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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.
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 33
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.
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This Amendment No. 33 is filed under the Investment
Company Act of 1940 only, pursuant to General Instruction F.3 of
Form N-1A and relates solely to Alliance Strategic Balanced Fund.
No information contained in the Registrant's Registration
Statement relating to any other series of the Registrant is
amended or superseded hereby.
Part A of this Amendment is incorporated by reference to
Post-Effective Amendment No. 28 to the Registrant's Registration
Statement, filed with the Securities and Exchange Commission on
January 20, 1998.
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(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.
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______________________________________________________________
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,
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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
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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
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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
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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.
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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").
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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
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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
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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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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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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
26
<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
27
<PAGE>
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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<PAGE>
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
29
<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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<PAGE>
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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<PAGE>
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
32
<PAGE>
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
33
<PAGE>
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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<PAGE>
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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<PAGE>
(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
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<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
51
<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
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<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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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.
84
<PAGE>
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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<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 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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<PAGE>
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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<PAGE>
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
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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
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<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.
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____________________________________________________________
FINANCIAL STATEMENTS AND REPORT
OF INDEPENDENT ACCOUNTANTS
____________________________________________________________
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ALLIANCE STRATEGIC BALANCED FUND
ANNUAL REPORT
JULY 31, 1998
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS
JULY 31, 1998 ALLIANCE STRATEGIC BALANCED FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
COMMON & PREFERRED STOCKS-44.6%
UNITED STATES INVESTMENTS-33.8%
FINANCE-8.3%
BANKING-MONEY CENTER-2.6%
BankAmerica Corp. 7,000 $ 628,250
Chase Manhattan Corp. 10,000 756,250
------------
1,384,500
BROKERAGE & MONEY MANAGEMENT-2.2%
Merrill Lynch & Co., Inc. 7,600 741,000
Morgan Stanley, Dean Witter & Co. 5,000 435,313
------------
1,176,313
INSURANCE-2.3%
American International Group, Inc. 4,500 678,656
Travelers Group, Inc. 8,000 536,067
------------
1,214,723
MISCELLANEOUS-1.2%
MBNA Corp. 20,000 670,000
------------
4,445,536
CONSUMER SERVICES-8.3%
BROADCASTING & CABLE-3.2%
Cox Communications, Inc. Cl.A (a) 9,000 439,875
Scripps E.W. Co. Cl.A 9,000 473,625
Tele-Communications, Inc. -
Liberty Media Group Cl.A (a) 20,000 788,750
------------
1,702,250
ENTERTAINMENT & LEISURE-2.6%
Harley-Davidson, Inc. 22,000 871,750
Walt Disney Co. 15,000 516,562
------------
1,388,312
RETAIL-GENERAL MERCHANDISE-2.5%
Dayton Hudson Corp. 14,000 669,375
Home Depot, Inc. 16,000 670,000
------------
1,339,375
------------
4,429,937
TECHNOLOGY-4.6%
COMMUNICATION EQUIPMENT-0.6%
Tellabs, Inc. (a) 4,000 301,125
COMPUTER HARDWARE-0.9%
Compaq Computer Corp. 15,000 493,125
COMPUTER SOFTWARE-0.6%
Microsoft Corp. (a) 3,000 329,812
NETWORKING SOFTWARE-1.2%
Cisco Systems, Inc. (a) 7,000 670,250
SEMI-CONDUCTOR COMPONENTS-1.3%
Altera Corp. (a) 7,000 255,281
Intel Corp. 5,000 422,188
------------
677,469
------------
2,471,781
CONSUMER STAPLES-4.0%
COSMETICS-1.4%
Gillette Co. 8,200 429,475
The Estee Lauder Co., Inc. Cl.A 5,000 321,250
------------
750,725
RETAIL-FOOD & DRUG-1.3%
Kroger Co. (a) 15,000 709,687
7
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE STRATEGIC BALANCED FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
TOBACCO-1.3%
Philip Morris Cos., Inc. 15,000 $ 657,188
------------
2,117,600
HEALTH CARE-3.7%
DRUGS-3.1%
Bristol-Myers Squibb Co. 8,000 911,500
Merck & Co., Inc. 6,000 739,875
------------
1,651,375
MEDICAL PRODUCTS-0.6%
Medtronic, Inc. 5,000 309,687
------------
1,961,062
ENERGY-1.9%
DOMESTIC PRODUCERS-0.3%
Apache Corp. 6,000 159,000
OIL SERVICES-1.6%
Halliburton Co. 10,000 363,125
Noble Drilling Corp. (a) 25,000 471,875
------------
835,000
------------
994,000
MULTI INDUSTRY COMPANIES-1.1%
Tyco International, Ltd. 6,000 371,625
U.S. Industries, Inc. 10,000 192,500
------------
564,125
UTILITIES-1.0%
TELEPHONE UTILITY-1.0%
WorldCom, Inc. 10,000 528,750
CAPITAL GOODS-0.9%
MISCELLANEOUS-0.9%
United Technologies Corp. 5,000 479,063
Total United States Investments
(cost $12,950,782) 17,991,854
FOREIGN INVESTMENTS-10.8%
BRAZIL-0.5%
Telebras, SA (ADR) 2,000 242,125
DENMARK-0.4%
Ratin A/S Series B 1,200 229,004
FINLAND-1.6%
Nokia AB OY Corp. Series A 7,000 614,875
Orion-Yhtymae OY Cl.B 7,000 214,883
------------
829,758
FRANCE-0.9%
Seita 4,000 180,303
Total, SA Cl.B 2,500 285,391
------------
465,694
GERMANY-0.6%
Adidas AG 900 130,530
ProSieben Media AG pfd. 4,000 213,615
------------
344,145
HONG KONG-0.2%
Hutchison Whampoa, Ltd. 20,000 96,019
JAPAN-0.6%
Canon, Inc. 5,000 114,092
Honda Motor Co. 6,000 223,621
------------
337,713
NETHERLANDS-2.5%
Akzo Nobel NV 8,000 407,608
ING NV 6,000 453,773
Wolters Kluwer NV 3,000 450,183
------------
1,311,564
SPAIN-0.7%
Tabacalera, SA Series A 8,000 176,548
Telefonica, SA 4,000 195,077
------------
371,625
SWEDEN-0.4%
Astra AB Series A 12,000 230,946
8
ALLIANCE STRATEGIC BALANCED FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) U.S. $ VALUE
- -------------------------------------------------------------------------
SWITZERLAND-1.5%
Nestle, SA 200 $ 415,431
Zurich Versicherungs-gesellschaft 500 397,182
------------
812,613
UNITED KINGDOM-0.9%
BPB Plc 40,000 218,726
Tomkins Plc 30,000 154,856
United News & Media Plc 9,000 118,494
------------
492,076
Total Foreign Investments
(cost $4,613,091) 5,763,282
Total Common & Preferred Stocks
(cost $17,563,873) 23,755,136
DEBT OBLIGATIONS-39.3%
U.S. GOVERNMENT & AGENCY OBLIGATIONS-33.3%
Federal Home Loan Bank
7.00%, 9/01/11 $ 775 792,862
Federal National Mortgage Association
6.00%, 4/01/11 323 319,170
6.50%, 5/01/11 523 526,171
6.50%, 6/01/11 590 593,831
6.50%, 9/01/11 363 365,961
7.00%, 5/01/26 847 859,569
7.00%, 5/01/27 422 427,701
7.00%, 12/01/27 1,022 1,036,124
Government National Mortgage Association
6.50%, 3/15/28 284 282,678
7.00%, 2/15/28 1,086 1,103,348
7.50%, 6/15/27 597 614,807
U.S. Treasury Bond
6.125%, 11/15/27 2,905 3,070,672
U.S. Treasury Notes
6.25%, 4/30/01 1,900 1,934,143
6.375%, 5/15/99 3,200 3,220,992
6.50%, 8/31/01 1,250 1,283,013
6.50%, 5/31/02 410 423,005
6.625%, 5/15/07 25 26,766
6.875%, 5/15/06 775 837,000
------------
17,717,813
CORPORATE DEBT OBLIGATIONS-4.3%
BANKING-1.0%
Chase Manhattan Corp.
6.75%, 8/15/08 530 545,167
ELECTRIC & GAS UTILITY-0.8%
Texas Utilities Co. Series C
6.375%, 1/01/08 425 416,170
INDUSTRIAL-2.5%
Computer Associates
International, Inc.
6.375%, 4/15/05 (b) 650 644,955
Time Warner, Inc.
8.375%, 3/15/23 600 694,572
------------
1,339,527
------------
2,300,864
YANKEE BOND-1.7%
St. George Bank, Ltd.
7.15%, 10/15/05 (b) 850 879,231
Total Debt Obligations
(cost $20,529,344) 20,897,908
9
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE STRATEGIC BALANCED FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
COMPANY (000) U.S. $ VALUE
- -------------------------------------------------------------------------
SHORT-TERM INVESTMENT-13.0%
Federal Home Loan Mortgage Corp.
5.637%, 8/03/98 (amortized cost
$6,897,869) $6,900 $ 6,897,869
TOTAL INVESTMENTS -96.9%
(cost $44,991,086) 51,550,913
Other assets less liabilities-3.1% 1,631,743
------------
NET ASSETS-100% $53,182,656
(a) Non-income producing security.
(b) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to certain qualified institutional buyers. At July 31,
1998, these securities amounted to $1,524,186 representing 2.9% of net assets.
Glossary:
ADR - American Depositary Receipt
See notes to financial statements.
10
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1998 ALLIANCE STRATEGIC BALANCED FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $44,991,086) $51,550,913
Cash, at value (cost $720,561) 720,697
Receivable for investment securities sold 908,915
Receivable for shares of beneficial interest sold 343,568
Interest and dividends receivable 279,094
Foreign taxes receivable 14,879
Total assets 53,818,066
LIABILITIES
Payable for shares of beneficial interest redeemed 347,024
Distribution fee payable 30,289
Advisory fee payable 19,408
Accrued expenses 238,689
Total liabilities 635,410
NET ASSETS $53,182,656
COMPOSITION OF NET ASSETS
Shares of beneficial interest, at par $ 30
Additional paid-in capital 44,068,493
Undistributed net investment income 267,635
Accumulated net realized gain on investments and foreign
currency transactions 2,313,879
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities 6,532,619
$53,182,656
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($25,948,583 / 1,312,956 shares of beneficial
interest issued and outstanding) $19.76
Sales charge--4.25% of public offering price .88
Maximum offering price $20.64
CLASS B SHARES
Net asset value and offering price per share
($24,032,385 / 1,478,926 shares of beneficial
interest issued and outstanding) $16.25
CLASS C SHARES
Net asset value and offering price per share
($3,201,305 / 197,016 shares of beneficial
interest issued and outstanding) $16.25
ADVISOR CLASS SHARES
Net asset value, redemption and offering price per share
($383 / 19.47 shares of beneficial interest issued and
outstanding) $19.67
See notes to financial statements.
11
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1998 ALLIANCE STRATEGIC BALANCED FUND
_______________________________________________________________________________
INVESTMENT INCOME
Interest $1,491,470
Dividends (net of foreign taxes
withheld of $25,950) 308,962 $1,800,432
EXPENSES
Advisory fee 385,597
Distribution fee - Class A 67,585
Distribution fee - Class B 258,610
Distribution fee - Class C 30,232
Custodian 171,227
Transfer agency 128,960
Audit and legal 55,340
Printing 36,308
Registration 34,524
Trustees' fees 25,000
Miscellaneous 20,031
Total expenses 1,213,414
Less: expenses waived and assumed
by adviser (see Note B) (281,633)
Less: expense offset arrangement
(see Note B) (9,811)
Net expenses 921,970
Net investment income 878,462
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Net realized gain on investment transactions 4,599,652
Net realized loss on foreign currency
transactions (63,722)
Net realized loss on futures transactions (251,706)
Net change in unrealized appreciation
(depreciation) of:
Investments (146,989)
Foreign currency denominated assets
and liabilities (24,586)
Net gain on investments and foreign
currency transactions 4,112,649
NET INCREASE IN NET ASSETS FROM OPERATIONS $4,991,111
See notes to financial statements.
12
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE STRATEGIC BALANCED FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1998 1997
----------- ------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income $ 878,462 $ 1,040,800
Net realized gain on investments and
foreign currency transactions 4,284,224 2,147,164
Net change in unrealized appreciation
(depreciation) of investments and
foreign currency denominated assets
and liabilities (171,575) 7,395,205
Net increase in net assets
from operations 4,991,111 10,583,169
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A (483,384) (368,073)
Class B (516,031) (450,279)
Class C (57,310) (53,257)
Advisor Class (9) -0-
Net realized gain on investments
Class A (1,572,349) (2,227,559)
Class B (2,315,766) (3,959,058)
Class C (257,187) (468,257)
Advisor Class (26) -0-
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Net increase (decrease) 1,999,566 (1,640,718)
Total increase 1,788,615 1,415,968
NET ASSETS
Beginning of year 51,394,041 49,978,073
End of year (including undistributed
net investment income of $267,635
and $509,629, respectively) $53,182,656 $51,394,041
See notes to financial statements.
13
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998 ALLIANCE STRATEGIC BALANCED FUND
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Strategic Balanced Fund (the "Fund"), formerly Alliance Balanced 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 will automatically convert to
Class A shares eight 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. Advisor Class shares are
sold without an 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 sales price or if no sale occurred, at
the mean of the closing bid and asked prices on that day. Readily marketable
securities traded in the over-the-counter market, securities listed on a
foreign securities exchange whose operations are similar to the U.S.
over-the-counter market, and securities listed on a national securities
exchange whose primary market is believed to be over-the-counter, are valued at
the mean of the current bid and asked prices. 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 Fund's Trustees.
Fixed income securities may be valued on the basis of prices obtained from a
pricing service when such prices are believed to reflect the fair market value
of such securities.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the
mean of the quoted bid and asked prices of such currencies against the U.S.
dollar. Purchases and sales of portfolio securities are translated into U.S.
dollars at the rates of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated into U.S. dollars at rates of
exchange prevailing when accrued.
Net realized foreign currency gains and losses represent foreign exchange gains
and losses from sales and maturities of debt securities and foreign exchange
currency contracts, currency gains and losses realized between the trade and
settlement dates on security transactions, and the difference between the
amounts of foreign denominated dividends and 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 year end exchange rates are reflected as a component of net
unrealized appreciation of investments and foreign currency denominated assets
and liabilities.
14
ALLIANCE STRATEGIC BALANCED 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 trade date securities
are purchased or sold. The Fund accretes discounts and amortizes premiums as
adjustments to interest income. Investment gains and losses are determined on
the identified cost basis.
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 fees.
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. During the current fiscal year, permanent differences,
primarily due to foreign currency transactions, resulted in a net decrease in
undistributed net investment income and a corresponding increase in accumulated
net realized gain on investments and foreign currency transactions. 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 1% of the average daily net assets of the Fund. Such fee is accrued
daily and paid monthly. The Adviser has agreed to voluntarily waive its fees
and bear certain expenses so that total expenses do not exceed on an annual
basis 1.40%, 2.10%, 2.10% and 1.10% of average daily net assets, respectively,
for the Class A, Class B, Class C and Advisor Class shares. Prior to August 2,
1993, the annual expense cap for Class B Shares was 2.15%. For the year ended
July 31, 1998, such reimbursement amounted to $281,633.
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 $82,954 for the year ended July 31, 1998.
In addition, for the year ended July 31, 1998, the Fund's expenses were reduced
by $9,811 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 $4,211 from the sales of Class
A shares, $30,890 and $2,019 in contingent deferred sales charges imposed upon
redemptions by shareholders of Class B and Class C shares, respectively, for
the year ended July 31, 1998.
Brokerage commissions paid on investment transactions for the year ended July
31, 1998 amounted to $93,166, none of which was paid to Donaldson, Lufkin &
Jenrette Securities Corp., an affiliate of the Adviser.
Accrued expenses includes $57,596 owed to a Trustee and a former Trustee under
the Trust's deferred compensation plan.
15
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE STRATEGIC BALANCED FUND
_______________________________________________________________________________
NOTE C: DISTRIBUTION PLANS
The Trust has adopted a plan of distribution for each class of shares of the
Fund, except the Advisor Class, 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 fees are accrued daily and paid monthly. The Trustees
currently limit payments under the Class A plan to .30 of 1% of the Fund's
average daily net assets attributable to Class A shares. The Plans provide that
the Distributor will use such payments in their entirety for distribution
assistance and promotional activities.
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 Plans during any year may be more or less
than its actual expenses. For this reason, the Plans are characterized by the
staff of the 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.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $26,635,947 and $40,074,668,
respectively, for the year ended July 31, 1998. There were purchases of
$18,804,186 and sales of $16,425,221 of U.S. government and government agency
obligations for the year ended July 31, 1998.
At July 31, 1998, the cost of investments for federal income tax purposes was
substantially the same as the cost for financial reporting purposes. Gross
unrealized appreciation of investments was $7,050,653 and gross unrealized
depreciation of investments was $490,826 resulting in net unrealized
appreciation of $6,559,827 excluding foreign currency transactions.
The Fund incurred and elected to defer post October currency losses of $30,518
for the year ended July 31, 1998. To the extent that any post October losses
are used to offset future capital gains, it is probable that these gains will
not be distributed to shareholders.
1. 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 contracts 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 July 31, 1998, the Fund had no outstanding forward exchange currency
contracts.
16
ALLIANCE STRATEGIC BALANCED FUND
_______________________________________________________________________________
2. FINANCIAL FUTURES CONTRACTS
The Fund may buy or sell financial futures contracts for the purpose of hedging
its portfolio against adverse affects of anticipated movements in the market.
The Fund bears the market risk that arises from changes in the value of these
financial instruments. The Fund's activities in domestic futures contracts are
conducted through regulated exchanges which do not result in counterparty
credit risk.
At the time the Fund enters into a futures contract, the Fund deposits and
maintains with its custodian as collateral an initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in the value of the contract.
Such receipts or payments are known as variation margin and are recorded by the
Fund as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the time it was closed. At July 31,
1998, the Fund had no outstanding futures contracts.
NOTE E: SHARES OF BENEFICIAL INTEREST
There are 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
JULY 31, JULY 31, JULY 31, JULY 31,
1998 1997 1998 1997
------------ ------------ -------------- --------------
CLASS A
Shares sold 106,566 44,362 $ 2,050,647 $ 813,717
Shares issued in
reinvestment of
dividends and
distributions 107,795 140,204 1,920,917 2,424,151
Shares converted
from Class B 275,088 134,087 5,210,668 2,479,067
Shares redeemed (203,105) (283,790) (3,866,878) (5,240,141)
Net increase 286,344 34,863 $ 5,315,354 $ 476,794
CLASS B
Shares sold 304,735 249,874 $ 4,808,290 $ 3,910,285
Shares issued in
reinvestment of
dividends and
distributions 177,592 271,011 2,614,182 3,946,629
Shares converted
to Class A (332,736) (158,380) (5,210,668) (2,479,067)
Shares redeemed (360,569) (465,417) (5,714,963) (7,252,359)
Net decrease (210,978) (102,912) $ (3,503,159) $(1,874,512)
CLASS C
Shares sold 75,156 54,856 $ 1,171,128 $ 860,802
Shares issued in
reinvestment of
dividends and
distributions 20,673 28,201 304,309 410,610
Shares redeemed (82,325) (98,217) (1,288,398) (1,514,680)
Net increase
(decrease) 13,504 (15,160) $ 187,039 $ (243,268)
17
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE STRATEGIC BALANCED FUND
_______________________________________________________________________________
SHARES AMOUNT
--------------------------- ----------------------------
YEAR ENDED OCT. 2, 1996(A) YEAR ENDED OCT. 2,1996(A)
JULY 31, TO JULY 31, TO
1998 JULY 31, 1997 1998 JULY 31, 1997
------------ ------------ -------------- --------------
ADVISOR CLASS
Shares sold 15 1,460 $ 300 $ 26,057
Shares issued in
reinvestment of
dividends and
distributions 2 -0- 32 -0-
Shares redeemed -0- (1,457) -0- (25,789)
Net increase 17 3 $ 332 $ 268
NOTE F: PLAN OF REORGANIZATION
On July 16, 1998, the Fund's Trustees agreed, subject to shareholder approval
at a special meeting of Fund shareholders scheduled for October 12, 1998, to
the transfer pursuant to a plan of reorganization and liquidation of the net
assets of the Fund to Alliance Balanced Shares, Inc. ("Balanced Shares"), an
open-end investment company also managed by the Adviser. The transfer is
expected to be accomplished through a tax-free exchange of the Fund's shares
for the shares of Balanced Shares and is expected to occur in October 1998.
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 for 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 July 31, 1998.
(a) Commencement of distribution.
18
FINANCIAL HIGHLIGHTS ALLIANCE STRATEGIC BALANCED FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------
MAY 1,
1994
YEAR ENDED JULY 31, TO YEAR ENDED
-------------------------------------------------- JULY 31, APRIL 30,
1998 1997 1996 1995 1994(A) 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $19.79 $18.48 $17.98 $16.26 $16.46 $16.97
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .41(c) .47(c) .35(c) .34 .07 .16
Net realized and unrealized gain (loss)
on investment transactions 1.46 3.56 1.08 1.64 (.27) .74
Net increase (decrease) in net asset
value from operations 1.87 4.03 1.43 1.98 (.20) .90
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.45) (.39) (.32) (.22) -0- (.24)
Distributions from net realized gains (1.45) (2.33) (.61) (.04) -0- (1.17)
Total dividends and distributions (1.90) (2.72) (.93) (.26) -0- (1.41)
Net asset value, end of period $19.76 $19.79 $18.48 $17.98 $16.26 $16.46
TOTAL RETURN
Total investment return based on net
asset value (d) 10.50% 23.90% 8.05% 12.40% (1.22)% 5.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $25,949 $20,312 $18,329 $10,952 $9,640 $9,822
Ratios to average net assets of:
Expenses, net of waivers/
reimbursements 1.42%(e) 1.41%(e) 1.40% 1.40% 1.40%(f) 1.40%
Expenses, before waivers/
reimbursements 1.95%(e) 2.06% 1.76% 1.81% 1.94%(f) 1.70%
Net investment income (b) 2.12%(e) 2.50% 1.78% 2.07% 1.63%(f) 1.67%
Portfolio turnover rate 94%(e) 170% 173% 172% 21% 139%
</TABLE>
See footnote summary on page 22.
19
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE STRATEGIC BALANCED FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------------
MAY 1,
1994
YEAR ENDED JULY 31, TO YEAR ENDED
-------------------------------------------------- JULY 31, APRIL 30,
1998 1997 1996 1995 1994(A) 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $16.59 $15.89 $15.56 $14.10 $14.30 $14.92
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .22(c) .28(c) .16(c) .22 .03 .06
Net realized and unrealized gain (loss)
on investment transactions 1.21 3.02 .98 1.40 (.23) .63
Net increase (decrease) in net asset
value from operations 1.43 3.30 1.14 1.62 (.20) .69
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.32) (.27) (.20) (.12) -0- (.14)
Distributions from net realized gains (1.45) (2.33) (.61) (.04) -0- (1.17)
Total dividends and distributions (1.77) (2.60) (.81) (.16) -0- (1.31)
Net asset value, end of period $16.25 $16.59 $15.89 $15.56 $14.10 $14.30
TOTAL RETURN
Total investment return based on net
asset value (d) 9.78% 23.01% 7.41% 11.63% (1.40)% 4.29%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $24,032 $28,037 $28,492 $37,301 $43,578 $43,616
Ratios to average net assets of:
Expenses, net of waivers/
reimbursements 2.12%(e) 2.12%(e) 2.10% 2.10% 2.10%(f) 2.10%
Expenses, before waivers/
reimbursements 2.68% 2.76% 2.47% 2.49% 2.64%(f) 2.42%
Net investment income (b) 1.39% 1.78% .99% 1.38% .92%(f) .93%
Portfolio turnover rate 94% 170% 173% 172% 21% 139%
</TABLE>
See footnote summary on page 22.
20
ALLIANCE STRATEGIC BALANCED FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS C
------------------------------------------------------------------------------
MAY 1, AUGUST 2,
1994 1993(G)
YEAR ENDED JULY 31, TO TO
-------------------------------------------------- JULY 31, APRIL 30,
1998 1997 1996 1995 1994(A) 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $16.59 $15.89 $15.57 $14.11 $14.31 $15.64
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .22(c) .28(c) .14(c) .16 .03 .15
Net realized and unrealized gain (loss)
on investment transactions 1.21 3.02 .99 1.46 (.23) (.17)
Net increase (decrease) in net asset
value from operations 1.43 3.30 1.13 1.62 (.20) (.02)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.32) (.27) (.20) (.12) -0- (.14)
Distributions from net realized gains (1.45) (2.33) (.61) (.04) -0- (1.17)
Total dividends and distributions (1.77) (2.60) (.81) (.16) -0- (1.31)
Net asset value, end of period $16.25 $16.59 $15.89 $15.57 $14.11 $14.31
TOTAL RETURN
Total investment return based on net
asset value (d) 9.78% 23.01% 7.34% 11.62% (1.40)% .45%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $3,201 $3,045 $3,157 $4,113 $4,317 $4,289
Ratios to average net assets of:
Expenses, net of waivers/
reimbursements 2.12%(e) 2.12%(e) 2.10% 2.10% 2.10%(f) 2.10%(f)
Expenses, before waivers/
reimbursements 2.68% 2.76% 2.48% 2.50% 2.64%(f) 2.07%(f)
Net investment income (b) 1.40% 1.78% .99% 1.38% .93%(f) .69%(f)
Portfolio turnover rate 94% 170% 173% 172% 21% 139%
</TABLE>
See footnote summary on page 22.
21
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE STRATEGIC BALANCED FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
ADVISOR CLASS
-------------------------
OCTOBER 2,
1996(G)
YEAR ENDED TO
JULY 31, JULY 31,
1998 1997
----------- -----------
Net asset value, beginning of period $19.79 $19.49
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)(c) .47 .42
Net realized and unrealized gain (loss)
on investment transactions 1.36 (.12)
Net increase in net asset
value from operations 1.83 .30
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.50) -0-
Distributions from net realized gains (1.45) -0-
Total dividends and distributions (1.95) -0-
Net asset value, end of period $19.67 $19.79
TOTAL RETURN
Total investment return based on net
asset value (d) 10.32% 1.54%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $383 $50
Ratios to average net assets of:
Expenses, net of waivers/
reimbursements (e) 1.12%(e) 1.10%(f)
Expenses, before waivers/
reimbursements 1.12% 2.35%(f)
Net investment income (b) 2.39% 3.40%(f)
Portfolio turnover rate 94% 170%
(a) The Fund changed its fiscal year end from April 30 to July 31.
(b) Net of fees waived and expenses reimbursed by the 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 years ended July 31, 1998 and the year ended July 31,
1997, the ratios of expenses net of waivers/reimbursements would have been
1.40%, 2.10%, 2.10% and 1.10% for Class A, B, C and Advisor Class shares,
respectively.
(f) Annualized.
(g) Commencement of distribution.
22
REPORT OF INDEPENDENT ACCOUNTANTS ALLIANCE STRATEGIC BALANCED FUND
_______________________________________________________________________________
TO THE TRUSTEES AND SHAREHOLDERS OF
ALLIANCE STRATEGIC BALANCED 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 Strategic Balanced Fund
(one of the portfolios of The Alliance Portfolios, hereafter referred to as the
"Fund") at July 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 July 31, 1998 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
As explained in Note F, the Trustees have agreed, subject to shareholder
approval, to the transfer of the net assets of the Fund to Alliance Balanced
Shares, Inc.
PricewaterhouseCoopers LLP
New York, New York
September 14, 1998
TAX INFORMATION (UNAUDITED)
In order to meet certain requirements of the Internal Revenue Code we are
advising you that $803,977 and $1,089,075 of the capital gain distributions
paid by the Fund during the fiscal year July 31, 1998 are subject to the
maximum tax rates of 28% and 20% respectively.
Shareholders should not use the above information to prepare their tax returns.
The information necessary to complete your income tax returns will be included
with your Form 1099 DIV which will be sent to you separately in January 1999.
23
22
<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>
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
C-1
<PAGE>
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) Not applicable.
(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
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) Not applicable.
(11) Not applicable.
(12) Not applicable.
C-2
<PAGE>
(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 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
C-3
<PAGE>
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:
"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
C-4
<PAGE>
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 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
C-5
<PAGE>
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
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
C-6
<PAGE>
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 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.
C-7
<PAGE>
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
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.
C-8
<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.
C-9
<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
C-10
<PAGE>
Richard E. Khaleel Senior Vice President
Stephen R. Laut Senior Vice President
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
C-11
<PAGE>
Stephen J. Demetrovits Vice President
John F. Dolan Vice President
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
C-12
<PAGE>
Jerry W. Lynn Vice President
Christopher J. MacDonald Vice President
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
C-13
<PAGE>
Joseph T. Tocyloski Vice President
Thomas J. Vaughn Vice President
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
C-14
<PAGE>
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
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
C-15
<PAGE>
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
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
C-16
<PAGE>
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
17. Financial Data Schedules
C-21
00250184.BD4
<PAGE>
[ARTICLE] 6
[CIK] 0000812015
[NAME] THE ALLIANCE PORTFOLIOS
[SERIES]
[NUMBER] 031
[NAME] STRATEGIC BALANCED FUND
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] JUL-31-1998
[PERIOD-START] AUG-01-1997
[PERIOD-END] JUL-31-1998
[INVESTMENTS-AT-COST] 44,991,086
[INVESTMENTS-AT-VALUE] 51,550,913
[RECEIVABLES] 1,546,456
[ASSETS-OTHER] 720,697
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 53,818,066
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 635,410
[TOTAL-LIABILITIES] 635,410
[SENIOR-EQUITY] 30
[PAID-IN-CAPITAL-COMMON] 44,068,493
[SHARES-COMMON-STOCK] 1,312,956
[SHARES-COMMON-PRIOR] 1,026,612
[ACCUMULATED-NII-CURRENT] 267,635
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 2,313,879
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 6,532,619
[NET-ASSETS] 53,182,656
[DIVIDEND-INCOME] 308,962
[INTEREST-INCOME] 1,491,470
[OTHER-INCOME] 0
[EXPENSES-NET] (921,970)
[NET-INVESTMENT-INCOME] 878,462
[REALIZED-GAINS-CURRENT] 4,284,224
[APPREC-INCREASE-CURRENT] (171,575)
[NET-CHANGE-FROM-OPS] 4,991,111
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (483,384)
[DISTRIBUTIONS-OF-GAINS] (1,572,349)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 381,654
[NUMBER-OF-SHARES-REDEEMED] (203,105)
[SHARES-REINVESTED] 107,795
[NET-CHANGE-IN-ASSETS] 1,788,615
[ACCUMULATED-NII-PRIOR] 509,629
[ACCUMULATED-GAINS-PRIOR] 2,111,261
[OVERDISTRIB-NII-PRIOR] 0
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 386,000
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,223,000
[AVERAGE-NET-ASSETS] 22,528,419
[PER-SHARE-NAV-BEGIN] 19.79
[PER-SHARE-NII] 0.41
[PER-SHARE-GAIN-APPREC] 1.46
[PER-SHARE-DIVIDEND] (0.45)
[PER-SHARE-DISTRIBUTIONS] (1.45)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 19.76
[EXPENSE-RATIO] 1.42
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250184.BD0
<PAGE>
[ARTICLE] 6
[CIK] 0000812015
[NAME] THE ALLIANCE PORTFOLIOS
[SERIES]
[NUMBER] 032
[NAME] STRATEGIC BALANCED FUND
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] JUL-31-1998
[PERIOD-START] AUG-01-1997
[PERIOD-END] JUL-31-1998
[INVESTMENTS-AT-COST] 44,991,086
[INVESTMENTS-AT-VALUE] 51,550,913
[RECEIVABLES] 1,546,456
[ASSETS-OTHER] 720,697
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 53,818,066
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 635,410
[TOTAL-LIABILITIES] 635,410
[SENIOR-EQUITY] 30
[PAID-IN-CAPITAL-COMMON] 44,068,493
[SHARES-COMMON-STOCK] 1,478,926
[SHARES-COMMON-PRIOR] 1,689,904
[ACCUMULATED-NII-CURRENT] 267,635
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 2,313,879
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 6,532,619
[NET-ASSETS] 53,182,656
[DIVIDEND-INCOME] 308,962
[INTEREST-INCOME] 1,491,470
[OTHER-INCOME] 0
[EXPENSES-NET] (921,970)
[NET-INVESTMENT-INCOME] 878,462
[REALIZED-GAINS-CURRENT] 4,284,224
[APPREC-INCREASE-CURRENT] (171,575)
[NET-CHANGE-FROM-OPS] 4,991,111
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (516,031)
[DISTRIBUTIONS-OF-GAINS] (2,315,766)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 304,735
[NUMBER-OF-SHARES-REDEEMED] (693,305)
[SHARES-REINVESTED] 177,592
[NET-CHANGE-IN-ASSETS] 1,788,615
[ACCUMULATED-NII-PRIOR] 509,629
[ACCUMULATED-GAINS-PRIOR] 2,111,261
[OVERDISTRIB-NII-PRIOR] 0
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 386,000
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,223,000
[AVERAGE-NET-ASSETS] 25,860,965
[PER-SHARE-NAV-BEGIN] 16.59
[PER-SHARE-NII] 0.22
[PER-SHARE-GAIN-APPREC] 1.21
[PER-SHARE-DIVIDEND] (0.32)
[PER-SHARE-DISTRIBUTIONS] (1.45)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 16.25
[EXPENSE-RATIO] 2.12
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250184.BD1
<PAGE>
[ARTICLE] 6
[CIK] 0000812015
[NAME] THE ALLIANCE PORTFOLIOS
[SERIES]
[NUMBER] 033
[NAME] STRATEGIC BALANCED FUND
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] JUL-31-1998
[PERIOD-START] AUG-01-1997
[PERIOD-END] JUL-31-1998
[INVESTMENTS-AT-COST] 44,991,086
[INVESTMENTS-AT-VALUE] 51,550,913
[RECEIVABLES] 1,546,456
[ASSETS-OTHER] 720,697
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 53,818,066
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 635,410
[TOTAL-LIABILITIES] 635,410
[SENIOR-EQUITY] 30
[PAID-IN-CAPITAL-COMMON] 44,068,493
[SHARES-COMMON-STOCK] 197,016
[SHARES-COMMON-PRIOR] 183,512
[ACCUMULATED-NII-CURRENT] 267,635
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 2,313,879
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 6,532,619
[NET-ASSETS] 53,182,656
[DIVIDEND-INCOME] 308,962
[INTEREST-INCOME] 1,491,470
[OTHER-INCOME] 0
[EXPENSES-NET] (921,970)
[NET-INVESTMENT-INCOME] 878,462
[REALIZED-GAINS-CURRENT] 4,284,224
[APPREC-INCREASE-CURRENT] (171,575)
[NET-CHANGE-FROM-OPS] 4,991,111
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (57,310)
[DISTRIBUTIONS-OF-GAINS] (257,187)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 75,156
[NUMBER-OF-SHARES-REDEEMED] (82,325)
[SHARES-REINVESTED] 20,673
[NET-CHANGE-IN-ASSETS] 1,788,615
[ACCUMULATED-NII-PRIOR] 509,629
[ACCUMULATED-GAINS-PRIOR] 2,111,261
[OVERDISTRIB-NII-PRIOR] 0
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 386,000
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,223,000
[AVERAGE-NET-ASSETS] 3,023,242
[PER-SHARE-NAV-BEGIN] 16.59
[PER-SHARE-NII] 0.22
[PER-SHARE-GAIN-APPREC] 1.21
[PER-SHARE-DIVIDEND] (0.32)
[PER-SHARE-DISTRIBUTIONS] (1.45)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 16.25
[EXPENSE-RATIO] 2.12
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250184.BD2
<PAGE>
[ARTICLE] 6
[CIK] 0000812015
[NAME] THE ALLIANCE PORTFOLIOS
[SERIES]
[NUMBER] 034
[NAME] STRATEGIC BALANCED FUND
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] JUL-31-1998
[PERIOD-START] AUG-01-1997
[PERIOD-END] JUL-31-1998
[INVESTMENTS-AT-COST] 44,991,086
[INVESTMENTS-AT-VALUE] 51,550,913
[RECEIVABLES] 1,546,456
[ASSETS-OTHER] 720,697
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 53,818,066
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 635,410
[TOTAL-LIABILITIES] 635,410
[SENIOR-EQUITY] 30
[PAID-IN-CAPITAL-COMMON] 44,068,493
[SHARES-COMMON-STOCK] 19
[SHARES-COMMON-PRIOR] 3
[ACCUMULATED-NII-CURRENT] 267,635
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 2,313,879
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 6,532,619
[NET-ASSETS] 53,182,656
[DIVIDEND-INCOME] 308,962
[INTEREST-INCOME] 1,491,470
[OTHER-INCOME] 0
[EXPENSES-NET] (921,970)
[NET-INVESTMENT-INCOME] 878,462
[REALIZED-GAINS-CURRENT] 4,284,224
[APPREC-INCREASE-CURRENT] (171,575)
[NET-CHANGE-FROM-OPS] 4,991,111
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (9)
[DISTRIBUTIONS-OF-GAINS] (26)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 15
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 2
[NET-CHANGE-IN-ASSETS] 1,788,615
[ACCUMULATED-NII-PRIOR] 509,629
[ACCUMULATED-GAINS-PRIOR] 2,111,261
[OVERDISTRIB-NII-PRIOR] 0
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 386,000
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,223,000
[AVERAGE-NET-ASSETS] 253
[PER-SHARE-NAV-BEGIN] 19.79
[PER-SHARE-NII] 0.47
[PER-SHARE-GAIN-APPREC] 1.36
[PER-SHARE-DIVIDEND] (0.50)
[PER-SHARE-DISTRIBUTIONS] (1.45)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 19.67
[EXPENSE-RATIO] 1.12
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250184.BD3
