trustees currently limit payments under the Class A plan to .30 of 1% of the
Fund's aggregate average daily net assets attributable to Class A shares. The
Plan provides that the Distributor will use such payments in their entirety for
distribution assistance and promotional activites.
The Fund is not obligated under the Plans to pay any distribution services fee
in excess of the amounts set forth above. The purpose of the payments to the
Distributor under the Plans is to compensate the Distributor for its
distribution services with respect to the sale of the Fund's shares. Since the
Distributor's compensation is not directly tied to its expenses, the amount of
compensation received by it under the Plan during any year may be more or less
than its actual expenses. For this reason, the Plans are characterized by the
staff of the Securities and Exchange Commission as being of the "compensation"
variety.
In the event that a Plan is terminated or not continued, no distribution
services fees (other than current amounts accrued but not yet paid) would be
owed by the Fund to the Distributor with respect to the relevant class.
The Plans also provide that the Adviser may use its own resources to finance
the distribution of the Fund's shares.
12
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $6,391,721 and $5,516,964,
respectively, for the year ended August 31, 1998. There were purchases of
$35,676,646 and sales of $30,455,402 of U.S. government and government agency
obligations for the year ended August 31, 1998.
At August 31, 1998, the cost of investments for federal income tax purposes was
the same as the cost for financial reporting purposes. Accordingly, gross
unrealized appreciation of investments was $28,566 and gross unrealized
depreciation of investments was $52,493 resulting in net unrealized
depreciation of $23,927.
At August 31, 1998, the Fund had net capital loss carryforward of $631,135 of
which $44,110 expires in the fiscal year ending 2001, $36,136 expires in the
fiscal year ending 2002, $522,417 expires in the fiscal year ending 2003,
$14,141 expires in the fiscal year ending 2004 and $14,331 expires in the
fiscal year ending 2006 to the extent provided by the regulations. To the
extent that this loss carryforward is used to offset future capital gains, it
is probable that the gains so offset will not be distributed to shareholders.
Capital losses incurred after October 31, within the Fund's fiscal year are
deemed to arise on the first business day of the following fiscal year. The
Fund incurred and elected to defer post October losses of $119,499 for the year
ended August 31, 1998.
NOTE E: SHARES OF BENEFICIAL INTEREST
There are an unlimited number of $0.00001 par value shares of beneficial
interest authorized, divided into three classes, designated Class A, Class B
and Class C shares. Transactions in shares of beneficial interest were as
follows:
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1998 1997 1998 1997
------------ ------------ -------------- --------------
CLASS A
Shares sold 2,479,220 271,217 $ 23,780,868 $ 2,618,771
Shares issued in
reinvestment of
dividends 19,158 15,376 183,032 148,473
Shares converted
from Class B 28,866 16,392 275,890 158,206
Shares redeemed (2,348,787) (255,414) (22,525,423) (2,466,879)
Net increase 178,457 47,571 $ 1,714,367 $ 458,571
CLASS B
Shares sold 1,141,000 658,962 $ 11,027,623 $ 6,439,331
Shares issued in
reinvestment of
dividends 22,555 24,392 218,460 238,244
Shares converted
to Class A (28,483) (16,203) (275,890) (158,206)
Shares redeemed (673,074) (698,307) (6,524,245) (6,822,354)
Net increase
(decrease) 461,998 (31,156) $ 4,445,948 $ (302,985)
CLASS C
Shares sold 408,212 434,159 $ 3,945,097 $ 4,238,239
Shares issued in
reinvestment of
dividends 19,127 18,955 185,026 184,964
Shares redeemed (414,401) (435,115) (4,012,157) (4,245,021)
Net increase 12,938 17,999 $ 117,966 $ 178,182
13
NOTES TO FINANCIAL STATEMENTS (CONT.)
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
NOTE F: REVERSE REPURCHASE AGREEMENTS
Under a reverse repurchase agreement, the Fund sells securities and agrees to
repurchase them at a mutually agreed upon date and price. At the time the Fund
enters into a reverse repurchase agreement, it will establish a segregated
account with the custodian containing cash, cash equivalents or liquid
high-grade debt securities having a value at least equal to the repurchase
price. As of August 31, 1998, the Fund had no reverse repurchase agreements
outstanding. For the year ended August 31, 1998, the maximum amount of reverse
repurchase agreements was $3,363,000, the average amount outstanding was
approximately $1,087,446, and the daily weighted average interest rate was
5.488%.
NOTE G: BANK BORROWING
A number of open-end mutual funds managed by the Adviser, including the Fund,
participate in a $750 million revolving credit facility (the "Facility") to
provide short-term financing if necessary, subject to certain restrictions in
connection with abnormal redemption activity. Commitment fees related to the
Facility are paid by the participating funds and are included in the
miscellaneous expenses in the statement of operations. The Fund did not utilize
the Facility during the year ended August 31, 1998.
14
FINANCIAL HIGHLIGHTS ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------
MAY 1, 1994
YEAR ENDED AUGUST 31, THROUGH YEAR ENDED
-------------------------------------------------- AUGUST 31, APRIL 30,
1998 1997 1996 1995 1994(A) 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.63 $ 9.66 $ 9.70 $ 9.67 $ 9.77 $10.22
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .49(c) .47(c) .47 .42 .14 .35
Net realized and unrealized gain (loss)
on investment transactions (.11) .03 (.02) .05 (.09) (.29)
Net increase in net asset
value from operations .38 .50 .45 .47 .05 .06
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.50) (.46) (.49) (.41) (.12) (.42)
Dividends in excess of net investment
income -0- -0- -0- (.03) -0- (.01)
Tax return of capital (.03) (.07) -0- -0- (.03) (.08)
Distributions from net realized gains -0- -0- -0- -0- -0- -0-
Total dividends and distributions (.53) (.53) (.49) (.44) (.15) (.51)
Net asset value, end of period $ 9.48 $ 9.63 $ 9.66 $ 9.70 $ 9.67 $ 9.77
TOTAL RETURN
Total investment return based on net
asset value (d) 4.04% 5.29% 4.71% 5.14% .53% .52%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $5,535 $3,901 $3,455 $2,997 $2,272 $2,003
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 1.41%(e) 1.40% 1.40% 1.40% 1.40%(f) 1.27%
Interest expense on reverse
repurchase agreements .42% .01% .13% -0- -0- -0-
Expenses, before waivers/reimbursements 2.81% 2.42% 3.04% 3.71% 2.95%(f) 2.17%
Net investment income 5.00% 4.90% 4.85% 4.56% 3.98%(f) 4.41%
Portfolio turnover rate 206% 65% 110% 15% 144% 55%
</TABLE>
See footnotes on page 17.
15
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------------
MAY 1, 1994
YEAR ENDED AUGUST 31, THROUGH YEAR ENDED
-------------------------------------------------- AUGUST 31, APRIL 30,
1998 1997 1996 1995 1994(A) 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.74 $ 9.77 $ 9.81 $ 9.78 $ 9.88 $10.31
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .42(c) .41(c) .41 .36 .10 .40
Net realized and unrealized gain (loss)
on investment transactions (.08) .02 (.03) .04 (.07) (.39)
Net increase in net asset
value from operations .34 .43 .38 .40 .03 .01
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.43) (.39) (.42) (.34) (.11) (.35)
Dividends in excess of net investment
income -0- -0- -0- (.03) -0- (.01)
Tax return of capital (.03) (.07) -0- -0- (.02) (.08)
Distributions from net realized gains -0- -0- -0- -0- -0- -0-
Total dividends and distributions (.46) (.46) (.42) (.37) (.13) (.44)
Net asset value, end of period $ 9.62 $ 9.74 $ 9.77 $ 9.81 $ 9.78 $ 9.88
TOTAL RETURN
Total investment return based on net
asset value (d) 3.52% 4.45% 3.89% 4.32% .28% .03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $10,827 $6,458 $6,781 $6,380 $6,281 $7,184
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 2.11%(e) 2.10% 2.10% 2.10% 2.10%(f) 2.05%
Interest expense on reverse
repurchase agreements .45% .01% .13% -0- -0- -0-
Expenses, before waivers/reimbursements 3.63% 3.10% 3.74% 4.33% 3.60%(f) 3.21%
Net investment income 4.49% 4.13% 4.11% 3.82% 3.22%(f) 3.12%
Portfolio turnover rate 206% 65% 110% 15% 144% 55%
</TABLE>
See footnotes on page 17.
16
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS C
------------------------------------------------------------------------------
AUGUST 2,
MAY 1, 1994 1993(G)
YEAR ENDED AUGUST 31, THROUGH TO
-------------------------------------------------- AUGUST 31, APRIL 30,
1998 1997 1996 1995 1994(A) 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.73 $ 9.76 $ 9.80 $ 9.77 $ 9.87 $10.34
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .42(c) .41(c) .40 .34 .10 .26
Net realized and unrealized gain (loss)
on investment transactions (.08) .02 (.02) .06 (.07) (.42)
Net increase (decrease) in net asset
value from operations .34 .43 .38 .40 .03 (.16)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.43) (.39) (.42) (.34) (.11) (.25)
Dividends in excess of net investment
income -0- -0- -0- (.03) -0- (.01)
Tax return of capital (.03) (.07) -0- -0- (.02) (.05)
Total dividends and distributions (.46) (.46) (.42) (.37) (.13) (.31)
Net asset value, end of period $ 9.61 $ 9.73 $ 9.76 $ 9.80 $ 9.77 $ 9.87
TOTAL RETURN
Total investment return based on net
asset value (d) 3.53% 4.45% 3.90% 4.33% .28% (1.56)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $5,074 $5,012 $4,850 $5,180 $7,128 $8,763
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 2.11%(e) 2.10% 2.10% 2.10% 2.10%(f) 2.10%(f)
Interest expense on reverse
repurchase agreements .45% .01% .12% -0- -0- -0-
Expenses, before waivers/reimbursements 3.58% 3.09% 3.72% 4.23% 3.64%(f) 3.10%(f)
Net investment income 4.48% 4.15% 4.11% 3.80% 3.26%(f) 2.60%(f)
Portfolio turnover rate 206% 65% 110% 15% 144% 55%
</TABLE>
(a) The Fund changed its fiscal year end from April 30 to August 31.
(b) Net of fees waived and expenses reimbursed by Adviser.
(c) Based on average shares outstanding.
(d) 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. Initial sales charges or contingent
deferred sales charges are not reflected in the calculation of total investment
return. Total investment return calculated for a period of less than one year
is not annualized.
(e) Ratio reflects expenses grossed up for expense offset arrangement with the
transfer agent. For the year ended August 31, 1998, the ratio of expenses net
of waivers and reimbursements would have been 1.40%, 2.10%, and 2.10% for Class
A, Class B and Class C shares, respectively.
(f) Annualized.
(g) Commencement of distribution.
17
REPORT OF INDEPENDENT ACCOUNTANTS ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
TO THE TRUSTEES AND SHAREHOLDERS OF
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Alliance Short-Term U.S.
Government Fund (one of the portfolios of The Alliance Portfolios, hereafter
referred to as the "Fund") at August 31, 1998, 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
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at August 31, 1998 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
October 7, 1998
18
<PAGE>
______________________________________________________________
APPENDIX A:
DESCRIPTION OF CORPORATE BOND RATINGS
______________________________________________________________
Description of the bond ratings of Moody's Investors
Service, Inc. are as follows:
Aaa-- Bonds which are rated Aaa are judged to be of the
best quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edge". Interest payments
are protected by a large or by an exceptionally stable margin, and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa-- Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are
rated lower than the best bond because margins of protection may
not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat
greater than the Aaa securities.
A-- Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper-medium-
grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the
future.
Baa-- Bonds which are rated Baa are considered as medium
grade obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security appear
adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba-- Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments
may be very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
A-1
<PAGE>
B-- Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
Caa-- Bonds which are rated Caa are of poor standing.
Such issues may be in default of there may be present elements of
danger with respect to principal or interest.
Ca-- Bonds which are rated Ca represent obligations
which are speculative to a high degree. Such issues are often in
default or have other marked shortcomings.
C-- Bonds which are rated C are the lowest class of
bonds and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Moody's applies modifiers to each rating classification from Aa
through B to indicate relative ranking within its rating
categories. The modifier "1" indicates that a security ranks in
the higher end of its rating category; the modifier "2" indicates
a mid-range ranking; and the modifier "3" indicates that the issue
ranks in the lower end of its rating category.
Descriptions of the bond ratings of Standard & Poor's are
as follows:
AAA-- Debt rated AAA has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal
is extremely strong.
AA-- Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from the higher rated
issues only in small degree.
A-- 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 debt in higher rated categories.
BBB-- Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in
this category than for debt in higher rated categories.
BB, B, CCC, CC, or C -- Debt rated BB, B, CCC, CC or C
is regarded, on balance, as predominantly speculative with respect
to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. While such debt will
A-2
<PAGE>
likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to
adverse debt conditions.
C1-- The rating C1 is reserved for income bonds on which
no interest is being paid.
D-- Debt rated D is in default and payment of interest
and/or repayment of principal is in arrears.
The ratings from AAA to CC may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within the
major rating categories.
A-3
00250184.BB9
<PAGE>
______________________________________________________________
APPENDIX B:
CERTAIN EMPLOYEE BENEFIT PLANS
______________________________________________________________
Employee benefit plans described below which are intended to
be tax-qualified under section 401(a) of the Internal Revenue
Code of 1986, as amended ("Tax Qualified Plans"), for which
Merrill Lynch, Pierce, Fenner & Smith Incorporated or an
affiliate thereof ("Merrill Lynch") is recordkeeper (or with
respect to which recordkeeping services are provided pursuant to
certain arrangements as described in paragraph (ii) below)
("Merrill Lynch Plans") are subject to specific requirements as
to the Fund shares which they may purchase. Notwithstanding
anything to the contrary contained elsewhere in this Statement of
Additional Information, the following Merrill Lynch Plans are not
eligible to purchase Class A shares and are eligible to purchase
Class B shares of the Fund at net asset value without being
subject to a contingent deferred sales charge:
(i) Plans for which Merrill Lynch is the recordkeeper on a
daily valuation basis, if when the plan is established
as an active plan on Merrill Lynch's recordkeeping
system:
(a) the plan is one which is not already
investing in shares of mutual funds or
interests in other commingled investment
vehicles of which Merrill Lynch Asset
Management, L.P. is investment adviser or
manager ("MLAM Funds"), and either (A) the
aggregate assets of the plan are less than
$3 million or (B) the total of the sum of
(x) the employees eligible to participate in
the plan and (y) those persons, not
including any such employees, for whom a
plan account having a balance therein is
maintained, is less than 500, each of (A)
and (B) to be determined by Merrill Lynch in
the normal course prior to the date the plan
is established as an active plan on Merrill
Lynch's recordkeeping system (an "Active
Plan"); or
(b) the plan is one which is already investing
in shares of or interests in MLAM Funds and
the assets of the plan have an aggregate
value of less than $5 million, as determined
B-1
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by Merrill Lynch as of the date the plan
becomes an Active Plan.
For purposes of applying (a) and (b), there
are to be aggregated all assets of any Tax-
Qualified Plan maintained by the sponsor of
the Merrill Lynch Plan (or any of the
sponsor's affiliates) (determined to be such
by Merrill Lynch) which are being invested
in shares of or interests in MLAM Funds,
Alliance Mutual Funds or other mutual funds
made available pursuant to an agreement
between Merrill Lynch and the principal
underwriter thereof (or one of its
affiliates) and which are being held in a
Merrill Lynch account.
(ii) Plans for which the recordkeeper is not Merrill Lynch,
but which are recordkept on a daily valuation basis by
a recordkeeper with which Merrill Lynch has a
subcontracting or other alliance arrangement for the
performance of recordkeeping services, if the plan is
determined by Merrill Lynch to be so eligible and the
assets of the plan are less than $3 million.
Class B shares of the Fund held by any of the
above-described Merrill Lynch Plans are to be replaced at
Merrill Lynch's direction through conversion, exchange or
otherwise by Class A shares of the Fund on the earlier of
the date that the value of the plan's aggregate assets first
equals or exceeds $5 million or the date on which any Class
B share of the Fund held by the plan would convert to a
Class A share of the Fund as described under "Purchase of
Shares" and "Redemption and Repurchase of Shares."
Any Tax Qualified Plan, including any Merrill Lynch
Plan, which does not purchase Class B shares of the Fund
without being subject to a contingent deferred sales charge
under the above criteria is eligible to purchase Class B
shares subject to a contingent deferred sales charge as well
as other classes of shares of the Fund as set forth above
under "Purchase of Shares" and "Redemption and Repurchase of
Shares."
B-2
<PAGE>
C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS:
(a) Financial Statements:
For financial statements, which are part of this
Registration Statement, see "Financial Highlights" in
the Prospectuses and "Financial Statements" in the
Statements of Additional Information.
(b) Exhibits:
(1) (a) Agreement and Declaration of Trust - Incorporated
by reference to Exhibit 1(a) to Post-Effective
Amendment No. 28 of Registrant's Registration
Statement on Form N-1A (File Nos. 33-12988 and
811-05088) filed with the Securities and Exchange
Commission on January 30, 1998.
(b) Amendment No. 1 to Agreement and Declaration of
Trust of Registrant dated June 29, 1987 -
Incorporated by reference to Exhibit 1(b) to Post-
Effective Amendment No. 28 of Registrant's
Registration Statement on Form N-1A (File
Nos. 33-12988 and 811-05088) filed with the
Securities and Exchange Commission on January 30,
1998.
(c) Amendment No. 2 to Agreement and Declaration of
Trust of Registrant dated April 21, 1993 -
Incorporated by reference to Exhibit 1(c) to Post-
Effective Amendment No. 28 of Registrant's
Registration Statement on Form N-1A (File
Nos. 33-12988 and 811-05088) filed with the
Securities and Exchange Commission on January 30,
1998.
(2) (a) By-Laws - Incorporated by reference to Exhibit 2
to Post-Effective Amendment No. 26 of the
Registrant's Registration Statement on Form N-1A
(File Nos. 33-12988 and 811-05088) filed with the
Securities and Exchange Commission on August 28,
1997.
(b) Amendment to By-Laws dated October 16, 1991 -
Incorporated by reference to Exhibit 2 to Post-
Effective Amendment No. 26 to the Registrant's
Registration Statement on Form N-1A (File
Nos. 33-12988 and 811-05088) filed with the
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Securities and Exchange Commission on August 28,
1997.
(3) Not applicable.
(4) Not applicable.
(5) Investment Advisory Agreement between the Registrant
and Alliance Capital Management L.P. - Incorporated by
reference to Exhibit 5 to Post-Effective Amendment
No. 26 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-12988 and 811-05088) filed with
the Securities and Exchange Commission on August 28,
1997.
(6) (a) Distribution Services Agreement between the
Registrant and Alliance Fund Distributors, Inc.,
dated August 2, 1993, as amended through July 17,
1996 - Incorporated by reference to Exhibit 6 to
Post Effective Amendment No. 21 to the
Registrant's Registration Statement on Form N-1A
(File Nos. 33-12988 and 811-05088) filed with the
Securities and Exchange Commission on September 1,
1996.
(b) Form of Selected Dealers Agreement between
Alliance Fund Distributors, Inc. And selected
dealers offering shares of the Registrant -
Incorporated by reference to Exhibit 6 to Post
Effective Amendment No. 26 to the Registrant's
Registration Statement on Form N-1A (File
Nos. 33-12988 and 811-05088) filed with the
Securities and Exchange Commission on August 28,
1997.
(c) Form of Selected Agents Agreement between Alliance
Fund Distributors, Inc. and selected agents making
available shares of the Registrant - Incorporated
by reference to Exhibit 6 to Post Effective
Amendment No. 26 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-12988 and
811-05088) filed with the Securities and Exchange
Commission on August 28, 1997.
(7) Not applicable.
(8) Custodian Agreement between the Registrant and State
Street Bank and Trust Company dated July 25, 1988, as
amended through July 17, 1996 - Incorporated by
reference to Exhibit 6 to Post Effective Amendment
No. 21 to the Registrant's Registration Statement on
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Form N-1A (File Nos. 33-12988 and 811-05088) filed with
the Securities and Exchange Commission on September 1,
1996.
(9) (a) Transfer Agent Agreement between the Registrant
and State Street Bank and Trust Company -
Incorporated by reference to Exhibit 9 to Post-
Effective Amendment No. 17 to the Registrant's
Registration Statement on Form N-1A (File
Nos. 33-12988 and 811-05088) filed with the
Securities and Exchange Commission on August 30,
1995.
(b) Accounting Agreement between Equitable Capital
Management Corporation and State Street Bank and
Trust Company - Incorporated by reference to
Exhibit 9 to Post-Effective Amendment No. 27 to
the Registrant's Registration Statement on Form
N-1A (File Nos. 33-12988 and 811-05088) filed with
the Securities and Exchange Commission on
October 31, 1997.
(10) Opinion and Consent of Ropes & Gray - Incorporated by
reference to Exhibit 10 to Post-Effective Amendment
No. 28 of Registrant's Registration statement on Form
N-1A (File Nos. 33-12988 and 811-05088) filed with the
Securities and Exchange Commission on January 30, 1998.
(11) Consent of Independent Accountants - Filed herewith.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) Not applicable.
(16) Not applicable.
(17) Financial Data Schedule - Filed herewith.
(18) Rule 18f-3 Plan - Incorporated by reference to
Exhibit 18 to Post-Effective Amendment No. 19 to the
Registrant's Registration Statement on Form N-1A (File
Nos. 33-12988 and 811-05088) filed with the Securities
and Exchange Commission on January 31, 1996.
Other Exhibits - Powers of Attorney of John D. Carifa, Ruth
Block, Richard W. Couper, William H. Foulk, Jr., Brenton W.
Harries and Donald J. Robinson - Incorporated by reference to
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<PAGE>
Other Exhibits to Post-Effective Amendment No. 28 of Registrant's
Registration statement on Form N-1A (File Nos. 33-12988 and
811-05088) filed with the Securities and Exchange Commission on
January 30, 1998.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
As of October 9, 1998, the Registrant, The Alliance
Portfolios, believes that no person is directly or
indirectly controlled by or under common control with
the Registrant.
Item 26. NUMBER OF HOLDERS OF SECURITIES.
Not applicable.
Item 27. INDEMNIFICATION.
Paragraph (n) of Section 3, Article IV of the
Registrant's Agreement and Declaration of Trust
provides in relevant part that the Trustees of the
Trust have the power:
"(n) To purchase and pay for entirely out of
Trust property such insurance as they may deem
necessary or appropriate for the conduct of the
business, including without limitation, insurance
policies insuring the assets of the Trust and
payment of distributions and principal on its
portfolio investments, and insurance policies
insuring the Shareholders, Trustees, officers,
employees, agents, investment advisers or
managers, principal underwriters, or independent
contractors of the Trust individually against all
claims and liabilities of every nature arising by
reason of holding, being or having held any such
office or position, or by reason of any action
alleged to have been taken or omitted by any such
person as Shareholder, Trustee, officer, employee,
agent, investment adviser or manager, principal
underwriter, or independent contractor, including
any action taken or omitted that may be determined
to constitute negligence, whether or not the Trust
would have the power to indemnify such person
against such liability;"
Section 2 of Article VII of the Registrant's Agreement
and Declaration of Trust provides in relevant part:
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"Limitation of Liability
Section 2. The Trustees shall not be responsible
or liable in any event for any neglect or
wrongdoing of any officer, agent, employee,
manager or principal underwriter of the Trust, nor
shall any Trustee be responsible for the act or
omission of any other Trustee, but nothing herein
contained shall protect any Trustee against any
liability to which he or she would otherwise be
subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her
office."
Article VIII of the Registrant's Agreement and
Declaration of Trust provides in relevant part:
ARTICLE VIII
Indemnification
"Section 1. The Trust shall indemnify each of its
Trustees and officers (including persons who serve
at the Trust's request as directors, officers or
trustees of another organization in which the
Trust has any interest as a shareholder, creditor
or otherwise) (hereinafter referred to as a
"Covered Person") against all liabilities and
expenses, including but not limited to amounts
paid in satisfaction of judgments, in compromise
or as fines and penalties, and counsel fees
reasonably incurred by any Covered Person in
connection with the defense or disposition of any
action, suit or other proceeding, whether civil or
criminal, before any court or administrative or
legislative body, in which such Covered Person may
be or may have been involved as a party or
otherwise or with which such Covered Person may be
or may have been threatened, while in office or
thereafter, by reason of being or having been such
a Covered Person except with respect to any matter
as to which such Covered Person shall have been
finally adjudicated in any such action, suit or
other proceeding to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered
Person's office. Expenses, including counsel fees
so incurred by any such Covered Person (but
excluding amounts paid in satisfaction of
judgments, in compromise or as fines or
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<PAGE>
penalties), shall be paid from time to time by the
Trust in advance of the final disposition of any
such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Covered Person
to repay amounts so paid to the Trust if it is
ultimately determined that indemnification of such
expenses is not authorized under this Article,
provided, however, that either (a) such Covered
Person shall have provided appropriate security
for such undertaking, (b) the Trust shall be
insured against losses arising from any such
advance payments or (c) either a majority of the
disinterested Trustees acting on the matter
(provided that a majority of the disinterested
Trustees then in office act on the matter), or
independent legal counsel in a written opinion,
shall have determined, based upon a review of
readily available facts (as opposed to a full
trial type inquiry) that there is reason to
believe that such Covered Person will be found
entitled to indemnification under this Article.
"Section 2. As to any matter disposed of (whether
by a compromise payment, pursuant to a consent
decree or otherwise) without an adjudication by a
court, or by any other body before which the
proceeding was brought, that such Covered Person
is liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
involved in the conduct of his or her office,
indemnification shall be provided if (a) approved
as in the best interests of the Trust, after
notice that it involves such indemnification, by
at least a majority of the disinterested Trustees
acting on the matter (provided that a majority of
the disinterested Trustees then in office act on
the matter) upon a determination, based upon a
review of readily available facts (as opposed to a
full trial type inquiry) that such Covered Person
is not liable to the Trust or its Shareholders by
reason or willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
involved in the conduct of his or her office, or
(b) there has been obtained an opinion in writing
of independent legal counsel, based upon a review
of readily available facts (as opposed to a full
trial type inquiry) to the effect that such
indemnification would not protect such Person
against any liability to the Trust to which he
would otherwise be subject by reason of willful
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<PAGE>
misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the
conduct of his office. Any approval pursuant to
this Section shall not prevent the recovery from
any Covered Person in accordance with this Section
as indemnification if such Covered Person is
subsequently adjudicated by a Court of competent
jurisdiction to have been liable to the Trust or
its Shareholders by reason or willful misfeasance,
bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such
Covered Person's office.
Section 3. The right of indemnification hereby
provided shall not be exclusive of or affect any
other rights to which such Covered Person may be
entitled. As used in this Article VIII, the term
"Covered Person" shall include such person's
heirs, executors and administrators and a
"disinterested Trustee" is a Trustee who is not an
"interested person" of the Trust as defined in
Section 2(a)(19) of the Investment Company Act of
1940, as amended, (or who has been exempted from
being an "interested person" by any rule,
regulation or order of the Commission) and against
whom none of such actions, suits or other
proceedings or another action, suit or proceeding
on the same or similar grounds is then or has been
pending. Nothing contained in this Article shall
affect any rights to indemnification to which
personnel of the Trust, other than Trustees or
officers, and other persons may be entitled by
contract or otherwise under law, nor the power of
the Trust to purchase and maintain liability
insurance on behalf of any such person.
Section 2 of Article IX of the Registrant's Agreement
and Declaration of Trust provides in relevant part:
"TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO
BOND OR SURETY
Section 2. The exercise by the Trustees of their
powers and discretions hereunder shall be binding
upon everyone interested. A Trustee shall be
liable for his or her own willful misfeasance, bad
faith, gross negligence or reckless disregard of
the duties involved in the conduct of the office
of Trustee, and for nothing else, and shall not be
liable for errors of judgment or mistakes of fact
or law. The Trustees may take advice of counsel
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<PAGE>
or other experts with respect to the meaning and
operation of this Declaration of Trust, and shall
be under no liability for any act or omission in
accordance with such advice or for failing to
follow such advice. The Trustees shall not be
required to give any bond as such, nor any surety
if a bond is required."
The Investment Advisory Agreement between the
Registrant and Alliance Capital Management L.P.
provides that Alliance Capital Management L.P. will not
be liable under such agreement for any mistake of
judgment or in any event whatsoever except for lack of
good faith and that nothing therein shall be deemed to
protect, or purport to protect, Alliance Capital
Management L.P. against any liability to the Registrant
or its shareholders to which it would otherwise be
subject by reason or willful misfeasance, bad faith or
gross negligence in the performance of its duties
thereunder, or by reason or reckless disregard of its
obligations or duties thereunder.
The Distribution Services Agreement between the
Registrant and Alliance Fund Distributors, Inc.
provides that the Registrant will indemnify, defend and
hold Alliance Fund Distributors, Inc., and any person
who controls it within the meaning of Section 15 of the
Investment Company Act of 1940, free and harmless from
and against any and all claims, demands, liabilities
and expenses which Alliance Fund Distributors, Inc. or
any controlling person may incur arising out of or
based upon any alleged untrue statement of a material
fact contained in Registrant's Registration Statement,
Prospectus or Statement of Additional Information or
arising out of, or based upon, any alleged omission to
state a material fact required to be stated in any one
of the foregoing or necessary to make the statements in
any one of the foregoing not misleading, provided that
nothing therein shall be so construed as to protect
Alliance Fund Distributors, Inc. against any liability
to Registrant or its security holders to which it would
otherwise be subject by reason or willful misfeasance,
bad faith or gross negligence in the performance of its
duties thereunder, or by reason of reckless disregard
of its obligations or duties thereunder.
The foregoing summaries are qualified by the entire
text of Registrant's Agreement and Declaration of
Trust, the Advisory Agreement between the Registrant
and Alliance Capital Management L.P. and the
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<PAGE>
Distribution Services Agreement between the Registrant
and Alliance Fund Distributors, Inc.
The Registrant participates in a joint directors and
officers liability policy for the benefit of its
Trustees and officers.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 (the "Act") may be
permitted to Trustees, Officers and controlling persons
of the Trust pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed
in the Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Trust of
expenses incurred or paid by a Trustee, Officer or
controlling person of the Trust in the successful
defense of any action, suit or proceeding) is asserted
by such Trustee, Officer or controlling person in
connection with the securities being registered, the
Trust will, unless in the opinion of its counsel the
matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against
public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Item 28. BUSINESS AND OTHER CONNECTIONS OF ADVISER.
The descriptions of Alliance Capital Management L.P.
under the captions "Management of the Fund" in the
Prospectuses and in the Statements of Additional
Information constituting Parts A and B, respectively,
of this Registration Statement are incorporated by
reference herein.
The information as to the directors and executive
officers of Alliance Capital Management Corporation,
the general partner of Alliance Capital Management
L.P., set forth in Alliance Capital Management L.P.'s
Form ADV filed with the Securities and Exchange
Commission on April 21, 1988 (File No. 801-32361) and
amended through the date hereof, is incorporated by
reference herein.
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<PAGE>
Item 29. Principal Underwriters.
(a) Alliance Fund Distributors, Inc., the Registrant's
Principal Underwriter in connection with the sale of
shares of the Registrant, also acts as principal
Underwriter or Distributor for the following investment
companies:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
Alliance Capital Reserves
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Institutional Funds, Inc.
Alliance Institutional Reserves, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Money Market Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund II
Alliance Municipal Income Fund, Inc.
Alliance Municipal Trust
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust,
Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Select Investor Series Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Variable Products Series Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
The following are the Directors and Officers of
Alliance Fund Distributors, Inc., the principal place
of business of which is 1345 Avenue of the Americas,
New York, New York, 10105.
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<PAGE>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME UNDERWRITER REGISTRANT
Michael J. Laughlin Director and Chairman
John D. Carifa Director
Robert L. Errico Director and President
Geoffrey L. Hyde Director and Senior
Vice President
Dave H. Williams Director
David Conine Executive Vice President
Richard K. Saccullo Executive Vice President
Edmund P. Bergan, Jr. Senior Vice President, Secretary
General Counsel and
Secretary
Richard A. Davies Senior Vice President
Managing Director
Robert H. Joseph, Jr. Senior Vice President and
Chief Financial Officer
Anne S. Drennan Senior Vice President &
Treasurer
Karen J. Bullot Senior Vice President
James S. Comforti Senior Vice President
James L. Cronin Senior Vice President
Daniel J. Dart Senior Vice President
Byron M. Davis Senior Vice President
Mark J. Dunbar Senior Vice President
Donald N. Fritts Senior Vice President
Bradley F. Hanson Senior Vice President
Richard E. Khaleel Senior Vice President
Stephen R. Laut Senior Vice President
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Susan L. Matteson-King Senior Vice President
Daniel D. McGinley Senior Vice President
Ryne A. Nishimi Senior Vice President
Antonios G. Poleondakis Senior Vice President
Robert E. Powers Senior Vice President
Raymond S. Sclafani Senior Vice President
Gregory K. Shannahan Senior Vice President
Joseph F. Sumanski Senior Vice President
Peter J. Szabo Senior Vice President
Nicholas K. Willett Senior Vice President
Richard A. Winge Senior Vice President
Gerard J. Friscia Vice President &
Controller
Jamie A. Atkinson Vice President
Benji A. Baer Vice President
Kenneth F. Barkoff Vice President
Casimir F. Bolanowski Vice President
Michael E. Brannan Vice President
Timothy W. Call Vice President
Kevin T. Cannon Vice President
John R. Carl Vice President
William W. Collins, Jr. Vice President
Leo H. Cook Vice President
Richard W. Dabney Vice President
Stephen J. Demetrovits Vice President
John F. Dolan Vice President
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John C. Endahl Vice President
Sohaila S. Farsheed Vice President
Shawn C. Gage Vice President
Andrew L. Gangolf Vice President and Assistant
Assistant General Secretary
Counsel
Mark D. Gersten Vice President Treasurer
and Chief
Financial
Officer
Joseph W. Gibson Vice President
John Grambone Vice President
George C. Grant Vice President
Charles M. Greenberg Vice President
Alan Halfenger Vice President
William B. Hanigan Vice President
Scott F. Heyer Vice President
George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
Scott Hutton Vice President
Richard D. Keppler Vice President
Gwenn M. Kessler Vice President
Donna M. Lamback Vice President
Henry Michael Lesmeister Vice President
James M. Liptrot Vice President
James P. Luisi Vice President
Jerry W. Lynn Vice President
Christopher J. MacDonald Vice President
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Michael F. Mahoney Vice President
Shawn P. McClain Vice President
Jeffrey P. Mellas Vice President
Thomas F. Monnerat Vice President
Christopher W. Moore Vice President
Timothy S. Mulloy Vice President
Joanna D. Murray Vice President
Nicole Nolan-Koester Vice President
John C. O'Connell Vice President
John J. O'Connor Vice President
James J. Posch Vice President
Domenick Pugliese Vice President and Assistant
Assistant General Secretary
Counsel
Bruce W. Reitz Vice President
Karen C. Satterberg Vice President
John P. Schmidt Vice President
Robert C. Schultz Vice President
Richard J. Sidell Vice President
Teris A. Sinclair Vice President
Scott C. Sipple Vice President
Elizabeth Smith Vice President
Martine H. Stansbery, Jr. Vice President
Andrew D. Strauss Vice President
Michael J. Tobin Vice President
Joseph T. Tocyloski Vice President
Thomas J. Vaughn Vice President
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Martha D. Volcker Vice President
Patrick E. Walsh Vice President
Mark E. Westmoreland Vice President
William C. White Vice President
David E. Willis Vice President
Emilie D. Wrapp Vice President and Assistant
Assistant General Secretary
Counsel
Patrick Look Assistant Vice President
& Assistant Treasurer
Michael W. Alexander Assistant Vice President
Richard J. Appaluccio Assistant Vice President
Charles M. Barrett Assistant Vice President
Robert F. Brendli Assistant Vice President
Maria L. Carreras Assistant Vice President
John P. Chase Assistant Vice President
Russell R. Corby Assistant Vice President
Jean A. Cronin Assistant Vice President
John W. Cronin Assistant Vice President
Terri J. Daly Assistant Vice President
Ralph A. DiMeglio Assistant Vice President
Faith C. Deutsch Assistant Vice President
John E. English Assistant Vice President
Duff C. Ferguson Assistant Vice President
James J. Hill Assistant Vice President
Theresa Iosca Assistant Vice President
Erik A. Jorgensen Assistant Vice President
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Eric G. Kalender Assistant Vice President
Edward W. Kelly Assistant Vice President
Michael Laino Assistant Vice President
Nicholas J. Lapi Assistant Vice President
Kristine J. Luisi Assistant Vice President
Kathryn Austin Masters Assistant Vice President
Richard F. Meier Assistant Vice President
Mary K. Moore Assistant Vice President
Richard J. Olszewski Assistant Vice President
Catherine N. Peterson Assistant Vice President
Rizwan A. Raja Assistant Vice President
Carol H. Rappa Assistant Vice President
Clara Sierra Assistant Vice President
Gayle S. Stamer Assistant Vice President
Eileen Stauber Assistant Vice President
Vincent T. Strangio Assistant Vice President
Marie R. Vogel Assistant Vice President
Wesley S. Williams Assistant Vice President
Matthew Witschel Assistant Vice President
Christopher J. Zingaro Assistant Vice President
Mark R. Manley Assistant Secretary
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company
Act of 1940 and the Rules thereunder are maintained as
follows: journals, ledgers, securities records and
other original records are maintained principally at
the offices of Alliance Fund Services, Inc., 500 Plaza
Drive, Secaucus, New Jersey 07094 and at the offices
C-16
<PAGE>
of State Street Bank and Trust Company, the
Registrant's Custodian, 225 Franklin Street, Boston,
Massachusetts 02110. All other records so required to
be maintained are maintained at the offices of Alliance
Capital Management L.P., 1345 Avenue of the Americas,
New York, New York 10105.
Item 31. MANAGEMENT SERVICES.
Not applicable.
Item 32. UNDERTAKINGS.
The Registrant undertakes to furnish each person to
whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders, upon
request and without charge.
C-17
<PAGE>
********************
NOTICE
A copy of the Agreement and Declaration of Trust of The
Alliance Portfolios (the "Trust") is on file with the Secretary
of State of The Commonwealth of Massachusetts and notice is
hereby given that this Registration Statement has been executed
on behalf of the Trust by an officer of the Trust as an officer
and by its Trustees as trustees and not individually and the
obligations of or arising out of this Registration Statement are
not binding upon any of the Trustees, officers or shareholders
individually but are binding only upon the assets and property of
the Trust.
C-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as
amended, the Registrant certifies that it meets all of the
requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 30th day of October, 1998.
THE ALLIANCE PORTFOLIOS
By /s/John D. Carifa
________________________
John D. Carifa
Chairman and President
Pursuant to the requirements of the Securities Act of
l933, as amended, this Amendment to the Registration Statement
has been signed below by the following persons in the capacities
and on the dates indicated:
Signature Title Date
1) Principal Executive
Officer
/s/ John D. Carifa Chairman October 30, 1998
______________________ and President
John D. Carifa
2) Principal Financial and
Accounting Officer
/s/ Mark D. Gersten Treasurer October 30, 1998
______________________ and Chief
Mark D. Gersten Financial
Officer
C-19
<PAGE>
All of the Trustees
Ruth Block
John D. Carifa
Richard W. Couper
William H. Foulk, Jr.
Brenton W. Harries
Donald J. Robinson
by /s/Edmund P. Bergan, Jr. October 30, 1998
___________________________
(Attorney-in-fact)
Edmund P. Bergan, Jr.
C-20
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
11. Consent of Independent Accountants
17. Financial Data Schedules
C-21
00250184.BC9
<PAGE>
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional
Information constituting part of this Post-Effective No. 30
to the registration statement on Form N-1A (the
"Registration Statement") of our report dated December 12,
1997, relating to the financial statements and financial
highlights of Alliance Growth Fund (the "Fund"), which
appears in such Statement of Additional Information, and to
the incorporation by reference of our report into the
Prospectus relating to Class A, Class B and Class C shares
of the Fund (the "Prospectus") and the Prospectus relating
to the Advisor Class shares of the Fund (the "Advisor Class
Prospectus") which constitute parts of this Registration
Statement. We also consent to the references to us under
the headings "Shareholder Services - Statements and
Reports" and "General Information - Independent
Accountants" in such Statement of Additional Information and
to the references to us under the heading "Financial
Highlights" in the Prospectus and the Advisor Class
Prospectus.
/s/ PricewaterhouseCoopers LLP
PriceWaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
October 23, 1998
00250184.AY3
<PAGE>
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional
Information constituting part of this Post-Effective
Amendment No. 30 to the registration statement on Form N-1A
(the "Registration Statement") of our report dated October
7, 1998, relating to the financial statements and financial
highlights of Alliance Short-Term U.S. Government Fund (the
"Fund"), which appears in such Statement of Additional
Information, and to the incorporation by reference of our
report into the Prospectus relating to Class A, Class B and
Class C shares of the Fund (the "Prospectus") which
constitutes part of this Registration Statement. We also
consent to the references to us under the headings
"Shareholder Services - Statements and Reports" and "General
Information - Independent Accountants" in such Statement of
Additional Information and to the reference to us under the
heading "Financial Highlights" in the Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
October 23, 1998
00250184.BD5
<PAGE>
[ARTICLE] 6
[CIK] 0000812015
[NAME] THE ALLIANCE PORTFOLIOS
[SERIES]
[NUMBER] 011
[NAME] GROWTH FUND
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] APR-30-1998
[INVESTMENTS-AT-COST] 4,501,673,486
[INVESTMENTS-AT-VALUE] 6,308,498,208
[RECEIVABLES] 17,515,777
[ASSETS-OTHER] 1,569,860
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 6,327,583,845
[PAYABLE-FOR-SECURITIES] 16,484,757
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 103,746,545
[TOTAL-LIABILITIES] 120,231,302
[SENIOR-EQUITY] 1,520
[PAID-IN-CAPITAL-COMMON] 4,007,328,592
[SHARES-COMMON-STOCK] 20,237,065
[SHARES-COMMON-PRIOR] 17,816,215
[ACCUMULATED-NII-CURRENT] (11,760,790)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 430,732,778
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 1,781,050,443
[NET-ASSETS] 6,207,352,543
[DIVIDEND-INCOME] 29,843,303
[INTEREST-INCOME] 6,561,439
[OTHER-INCOME] 0
[EXPENSES-NET] (48,165,532)
[NET-INVESTMENT-INCOME] (11,760,790)
[REALIZED-GAINS-CURRENT] 444,899,856
[APPREC-INCREASE-CURRENT] 476,219,781
[NET-CHANGE-FROM-OPS] 909,358,847
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] (52,161,970)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 9,116,774
[NUMBER-OF-SHARES-REDEEMED] (7,799,391)
[SHARES-REINVESTED] 1,103,467
[NET-CHANGE-IN-ASSETS] 1,144,782,909
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 381,251,181
[OVERDISTRIB-NII-PRIOR] 0
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 19,549,000
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 48,166,000
[AVERAGE-NET-ASSETS] 878,808,122
[PER-SHARE-NAV-BEGIN] 43.95
[PER-SHARE-NII] 0.06
[PER-SHARE-GAIN-APPREC] 7.47
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (2.91)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 48.57
[EXPENSE-RATIO] 1.17
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250184.BC5
<PAGE>
[ARTICLE] 6
[CIK] 0000812015
[NAME] THE ALLIANCE PORTFOLIOS
[SERIES]
[NUMBER] 012
[NAME] GROWTH FUND
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] APR-30-1998
[INVESTMENTS-AT-COST] 4,501,673,486
[INVESTMENTS-AT-VALUE] 6,308,498,208
[RECEIVABLES] 17,515,777
[ASSETS-OTHER] 1,569,860
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 6,327,583,845
[PAYABLE-FOR-SECURITIES] 16,484,757
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 103,746,545
[TOTAL-LIABILITIES] 120,231,302
[SENIOR-EQUITY] 1,520
[PAID-IN-CAPITAL-COMMON] 4,007,328,592
[SHARES-COMMON-STOCK] 110,405,449
[SHARES-COMMON-PRIOR] 98,548,974
[ACCUMULATED-NII-CURRENT] (11,760,790)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 430,732,778
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 1,781,050,443
[NET-ASSETS] 6,207,352,543
[DIVIDEND-INCOME] 29,843,303
[INTEREST-INCOME] 6,561,439
[OTHER-INCOME] 0
[EXPENSES-NET] (48,165,532)
[NET-INVESTMENT-INCOME] (11,760,790)
[REALIZED-GAINS-CURRENT] 444,899,856
[APPREC-INCREASE-CURRENT] 476,219,781
[NET-CHANGE-FROM-OPS] 909,358,847
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] (288,125,446)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 10,638,017
[NUMBER-OF-SHARES-REDEEMED] (6,432,534)
[SHARES-REINVESTED] 7,650,992
[NET-CHANGE-IN-ASSETS] 1,144,782,909
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 381,251,181
[OVERDISTRIB-NII-PRIOR] 0
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 19,549,000
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 48,166,000
[AVERAGE-NET-ASSETS] 3,916,440,285
[PER-SHARE-NAV-BEGIN] 36.31
[PER-SHARE-NII] (0.09)
[PER-SHARE-GAIN-APPREC] 6.11
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (2.91)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 39.42
[EXPENSE-RATIO] 1.88
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250184.BC6
<PAGE>
[ARTICLE] 6
[CIK] 0000812015
[NAME] THE ALLIANCE PORTFOLIOS
[SERIES]
[NUMBER] 013
[NAME] GROWTH FUND
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] APR-30-1998
[INVESTMENTS-AT-COST] 4,501,673,486
[INVESTMENTS-AT-VALUE] 6,308,498,208
[RECEIVABLES] 17,515,777
[ASSETS-OTHER] 1,569,860
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 6,327,583,845
[PAYABLE-FOR-SECURITIES] 16,484,757
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 103,746,545
[TOTAL-LIABILITIES] 120,231,302
[SENIOR-EQUITY] 1,520
[PAID-IN-CAPITAL-COMMON] 4,007,328,592
[SHARES-COMMON-STOCK] 18,526,365
[SHARES-COMMON-PRIOR] 16,500,423
[ACCUMULATED-NII-CURRENT] (11,760,790)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 430,732,778
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 1,781,050,443
[NET-ASSETS] 6,207,352,543
[DIVIDEND-INCOME] 29,843,303
[INTEREST-INCOME] 6,561,439
[OTHER-INCOME] 0
[EXPENSES-NET] (48,165,532)
[NET-INVESTMENT-INCOME] (11,760,790)
[REALIZED-GAINS-CURRENT] 444,899,856
[APPREC-INCREASE-CURRENT] 476,219,781
[NET-CHANGE-FROM-OPS] 909,358,847
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] (48,125,286)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 2,321,177
[NUMBER-OF-SHARES-REDEEMED] (1,574,832)
[SHARES-REINVESTED] 1,279,597
[NET-CHANGE-IN-ASSETS] 1,144,782,909
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 381,251,181
[OVERDISTRIB-NII-PRIOR] 0
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 19,549,000
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 48,166,000
[AVERAGE-NET-ASSETS] 655,162,003
[PER-SHARE-NAV-BEGIN] 36.33
[PER-SHARE-NII] (0.09)
[PER-SHARE-GAIN-APPREC] 6.11
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (2.91)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 39.44
[EXPENSE-RATIO] 1.88
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250184.BC7
<PAGE>
[ARTICLE] 6
[CIK] 0000812015
[NAME] THE ALLIANCE PORTFOLIOS
[SERIES]
[NUMBER] 014
[NAME] GROWTH FUND
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] APR-30-1998
[INVESTMENTS-AT-COST] 4,501,673,486
[INVESTMENTS-AT-VALUE] 6,308,498,208
[RECEIVABLES] 17,515,777
[ASSETS-OTHER] 1,569,860
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 6,327,583,845
[PAYABLE-FOR-SECURITIES] 16,484,757
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 103,746,545
[TOTAL-LIABILITIES] 120,231,302
[SENIOR-EQUITY] 1,520
[PAID-IN-CAPITAL-COMMON] 4,007,328,592
[SHARES-COMMON-STOCK] 2,901,905
[SHARES-COMMON-PRIOR] 2,295,706
[ACCUMULATED-NII-CURRENT] (11,760,790)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 430,732,778
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 1,781,050,443
[NET-ASSETS] 6,207,352,543
[DIVIDEND-INCOME] 29,843,303
[INTEREST-INCOME] 6,561,439
[OTHER-INCOME] 0
[EXPENSES-NET] (48,165,532)
[NET-INVESTMENT-INCOME] (11,760,790)
[REALIZED-GAINS-CURRENT] 444,899,856
[APPREC-INCREASE-CURRENT] 476,219,781
[NET-CHANGE-FROM-OPS] 909,358,847
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] (7,005,557)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 984,667
[NUMBER-OF-SHARES-REDEEMED] (528,401)
[SHARES-REINVESTED] 149,933
[NET-CHANGE-IN-ASSETS] 1,144,782,909
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 381,251,181
[OVERDISTRIB-NII-PRIOR] 0
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 19,549,000
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 48,166,000
[AVERAGE-NET-ASSETS] 119,843,400
[PER-SHARE-NAV-BEGIN] 44.08
[PER-SHARE-NII] 0.12
[PER-SHARE-GAIN-APPREC] 7.50
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (2.91)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 48.79
[EXPENSE-RATIO] .87
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250150.BC8
<PAGE>
[ARTICLE] 6
[CIK] 0000812015
[NAME] THE ALLIANCE PORTFOLIOS
[SERIES]
[NUMBER] 021
[NAME] SHORT TERM U.S. GOVERNMENT FUND
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1998
[PERIOD-START] SEP-01-1997
[PERIOD-END] AUG-31-1998
[INVESTMENTS-AT-COST] 21,544,467
[INVESTMENTS-AT-VALUE] 21,520,540
[RECEIVABLES] 3,321,010
[ASSETS-OTHER] 14,285
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 24,855,835
[PAYABLE-FOR-SECURITIES] 3,237,982
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 181,986
[TOTAL-LIABILITIES] 3,419,968
[SENIOR-EQUITY] 22
[PAID-IN-CAPITAL-COMMON] 22,259,136
[SHARES-COMMON-STOCK] 583,743
[SHARES-COMMON-PRIOR] 405,286
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (42,209)
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (750,635)
[ACCUM-APPREC-OR-DEPREC] (30,447)
[NET-ASSETS] 21,435,867
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 1,131,931
[OTHER-INCOME] 0
[EXPENSES-NET] (375,737)
[NET-INVESTMENT-INCOME] 756,194
[REALIZED-GAINS-CURRENT] (133,830)
[APPREC-INCREASE-CURRENT] (28,689)
[NET-CHANGE-FROM-OPS] 593,675
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (293,367)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 2,508,086
[NUMBER-OF-SHARES-REDEEMED] (2,348,787)
[SHARES-REINVESTED] 19,158
[NET-CHANGE-IN-ASSETS] 6,064,140
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (616,805)
[OVERDISTRIB-NII-PRIOR] (38,622)
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 89,000
[INTEREST-EXPENSE] 72,000
[GROSS-EXPENSE] 544,000
[AVERAGE-NET-ASSETS] 5,312,599
[PER-SHARE-NAV-BEGIN] 9.63
[PER-SHARE-NII] 0.49
[PER-SHARE-GAIN-APPREC] (0.11)
[PER-SHARE-DIVIDEND] (0.53)
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 9.48
[EXPENSE-RATIO] 1.41
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250184.BC0
<PAGE>
[ARTICLE] 6
[CIK] 0000812015
[NAME] THE ALLIANCE PORTFOLIOS
[SERIES]
[NUMBER] 022
[NAME] SHORT TERM U.S. GOVERNMENT FUND
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1998
[PERIOD-START] SEP-01-1997
[PERIOD-END] AUG-31-1998
[INVESTMENTS-AT-COST] 21,544,467
[INVESTMENTS-AT-VALUE] 21,520,540
[RECEIVABLES] 3,321,010
[ASSETS-OTHER] 14,285
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 24,855,835
[PAYABLE-FOR-SECURITIES] 3,237,982
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 181,986
[TOTAL-LIABILITIES] 3,419,968
[SENIOR-EQUITY] 22
[PAID-IN-CAPITAL-COMMON] 22,259,136
[SHARES-COMMON-STOCK] 1,125,064
[SHARES-COMMON-PRIOR] 663,066
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (42,209)
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (750,635)
[ACCUM-APPREC-OR-DEPREC] (30,447)
[NET-ASSETS] 21,435,867
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 1,131,931
[OTHER-INCOME] 0
[EXPENSES-NET] (375,737)
[NET-INVESTMENT-INCOME] 756,194
[REALIZED-GAINS-CURRENT] (133,830)
[APPREC-INCREASE-CURRENT] (28,689)
[NET-CHANGE-FROM-OPS] 593,675
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (301,194)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1,141,000
[NUMBER-OF-SHARES-REDEEMED] (701,557)
[SHARES-REINVESTED] 22,555
[NET-CHANGE-IN-ASSETS] 6,064,140
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (616,805)
[OVERDISTRIB-NII-PRIOR] (38,622)
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 89,000
[INTEREST-EXPENSE] 72,000
[GROSS-EXPENSE] 544,000
[AVERAGE-NET-ASSETS] 6,416,454
[PER-SHARE-NAV-BEGIN] 9.74
[PER-SHARE-NII] 0.42
[PER-SHARE-GAIN-APPREC] (0.08)
[PER-SHARE-DIVIDEND] (0.46)
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 9.62
[EXPENSE-RATIO] 2.11
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250184.BC1
<PAGE>
[ARTICLE] 6
[CIK] 0000812015
[NAME] THE ALLIANCE PORTFOLIOS
[SERIES]
[NUMBER] 023
[NAME] SHORT TERM U.S. GOVERNMENT FUND
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1998
[PERIOD-START] SEP-01-1997
[PERIOD-END] AUG-31-1998
[INVESTMENTS-AT-COST] 21,544,467
[INVESTMENTS-AT-VALUE] 21,520,540
[RECEIVABLES] 3,321,010
[ASSETS-OTHER] 14,285
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 24,855,835
[PAYABLE-FOR-SECURITIES] 3,419,968
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 181,986
[TOTAL-LIABILITIES] 3,419,968
[SENIOR-EQUITY] 22
[PAID-IN-CAPITAL-COMMON] 22,259,136
[SHARES-COMMON-STOCK] 528,056
[SHARES-COMMON-PRIOR] 515,118
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (42,209)
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (750,635)
[ACCUM-APPREC-OR-DEPREC] (30,447)
[NET-ASSETS] 21,435,867
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 1,131,931
[OTHER-INCOME] 0
[EXPENSES-NET] (375,737)
[NET-INVESTMENT-INCOME] 756,194
[REALIZED-GAINS-CURRENT] (133,830)
[APPREC-INCREASE-CURRENT] (28,689)
[NET-CHANGE-FROM-OPS] 593,675
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (213,255)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 408,212
[NUMBER-OF-SHARES-REDEEMED] (414,401)
[SHARES-REINVESTED] 19,127
[NET-CHANGE-IN-ASSETS] 6,064,140
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (616,805)
[OVERDISTRIB-NII-PRIOR] (38,622)
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 89,000
[INTEREST-EXPENSE] 72,000
[GROSS-EXPENSE] 544,000
[AVERAGE-NET-ASSETS] 4,516,937
[PER-SHARE-NAV-BEGIN] 9.73
[PER-SHARE-NII] 0.42
[PER-SHARE-GAIN-APPREC] (0.08)
[PER-SHARE-DIVIDEND] (0.46)
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 9.61
[EXPENSE-RATIO] 2.11
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250184.BC2
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance All-Asia Fund, Inc., Alliance Balanced
Shares, Inc., Alliance Bond Fund, Inc., Alliance Capital
Reserves, Alliance Developing Markets Fund, Inc. Alliance
Global Dollar Government Fund, Inc., Alliance Global
Environment Fund, Inc., Alliance Global Small Cap Fund,
Inc., Alliance Global Strategic Income Trust, Inc., Alliance
Government Reserves, Alliance Greater China 97 Fund, Inc.,
Alliance Growth and Income Fund, Inc., Alliance High Yield
Fund, Inc., Alliance Income Builder Fund, Inc., Alliance
International Fund, Alliance Limited Maturity Government
Fund, Inc., Alliance Money Market Fund, Alliance Mortgage
Securities Income Fund, Inc., Alliance Multi-Market Strategy
Trust, Inc., Alliance Municipal Income Fund, Inc., Alliance
Municipal Income Fund II, Alliance Municipal Trust, Alliance
New Europe Fund, Inc., Alliance North American Government
Income Trust, Inc., Alliance Premier Growth Fund, Inc.,
Alliance Quasar Fund, Inc., Alliance Real Estate Investment
Fund, Inc., Alliance/Regent Sector Opportunity Fund, Inc.,
Alliance Short-Term Multi-Market Trust, Inc., Alliance
Technology Fund, Inc., Alliance Utility Income Fund, Inc.,
Alliance Variable Products Series Fund, Inc., Alliance World
Income Trust, Inc., Alliance Worldwide Privatization Fund,
Inc., Fiduciary Management Associates, The Alliance Fund,
Inc., The Alliance Portfolios, and The Hudson River Trust,
and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact, or their substitute or
substitutes, may do or cause to be done by virtue hereof.
/s/ John D. Carifa
___________________________
John D. Carifa
Dated: October 8, 1998
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance Balanced Shares, Inc., Alliance Bond
Fund, Inc., Alliance Global Dollar Government Fund, Inc.,
Alliance Global Small Cap Fund, Inc., Alliance Global
Strategic Income Trust, Inc., Alliance Growth and Income
Fund, Inc., Alliance High Yield Fund, Inc., Alliance Income
Builder Fund, Inc., Alliance Limited Maturity Government
Fund, Inc., Alliance Mortgage Securities Income Fund, Inc.,
Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund
II, Alliance North American Government Income Trust, Inc.,
Alliance Premier Growth Fund, Inc., Alliance Quasar Fund,
Inc., Alliance Real Estate Investment Fund, Inc.,
Alliance/Regent Sector Opportunity Fund, Inc., Alliance
Short-Term Multi-Market Trust, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates,
The Alliance Fund, Inc. and The Alliance Portfolios, and
filing the same, with exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ Ruth Block
___________________________
Ruth Block
Dated: October 8, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of The Alliance Portfolios, and The Hudson River Trust,
and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact, or their substitute or
substitutes, may do or cause to be done by virtue hereof.
/s/ Richard W. Couper
___________________________
Richard W. Couper
Dated: October 8, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance Balanced Shares, Inc., Alliance Bond
Fund, Inc., Alliance Capital Reserves, Alliance Global
Dollar Government Fund, Inc., Alliance Global Small Cap
Fund, Inc., Alliance Global Strategic Income Trust, Inc.,
Alliance Government Reserves, Alliance Greater China 97
Fund, Inc., Alliance Growth and Income Fund, Inc., Alliance
High Yield Fund, Inc., Alliance Income Builder Fund, Inc.,
Alliance Limited Maturity Government Fund, Inc., Alliance
Money Market Fund, Alliance Mortgage Securities Income Fund,
Inc., Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund
II, Alliance Municipal Trust, Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate
Investment Fund, Inc., Alliance/Regent Sector Opportunity
Fund, Inc., Alliance Short-Term Multi-Market Trust, Inc.,
Alliance Technology Fund, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates,
The Alliance Fund, Inc., The Alliance Portfolios and the
Hudson River Trust, and filing the same, with exhibits
thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their
substitute or substitutes, may do or cause to be done by
virtue hereof.
/s/ William H. Foulk, Jr.
___________________________
William H. Foulk, Jr.
Dated: October 8, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of The Alliance Portfolios, and The Hudson River Trust,
and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact, or their substitute or
substitutes, may do or cause to be done by virtue hereof.
/s/ Brenton W. Harries
___________________________
Brenton W. Harries
Dated: October 8, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance Balanced Shares, Inc., Alliance Bond
Fund, Inc., Alliance Capital Reserves, Alliance Global
Dollar Government Fund, Inc., Alliance Global Small Cap
Fund, Inc., Alliance Global Strategic Income Trust, Inc.,
Alliance Government Reserves, Alliance Growth and Income
Fund, Inc., Alliance High Yield Fund, Inc., Alliance Income
Builder Fund, Inc., Alliance Limited Maturity Government
Fund, Inc., Alliance Mortgage Securities Income Fund, Inc.,
Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund
II, Alliance Municipal Trust, Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate
Investment Fund, Inc., Alliance/Regent Sector Opportunity
Fund, Inc., Alliance Short-Term Multi-Market Trust, Inc.,
Alliance Utility Income Fund, Inc., Alliance Variable
Products Series Fund, Inc., Alliance World Income Trust,
Inc., Alliance Worldwide Privatization Fund, Inc., Fiduciary
Management Associates, The Alliance Fund, Inc., The Alliance
Portfolios and The Hudson River Trust, and filing the same,
with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-
fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
/s/ Donald J. Robinson
___________________________
Donald J. Robinson
Dated: October 8, 1998
00250184.AY4
