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This is filed pursuant to Rule 497(c).
File Nos. 33-12988 and 811-05088.
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THE ALLIANCE PORTFOLIOS:
ALLIANCE CONSERVATIVE INVESTORS FUND
ALLIANCE GROWTH INVESTORS 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
August 31, 1998
_______________________________________________________________
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Funds' current Prospectus.
A copy of the Funds' Prospectus may be obtained by contacting
Alliance Fund Services, Inc. at the address or the "For
Literature" telephone numbers shown above.
TABLE OF CONTENTS
INVESTMENT POLICIES AND RESTRICTIONS....................... 2
ADDITIONAL INVESTMENT TECHNIQUES OF THE FUNDS.............. 4
INVESTMENT RESTRICTIONS.................................... 25
MANAGEMENT OF THE FUNDS ................................... 29
PORTFOLIO TRANSACTIONS .................................... 35
EXPENSES OF THE FUNDS ..................................... 38
PURCHASE OF SHARES ........................................ 44
REDEMPTION AND REPURCHASE OF SHARES ....................... 60
SHAREHOLDER SERVICES ...................................... 64
NET ASSET VALUE............................................ 70
DIVIDENDS, DISTRIBUTIONS AND TAXES ........................ 72
GENERAL INFORMATION ....................................... 74
FINANCIAL STATEMENTS ...................................... 80
REPORT OF INDEPENDENT ACCOUNTANTS ......................... 98
APPENDIX................................................... A-1
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INVESTMENT POLICIES AND RESTRICTIONS
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The following investment policies and restrictions
supplement and should be read in conjunction with the information
set forth in the Prospectus of Alliance Conservative Investors
Fund (the "Conservative Investors Fund") and Alliance Growth
Investors Fund (the "Growth Investors Fund"), each a series of
The Alliance Portfolios (the "Trust"), under the heading
"Investment Objective and Policies."
Stripped Mortgage-Related Securities. Each Fund may
invest in stripped mortgage-related securities ("SMRS"). SMRS
are derivative multi-class mortgage-related securities. SMRS may
be issued by the U.S. Government, its agencies or
instrumentalities, or by private originators of, or investors in,
mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing.
SMRS are usually structured with two classes that
receive different proportions of the interest and principal
distributions on a pool of GNMA, FNMA or FHLMC certificates,
whole loans or private pass-through mortgage-related securities
("Mortgage Assets"). A common type of SMRS will have one class
receiving some of the interest and most of the principal from the
Mortgage Assets, while the other class will receive most of the
interest and the remainder of the principal. In the most extreme
case, one class will receive all of the interest (the interest-
only or "IO" class), while the other class will receive all of
the principal (the principal-only or "PO" class). The yield to
maturity on an IO class is extremely sensitive to the rate of
principal payments (including prepayments) on the related
underlying Mortgage Assets, and a rapid rate of principal
prepayments may have a material adverse effect on the yield to
maturity of the IO class. The rate of principal prepayment will
change as the general level of interest rates fluctuates. If the
underlying Mortgage Assets experience greater than anticipated
principal prepayments, the Fund may fail to fully recoup its
initial investment in these securities. Due to their structure
and underlying cash flows, SMRS may be more volatile than
mortgage-related securities that are not stripped.
Although SMRS are purchased and sold by institutional
investors through several investment banking firms acting as
brokers or dealers, these securities were only recently
developed. As a result, established trading markets have not yet
developed and, accordingly, these securities may be illiquid.
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Foreign Currency Exchange Transactions. Each Fund may
engage in foreign currency exchange transactions to protect
against uncertainty in the level of future currency exchange
rates. Alliance Capital Management L.P. (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 Funds 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 Funds 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 Funds 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 to exchange
currency at a future time at a rate or rates that may be 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 Funds may also
purchase and sell call and put options on foreign currency
futures contracts and on foreign currencies.
Each 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, each
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 Funds may also purchase or
sell foreign currency on a spot basis.
A 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
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engage in such "cross hedging" activities when it believes that
such transactions provide significant hedging opportunities for a
Fund.
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ADDITIONAL INVESTMENT TECHNIQUES OF THE FUNDS
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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 and
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 and (c) possible inability to enforce
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
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
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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.
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.
Commercial Paper. Commercial paper consists of short-
term (usually from 1 to 270 days) unsecured promissory notes
issued by entities in order to finance their current operations.
Variable Notes. Variable amount master demand notes and
variable amount floating rate notes are obligations that permit
the investment of fluctuating amounts by 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
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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").
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
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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.
Forward Commitments and When-Issued and Delayed Delivery
Securities
Each Fund may enter into forward commitments for the
purchase of securities and may purchase securities on a "when-
issued" or "delayed delivery" basis. Agreements for such
purchases might be entered into, 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 the Fund is required to create a
segregated account with the Trust's custodian and to maintain in
that account liquid assets in an amount equal to or greater than,
on a daily basis, the amount of the Fund's forward commitments
and "when-issued" or "delayed delivery" commitments.
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 deemed
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 basis may involve more risk than other types of
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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).
Options
Options on Securities. Each Fund intends to write only
covered options. In addition to the methods of "cover" described
in the Prospectus, each Fund may write call and put options and
may purchase call and put options on securities. 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 may partially offset declines in
the value of portfolio securities or increases in the cost of
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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
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
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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
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
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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 Fund may write
(sell) covered call and put options on securities indexes 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,
in the opinion of the Adviser, expected 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 also purchase put options on securities
indexes to hedge its investments 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.
The purchase of call options on securities indexes may
be used by a Fund 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
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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. Each Fund 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
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 part or entirely, 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 rate 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
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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.
Each Fund may purchase and sell foreign currency futures
contracts for hedging purposes to attempt to protect its current
or intended investments from 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. Each Fund may
sell futures contracts on a foreign currency, for example, when
it holds securities denominated in such currency and it
anticipates a decline in the value of such currency relative to
the dollar. In the event such decline occurs, 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
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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, which provides a partial hedge against any
increase in the price of securities which the Fund intends to
purchase. If a put or call option a Fund has written is
exercised, the Fund will incur a loss which will be reduced by
the amount of the premium it receives. Depending on the degree
of correlation between changes in the value of its portfolio
securities and changes in the value of its options on futures
positions, 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 occurs, it may
be offset, in whole or part, by a profit on the option. If the
market decline does not occur, the Fund will suffer a loss equal
to the price of the put. Where it is projected that the value of
securities to be acquired by 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.
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<PAGE>
Forward Foreign Currency Exchange Contracts
Each Fund 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
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. Accordingly, a Fund will segregate liquid assets in
an amount least equal to the Fund's obligations under any Forward
Contracts.
Options on Foreign Currencies
Each Fund 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
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<PAGE>
portfolio securities, the Funds may purchase put options on the
foreign currency. If the value of the currency does decline, the
Fund will have the right to sell such currency for a fixed amount
in dollars and could 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 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.
Each Fund may write options on foreign currencies for
the same types of hedging purposes or to increase return. For
example, where the 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 could 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.
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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 fixed income securities, the portfolio securities which are
being hedged may not be the same type of obligation underlying
such contract. As a result, the correlation, to the extent it
exists, probably will not be exact.
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.
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
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<PAGE>
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 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
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
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<PAGE>
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
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
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<PAGE>
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
"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.
Risks of Options on Futures Contracts. The amount of
risk a Fund assumes when it purchases an option on a Futures
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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
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 United States 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
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markets regulated by the CFTC or (with the exception of certain
foreign currency options) the SEC. Such instruments are instead
traded through financial institutions acting as market-makers,
although foreign currency options are also traded on certain
national securities exchanges, such as the Philadelphia Stock
Exchange and the Chicago Board Options Exchange, subject to SEC
regulation. In an over-the-counter trading environment, many of
the protections afforded to exchange participants will not be
available. For example, there are no daily price fluctuation
limits, and adverse market movements could therefore continue to
an unlimited extent over a period of time. Although the
purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could
be lost. Moreover, the option writer could lose amounts
substantially in excess of the initial investment, due to the
margin and collateral requirements associated with such
positions.
In addition, over-the-counter transactions can be
entered into only with a financial institution willing to take
the opposite side, as principal, of 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
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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
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
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exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar
settlement prices or prohibitions on exercise.
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
maintains with its custodian a segregated liquid assets account
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.
No Fund will "over-hedge," that is, a Fund will not
maintain open short positions in futures or options contracts if,
in the aggregate, the market value of its open positions exceeds
the current market value of its securities portfolio plus or
minus the unrealized gain or loss on such open positions,
adjusted for the historical volatility relationship between the
portfolio and futures and options contracts.
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
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is impossible to predict the amount of trading interest that may
hereafter exist in various types of options or futures.
Therefore no assurance can be given that 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 affect the length of time for which the Funds can
hold such contracts and 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 in order to meet tax requirements. Furthermore,
in certain circumstances use of options, futures and forward
contracts that substantially eliminate risk of loss and the
opportunity for gain in an "appreciated financial position" will
accelerate gain to the Funds.
Future Developments
The above 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 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 to 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.
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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 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.
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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 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
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<PAGE>
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 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
28
<PAGE>
New York Stock Exchange or the American Stock
Exchange.
(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
_______________________________________________________________
The Adviser
Alliance Capital Management L.P., (the "Adviser") a
Delaware limited partnership with principal offices at 1345
Avenue of the Americas, New York, New York 10105, has been
retained under an investment advisory agreement (the "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.
The Adviser is a leading international investment
manager supervising client accounts with assets as of June 30,
1998, totaling more than 262 billion (of which more than $107
billion represented the assets of investment companies). The
Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies,
foundations and endowment funds. The 58 registered investment
companies managed by the Adviser, comprising 123 separate
29
<PAGE>
investment portfolios, currently have more than 3.5 million
shareholders. As of July 31, 1998, the Adviser and its
subsidiaries employed approximately 2,000 employees who operate
out of domestic offices and the offices of subsidiaries in
Bahrain, Bangalore, Cairo, Chennai, Hong Kong, Istanbul,
Johannesburg, London, Luxembourg, Madrid, Moscow, Mumbai, New
Dehli, 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.
30
<PAGE>
Investment Advisory Contract and Expenses
The Adviser serves as investment manager and adviser of
each of the Funds and 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 Funds at an annual rate of 0.75% of each Fund's
average daily net assets. The Adviser has voluntarily undertaken
until further notice to waive its fees in respect of the
Conservative Investors Fund and has agreed to bear certain
expenses of the Class A, Class B, Class C shares of such Fund to
the extent that expenses exceed an annual rate of 1.40% for
Class A shares and 2.10% for Class B and Class C shares. The
management fees for each Fund are higher than those paid by most
mutual funds.
The Investment Advisory Contract became effective on
July 23, 1993. The Investment Advisory Contract replaced an
earlier agreement (the "First Investment Advisory Contract")
between the Trust and Equitable Capital with respect to the
Funds. The First Investment Advisory Contract terminated because
of its technical assignment in connection with the transfer of
substantially all of the assets comprising Equitable Capital's
business to the Adviser and certain of its subsidiaries in
exchange for newly issued limited partnership interests in the
Adviser and the assumption by the Adviser and such subsidiaries
of certain liabilities of Equitable Capital. Equitable Capital
was compensated for its services as investment manager of the
Funds at the same rates as are currently paid by the Funds to the
Adviser.
In anticipation of the assignment of the First
Investment Advisory Contract, the Investment Advisory Contract
was approved by the vote of the Trust's Trustees, including the
Trustees who are not parties to the Investment Advisory Contract
or interested persons of any such party, at meetings called for
the purpose and held on February 16, 1993 and March 31, 1993. At
a meeting held on April 8, 1993, a majority of the outstanding
voting securities of the Funds approved the Investment Advisory
Contract. Most recently, the continuance of the Investment
Advisory Contract until July 31, 1999 was approved by a vote,
cast in person, of the Board of Trustees, including a majority of
the Trustees who are not parties to the Investment Advisory
Contract or interested persons of any such party, at their
Regular Meeting held on July 16, 1998.
31
<PAGE>
During the period May 1, 1997 through April 30, 1998,
the Adviser earned $332,496 in management fees from the
Conservative Investors Fund (an additional $219,865 in fees were
waived) and $788,159 from the Growth Investors Fund. During the
period May 1, 1996 through April 30, 1997, the Adviser earned
$363,977 in management fees from the Conservative Investors Fund
(an additional $245,071 in fees were waived) and $723,109 from
the Growth Investors Fund (an additional $167,543 in fees were
waived). During the period May 1, 1995 through April 30, 1996,
the Adviser earned $387,903 in management fees from the
Conservative Investors Fund (an additional $174,857 in fees were
waived) and $632,516 from the Growth Investors Fund (an
additional $214,077 in fees were 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
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 to 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.
32
<PAGE>
Trustees
John D. Carifa,1 53, Chairman of the Board and
President, is the President, Chief Operating Officer, and a
Director of ACMC, the general partner of the Adviser. His
address is 1345 Avenue of the Americas, New York, New York 10105.
Ruth Block, 67, was formerly an Executive Vice President
and Chief Insurance Officer of The Equitable Life Assurance
Society of the United States. She is a Director of Ecolab
Incorporated (specialty chemicals) and Amoco Corporation (oil and
gas). Her address is Box 4653, Stamford, Connecticut 06903.
Richard W. Couper, 75, is President Emeritus and Trustee
of The Woodrow Wilson Fellowship Foundation and President
Emeritus of the New York Public Library. His address is Box 345,
Clinton, New York, 13323-0345.
William H. Foulk, Jr., 65, 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
2 Hekma Road, Greenwich, Connecticut 06831.
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 of the law
firm of Orrick, Herrington & Sutcliffe and was formerly a senior
partner, and was a member of the Executive Committee of that
firm. His address is 666 Fifth Avenue, 19th Floor, New York, New
York 10103.
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.
His address is 1345 Avenue of the Americas, New York, New York
10105.
Mark D. Gersten, 47, Treasurer and Chief Financial
Officer, is a Senior Vice President of Alliance Fund Services,
Inc. His address is 500 Plaza Drive, Secaucus, New Jersey 07094.
_________________________
1An "interested person" of the Trust, as defined by the 1940
Act.
33
<PAGE>
Vincent S. Noto, 33, Controller and Chief Accounting
Officer, is a Vice President of Alliance Fund Services, Inc. His
address is 500 Plaza Drive, Secaucus, New Jersey 07094.
Bruce W. Calvert, 51, Senior Vice President, is the Vice
Chairman and Chief Investment Officer of ACMC. His address is
1345 Avenue of the Americas, New York, New York 10105.
Kathleen A. Corbet, 38, Senior Vice President, is an
Executive Vice President of ACMC since 1993. Prior thereto, she
was employed by Equitable Capital Her address is 1345 Avenue of
the Americas, New York, New York 10105.
Wayne D. Lyski, 56, Senior Vice President, is Executive
Vice President of ACMC. 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 since 1997. Prior thereto, he was Chief
Investment Officer and Portfolio Manager at Draycott Partners.
The aggregate compensation paid to each of the Trustees
by the Conservative Investors Fund and by the Growth Investors
Fund for the fiscal year ended April 30, 1998, 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 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 the Trustees is a director
or trustee of one or more other registered investment companies
in the Alliance Fund Complex.
34
<PAGE>
Total Number
of Funds
in the
Alliance
Total Fund Complex,
Aggregate Aggregate Compensation Including
Compensation Compensation from the the Trust,
from the from the Alliance as to which
Conservative Growth Fund Complex the Trustee
Name of Trustee Investors Investors Including is a Director
of the Fund Fund Fund the Trust* or Trustee
_______________ ____________ ____________ ____________ _____________
Ruth Block $4,515 $4,515 $164,000 82
John D. Carifa $ -- $ -- $ -- 120
Richard W. Couper $5,150 $5,150 $ 94,000 19
William H. Foulk, Jr. $4,520 $4,520 $149,145 115
Brenton W. Harries $5,100 $5,100 $102,000 19
Donald J. Robinson $4,507 $4,507 $217,358** 96
* As of June 30, 1998 there were 123 investment companies or
portfolios thereof in the Alliance Fund Complex.
** Includes deferred compensation. As of December 31, 1997, the
total amount of deferred compensation (including interest)
payable to Mr. Robinson by the Conservative Investors Fund
and the Growth Investors Fund was $13,249 and $13,586,
respectively.
As of August 14, 1998, the Trustees and officers of the
Trust as a group owned less than 1% of the outstanding shares of
the Funds.
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
to persons or firms supplying investment information to the
Adviser. Neither the Funds nor the Adviser have entered into
35
<PAGE>
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 that its
receipt by 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 Funds during
the fiscal year ended April 30, 1998 were as follows: with
respect to the Conservative Investors Fund, $52,451,646 and, in
connection therewith, brokerage commissions of $61,480 (100%)
were allocated to persons or firms supplying research
information; and with respect to the Growth Investors Fund,
$223,737,310 and, in connection therewith, brokerage commissions
of $342,009 (100%) were allocated to persons or firms supplying
research information. Aggregate securities transactions for the
Funds during the fiscal year ended April 30, 1997 were as
follows: with respect to the Conservative Investors Fund,
$68,744,431 and, in connection therewith, brokerage commissions
of $52,669 (100%) were allocated to persons or firms supplying
research information; and with respect to the Growth Investors
Fund, $179,271,861 and, in connection therewith, brokerage
commission of $280,483 (100%) were allocated to persons or firms
36
<PAGE>
supplying research information. Aggregate securities
transactions for the Funds during the fiscal year ended April 30,
1996 were as follows: with respect to the Conservative Investors
Fund, $260,211,306 and, in connection therewith, brokerage
commissions of $75,237 (100%) were allocated to persons or firms
supplying research information; and with respect to the Growth
Investors Fund, $322,321,206 and, in connection therewith,
brokerage commission of $386,197 (100%) were allocated to persons
or firms supplying research information.
For the fiscal year ended April 30, 1998, the
Conservative Investors Fund paid an aggregate of $61,480 in
brokerage commissions; and the Growth Investors Fund paid an
aggregate of $342,009 in brokerage commissions. For the fiscal
year ended April 30, 1997, the Conservative Investors Fund paid
an aggregate of $52,669 in brokerage commissions; and the Growth
Investors Fund paid an aggregate of $280,483 in brokerage
commissions. For the fiscal year ended April 30, 1996, the
Conservative Investors Fund paid an aggregate of $75,237 in
brokerage commissions; and the Growth Investors Fund paid an
aggregate of $386,197 in brokerage commissions.
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
37
<PAGE>
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 April 30,
1998, April 30, 1997 and April 30, 1996, are set forth below:
% of Fund's
% of Fund's Aggregate
Amount Aggregate Dollar
Fiscal Year Brokerage Brokerage Amount of
Ended April 30, Fund Commissions Commissions Transactions
_______________ ____ ___________ ___________ _____________
1998 Growth Investors $0 0% 0%
Conservative
Investors 0 0 0
1997 Growth Investors 50 0.02% 0%
Conservative
Investors 123 0.23% 0
1996 Growth Investors $0 0% 0%
Conservative
Investors 0 0% 0%
The annual portfolio turnover rates of the Conservative
Investors Fund and the Growth Investors Fund for the fiscal years
ended April 30, 1998, April 30, 1997 and April 30, 1996 were
138%, 174% and 267% for Conservative Investors and 137%, 133% and
209% for Growth Investors, respectively.
_______________________________________________________________
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
38
<PAGE>
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 Alliance Fund Distributors, Inc. (the
"Principal Underwriter") a Rule 12b-1 distribution services fee
which may not exceed an annual rate of 0.50% 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 to the Class C
shares to compensate the Principal Underwriter for distribution
expenses. The Trustees currently limit payments under the
Class A Plan to 0.30% 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 0.25% 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
39
<PAGE>
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 pursuant to
the Plan applicable to such shares, the Principal Underwriter
received $35,259 and $90,118 with respect to the Class A shares
of the Conservative Investors Fund and the Growth Investors Fund,
respectively, during the fiscal year ended April 30, 1998. For
services rendered by the Principal Underwriter in connection with
the distribution of Class A shares pursuant to the Plan
applicable to such shares, the Principal Underwriter received
$39,343 and $87,204 with respect to the Class A shares of the
Conservative Investors Fund and the Growth Investors Fund,
respectively, during the fiscal year ended April 30, 1997. For
services rendered by the Principal Underwriter in connection with
the distribution of Class A shares pursuant to the Plan
applicable to such shares, the Principal Underwriter received
$45,690 and $81,307 with respect to the Class A shares of the
Conservative Investors Fund and the Growth Investors Fund,
respectively, during the fiscal year ended April 30, 1996.
For services rendered by the Principal Underwriter in
connection with the distribution of Class B shares pursuant to
the Plan applicable to such shares, the Principal Underwriter
received $285,077 and $679,834 with respect to the Class B shares
of the Conservative Investors Fund and the Growth Investors Fund,
40
<PAGE>
respectively, during the fiscal year ended April 30, 1998. For
services rendered by the Principal Underwriter in connection with
the distribution of Class B shares pursuant to the Plan
applicable to such shares, the Principal Underwriter received
$304,539 and $613,255 with respect to the Class B shares of the
Conservative Investors Fund and the Growth Investors Fund,
respectively, during the fiscal year ended April 30, 1997. For
services rendered by the Principal Underwriter in connection with
the distribution of Class B shares pursuant to the Plan
applicable to such shares, the Principal Underwriter received
$316,700 and $523,545 with respect to the Class B shares of the
Conservative Investors Fund and the Growth Investors Fund,
respectively, during the fiscal year ended April 30, 1996.
For services rendered by the Principal Underwriter in
connection with the distribution of Class C shares pursuant to
the Plan applicable to such shares, the Principal Underwriter
received $40,720 and $70,649 with respect to the Class C shares
of the Conservative Investors Fund and the Growth Investors Fund,
respectively, during the fiscal year ended April 30, 1998. For
services rendered by the Principal Underwriter in connection with
the distribution of Class C shares pursuant to the Plan
applicable to such shares, the Principal Underwriter received
$49,620 and $60,207 with respect to the Class C shares of the
Conservative Investors Fund and the Growth Investors Fund,
respectively, during the fiscal year ended April 30, 1997. For
services rendered by the Principal Underwriter in connection with
the distribution of Class C shares pursuant to the Plan
applicable to such shares, the Principal Underwriter received
$48,204 and $48,786 with respect to the Class C shares of the
Conservative Investors Fund and the Growth Investors Fund,
respectively, during the fiscal year ended April 30, 1996.
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 fiscal year ended April 30, 1998:
CONSERVATIVE INVESTORS FUND
Amount of Expense and Allocated Cost
Category Class A Class B Class C
of Expense Shares Shares Shares
__________ _______ _______ _______
Advertising/
Marketing $13,640 $60,439 $12,856
41
<PAGE>
Printing and
Mailing of
Prospectuses
and Semi-Annual
and Annual
Reports to Other
than Current
Shareholders $2,061 $13,717 $3,275
Compensation to
Underwriters $23,958 $117,959 $25,892
Compensation to
Dealers $36,777 $241,416 $47,170
Compensation to
Sales
Personnel $2,004 $3,642 $594
Interest, Carrying or
Other
Financing Charges $N/A $31,658 $4,525
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) $39,801 $172,001 $38,669
Total $118,241 $640,832 $132,981
Growth Investors Fund
Amount of Expense and Allocated Cost
Category Class A Class B Class C
of Expense Shares Shares Shares
Advertising/
Marketing $18,922 $62,060 $15,984
42
<PAGE>
Printing and
Mailing of
Prospectuses
and Semi-Annual
and Annual
Reports to Other
than Current
Shareholders $6,632 $23,155 $5,102
Compensation to
Underwriters $36,152 $121,234 $29,660
Compensation to
Dealers $84,122 $443,308 $81,020
Compensation to
Sales
Personnel $6,467 $6,281 $1,877
Interest, Carrying or
Other
Financing Charges $N/A $75,713 $7,891
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) $60,851 $185,895 $45,139
Total $213,146 $917,646 $186,673
Custodial Arrangements
State Street Bank and Trust Company, 225 Franklin
Street, Boston, MA, 02110 ("State Street Bank") is the Trust's
custodian.
Transfer Agency Arrangements
Alliance Fund Services, Inc. ("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 and
Class C 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 shares, reflecting the additional costs
associated with the Class B and Class C contingent deferred sales
charge.
43
<PAGE>
_______________________________________________________________
PURCHASE OF SHARES
_______________________________________________________________
The following information supplements that set forth in
the Prospectus under the heading "Purchase and Sale of Shares --
How To Buy Shares."
General
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, as long as the shares are held for one
year or more, without any contingent deferred sales charge (the
"Class C shares"),in each case as described below. Shares of the
Funds that are offered subject to a sales charge are offered on a
continuous basis through (i) investment dealers that are members
of the National Association of Securities Dealers, Inc. and have
entered into selected dealer agreements with the Principal
Underwriter ("selected dealers"), (ii) depository institutions
and other financial intermediaries or their affiliates, that have
entered into selected agent agreements with the Principal
Underwriter ("selected agents"), and (iii) the Principal
Underwriter.
The minimum for initial investments for any class of
shares is $250; subsequent investments (other than reinvestments
of dividends and capital gains distributions in shares) must be
in the minimum amount of $50. As described under "Shareholder
Services," the Funds offer an automatic investment program and a
403(b)(7) retirement plan which permit investments of $25 or
more. The subscriber may use the Subscription Application found
in the Prospectus for his or her initial investment. Sales
personnel of selected dealers and agents distributing the Funds'
shares may receive differing compensation for selling Class A,
Class B or Class C shares.
Investors may purchase shares of the Funds in the United
States either through selected dealers or agents or directly
through the Principal Underwriter. Shares may also be sold in
foreign countries where permissible. The Funds may refuse any
order for the purchase of shares for any reason. 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.
Investors may purchase shares of the Funds through
selected dealers, agents or financial representatives directly
44
<PAGE>
through the Principal Underwriter. Sales personnel of selected
dealers and agents distributing the Funds' shares may receive
differing compensation for selling Class A, Class B or Class C
shares.
Shares may also be sold in foreign countries where
permissible. 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 in the Prospectus under "Purchase and Sales of Shares." On
each Fund business day on 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 and Class C 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
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, if 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, if applicable, Class A
sales charges). In the case of orders for purchase of shares
placed through selected dealers, agents or financial
45
<PAGE>
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. 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 financial representatives, as applicable. If
the selected dealer, agent or financial representative, as
applicable, either 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,
agent or financial representative. This facilitates later
redemption and relieves the shareholder of the responsibility for
and inconvenience of lost or stolen certificates. No
certificates are issued for fractional shares, although such
shares remain in the shareholder's account on the books of the
Fund.
46
<PAGE>
In addition to the discount or commission amount paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash bonuses or other incentives to dealers or
agents, including EQ Financial Consultants, Inc., formerly Equico
Securities, Inc. an affiliate of the Principal Underwriter
("Equico", 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 specific period
of time. On some occasions, such cash or other incentives may
take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment incurred in
connection with travel, lodging and entertainment incurred in
connection with travel taken by persons associated with a dealer
or agent and their immediate family members to urban or resort
locations within or outside the United States. Such dealer or
agent may elect to receive cash incentives of equivalent amount
in lieu of such payments.
Class A, Class B and Class C shares each represent an
interest in the same portfolio of investments of the Fund, have
the same rights and are identical in all respects, except that
(i) Class A shares bear the expense of the initial sales charge
(or contingent deferred sales charge, when applicable) and
Class B and Class C 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, (iii) Class B and Class C shares bear higher
transfer agency costs than those borne by Class A shares,
(iv) each class 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 to 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, the Class A shareholders, the Class B
shareholders will vote separately by Class, and (v) Class B
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 and Class C 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.
47
<PAGE>
Alternative Retail Purchase Arrangements -- Class A, Class B and
Class C Shares
The alternative purchase arrangements available with
respect to Class A shares, Class B shares and Class C shares
permit an investor to choose the method of purchasing shares that
is most beneficial given the amount of the purchase, the length
of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the
anticipated life of their investment in 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 charge on Class C shares, would be less than the initial
sales charge and accumulated distribution services fee on Class A
shares purchased at the same time, and to what extent such
differential would be offset by the higher return of Class A
shares. Class A shares will normally be more beneficial than
Class B shares to the investor who qualifies for reduced initial
sales charges on Class A shares, as described below. In this
regard, the Principal Underwriter will reject any order (except
orders from certain retirement plans) for more than $250,000 for
Class B 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
48
<PAGE>
her investment approximately seven years for the Class C
distribution services fee to exceed the initial sales charge plus
the accumulated distribution services fee on 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
period during which Class B shares are subject to a contingent
deferred sales charge may find it more advantageous to purchase
Class C shares.
Class A Shares
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below:
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.
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
49
<PAGE>
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 Rule 12b-1 Plans 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, or (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. 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 charge to
selected dealers and agents for all sales with respect to which
orders are placed with the Principal Underwriter. A selected
dealer or agent 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
50
<PAGE>
purchase of Class A shares of the Conservative Investors Fund and
of the Growth Investors 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 April 30, 1998:
Conservative Investors Fund
Net Asset Value per Class A Share
at April 30, 1998: $15.09
Per Share Sales Charge - 4.25% of
offering price (4.42% of net asset
value per share) $ 0.67
______
Class A Per Share Offering Price to
the Public $15.67
======
Growth Investors Fund
Net Asset Value per Class A Share
at April 30, 1998 $11.97
Per Share Sales Charge - 4.25% of
offering price (4.42% of net asset
value per share) $ 0.53
______
Class A Per Share Offering Price to
the Public $12.50
======
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 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 in the Prospectus by combining purchases of
shares of a 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
51
<PAGE>
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:
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 Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
52
<PAGE>
-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/Regent Sector Opportunity Fund, Inc.
Alliance Select Investors Series, Inc.
-Premier Portfolio
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance 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 Class A, Class B and
Class C 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 initial sales charge for the $100,000
purchase would be at the rate 2.25% applicable to a single
$300,000 purchase of shares of the Fund, rather than the 3.25%
rate.
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<PAGE>
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 initial sales charges shown in the Prospectus
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 and/or
Class C 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
only 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 shares will be
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, 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
54
<PAGE>
further reduced sales charge, the initial sales charge will be
adjusted for the entire amount purchased at the end of the
13-month period. The difference in the initial sales charge will
be used to purchase additional shares of a Fund subject to the
rate of the initial 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 initial sales charge
on a monthly basis during the 13-month period following such a
plan's initial purchase. The initial sales charge applicable to
such initial purchase of shares of a Fund will be that normally
applicable, under the schedule of the initial 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 reinvestment 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
after the redemption or repurchase transaction. The
reinstatement privilege may be used by the shareholder only once,
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irrespective of the number of shares redeemed or repurchased,
except that the privilege may be used more than once in
connection with transactions whose sole purpose is to transfer a
shareholder's interest in a Fund to his or her individual
retirement account or other qualified retirement plan account.
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;
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
advisor 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
and approved by the Principal Underwriter, pursuant to which such
persons pay an asset-based fee to such broker-dealer, or its
affiliate or agent, for service 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 their
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
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plans and individual retirement accounts (including individual
retirement accounts to which simplified employee pension (SEP)
contributions are made), if such plans or accounts are
established or administered under programs sponsored by
administrators or other persons that have been approved by the
Principal Underwriter.
Class B Shares
Investors may purchase Class B shares at the public
offering price equal to the net asset value per share of the
Class B shares on the date of purchase without the imposition of
a sales charge at the time of purchase. The Class B shares are
sold without an initial sales charge so that the 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 be subject to a
contingent deferred sales charge at the rates set forth below.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on shares
derived from reinvestment of dividends or capital gains
distributions.
To illustrate, assume that an investor purchased 100
Class B shares at $10 per share (at a cost of $1,000) and in the
second year after purchase the net asset value per share is $12
and, during such time, the investor has acquired 10 additional
Class B shares upon dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 Class B shares
(proceeds of $600), 10 Class B shares will not be subject to
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
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asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 3.0% (the
applicable rate in the second year after purchase, as set forth
below).
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years between the date
of payment for the purchase of Class B shares and the date of
redemption of such shares.
Contingent Deferred Sales Charge as a % of Dollar Amount
Shares
Purchased On or
Years since After August 2, Shares Purchased
Purchase 1993 but Before On or After
Subject to November 19, November 19,
Change 1993 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
Thereafter 0.50% None
In determining the contingent deferred sales charge
applicable to a redemption of Class B, it will be assumed that
the redemption consists first, of any shares were acquired upon
the reinvestment of dividends or distributions and, second, of
shares held longest during the time they are subject to the sales
charge. When shares acquired in an exchange are redeemed, the
applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of
purchase of shares 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 "Shareholder
Services--Systematic Withdrawal Plan" below).
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Conversion Feature. Class B shares will automatically
convert to Class A shares on the tenth Fund business day in the
month following the month in which the eighth anniversary date of
the acceptance of the purchase order for the Class B shares
occurs and such shares will no longer be subject to a higher
distribution services fee. Such conversions will be 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. See "Shareholder Services--Exchange Privilege."
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.
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.
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
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 and incur higher distribution services fees
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and transfer agency costs than Class A shares. Class C share
will thus have a higher expense ratio and pay correspondingly
lower dividends than Class A shares.
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1%, charged as a percentage of the lesser of their original cost
or their net asset value at the time of redemption. Accordingly,
no sales charge will be imposed on increases in net asset value
above the initial purchase price. In addition, no charge will be
assessed on shares derived from reinvestment of dividends or
capital gains distributions. The contingent deferred sales
charge on Class C shares will be waived on the types of
redemptions with respect to which a Class B contingent deferred
sales charge would be waived (see above under "--Class B
Shares"), and will be applied to redemptions of shares by
shareholders who hold both Class C shares and shares of one or
more other classes subject to a contingent deferred sales charge
as described above under "--Class B Shares."
Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class C shares, such as the
payment of compensation to selected dealers and agents for
selling Class C shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Fund to sell the Class C shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
paid with respect to Class A shares.
_______________________________________________________________
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."
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 and
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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 has any
questions regarding 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 may 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 will reflect the deduction of
the applicable contingent deferred sales charge, if applicable.
Payment (either in cash or in portfolio securities) received by a
shareholder upon redemption or repurchase of his shares, assuming
the shares constitute capital assets in his hands, may result in
capital gains or losses, the nature of which depends 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 institution that is an "eligible guarantor" as
defined in 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,
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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 may not exceed $100,000
(except for certain omnibus accounts), and must be made by
4:00 p.m. Eastern time on a Fund business day as defined above.
Proceeds of telephone redemptions will be sent by electronic
funds transfer to a shareholder's designated bank account at a
bank selected by the shareholder that is a member of the NACHA.
Telephone Redemption By Check. Each Fund shareholder is
eligible to request redemption by check of Fund shares for which
no share certificates have been issued, by telephone at
(800) 221-5672 before 4:00 p.m. Eastern time on a Fund business
day in an amount not exceeding $50,000. Proceeds of such
redemptions are remitted by check to the shareholder's address of
record. A shareholder otherwise eligible for telephone redemption
by check may cancel the privilege by written instruction to AFS,
or by checking the appropriate box on the Subscription
Application found in the Prospectus.
Telephone Redemptions--General. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching AFS by telephone (although no such
difficulty was apparent at any time in connection with the 1987
market break). If a shareholder were to experience such
difficulty, the shareholder should issue written instructions to
AFS at the address shown on the cover of this Statement of
Additional Information. The 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. AFS will employ reasonable procedures in
order to verify that telephone requests for redemptions are
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genuine, including, among others, recording such telephone
instructions and causing written confirmations of the 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 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),
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, selected
dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. Eastern time. 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 selected 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).
Normally, if shares of the Funds are offered through a financial
intermediary, 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 consecutive
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.
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_______________________________________________________________
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 all classes of shares unless
otherwise indicated.
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 agent
designated by the investor at the public offering price next
determined after the Principal Underwriter receives the proceeds
from the investor's bank. In electronic form, drafts can be made
on or about a date each month selected by the shareholder.
Investors wishing to establish an automatic investment program in
connection with their initial investment should complete the
appropriate portion of the Subscription Application found in the
Prospectus. Current shareholders should contact AFS at the
address or telephone numbers shown on the cover of this Statement
of Additional Information to establish an automatic investment
program.
Exchange Privilege
You may exchange your investment in the 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 Fund. 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
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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
(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
exchanges received before 4:00 p.m. Eastern time on a Fund
business day will be processed as of the close of business on
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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 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
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:
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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 contribution to an IRA will be deductible if neither the
individual nor his or her spouse is an active participant in an
employer-sponsored retirement plan. If the individual or his or
her spouse is an active participant in an employer-sponsored
retirement plan, the individual's contributions to an IRA may be
deductible, in whole or in part, depending on the amount of the
adjusted gross income of the individual and his or her spouse.
Employer-Sponsored Qualified Retirement Plans. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including
Section 401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals. The minimum
initial investment requirement may be waived with respect to
certain of these qualified plans.
If the aggregate net asset value of shares of the
Alliance Mutual Funds held by a qualified plan investing through
the Alliance Premier Retirement Program 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, without
any sales charge, for Class A shares of such Fund shortly before
the end of the calendar year in which the $5 million level is
attained. The Fund waives any contingent deferred sales charge
applicable to redemptions of Class B shares by qualified plans
investing through the Alliance Premier Retirement Program.
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.
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The Alliance Plans Division of Frontier Trust Company, a
subsidiary of The Equitable Life Assurance Society of the United
States, 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 or Class C Fund accounts, a Class A,
Class B or Class C account with one or more other Alliance Mutual
Funds may direct that income dividends and/or capital gains paid
on his or her Class A, Class B or Class C Fund shares be
automatically reinvested, in any amount, without the payment of
any sales or service charges, in shares of the same class of such
other Alliance Mutual Fund(s). Further information can be
obtained by contacting AFS at the address or the "For Literature"
telephone number shown on the cover of this Statement of
Additional Information. Investors wishing to establish a
dividend direction plan in connection with their initial
investment should complete the appropriate section of the
Subscription Application found in the Prospectus. Current
shareholders should contact AFS to establish a dividend direction
plan.
Systematic Withdrawal Plan
General. Any shareholder who owns or purchases shares
of 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 withdrawal payments will be subject
to any taxes applicable to redemptions and, except as discussed
68
<PAGE>
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 purchases are made. While an occasional
lump-sum investment may be made by a shareholder 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.
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
69
<PAGE>
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 net asset value of a share of each class is the
quotient obtained by dividing the value, as of the close of
regular trading on the Exchange (currently 4:00 p.m. Eastern
time), of the net assets of the Fund represented by that class
(i.e., the value of the assets of the Fund allocated to that
class less the liabilities of the Fund allocated to that class,
including expenses payable or accrued) by the total number of
shares of such class then outstanding at such closing.
For purposes of this computation, readily marketable
portfolio securities, including open short positions, listed on
the Exchange are valued at the last sale price reflected on the
consolidated tape at the close of the Exchange on the business
day as of which such value is being determined. If there has
been no sale on such day, then the security is valued at the mean
of the closing bid and asked prices on such day. If no bid and
asked prices are quoted on such day, then the security is valued
by such method as the Board of Trustees of the Trust shall
determine in good faith to reflect its fair market value.
Securities not listed on the Exchange but listed on other
national securities exchanges or admitted to trading on the
National Association of Securities Dealers Automatic Quotations,
Inc. ("NASDAQ") National List ("List") are valued in like manner.
Portfolio securities traded on more than one national
securities exchange are valued at the last sale price on the
business day as of which such value is being determined as
reflected on the tape at the close of the exchange representing
the principal market for such securities. Securities traded only
in the over-the-counter market, excluding those admitted to
trading on the List, are valued at the mean of the current bid
and asked prices therefor as reported by NASDAQ or, in the case
70
<PAGE>
of securities not quoted by NASDAQ, the National Quotation Bureau
or such other comparable sources as the Board of Trustees of the
Trust deems appropriate to reflect the fair market value thereof.
Call options written or purchased by a Fund are valued at the
last sale price and put options purchased by a Fund are valued at
the last sale price. Readily marketable fixed-income securities
may be valued on the basis of prices provided by a pricing
service when such prices are believed by the Adviser to reflect
the fair market value of such securities. The prices provided by
a pricing service take into account institutional size trading in
similar groups of securities and any developments related to
specific securities. U.S. Government Securities and other debt
instruments having 60 days or less remaining until maturity are
stated at amortized cost if their original maturity was 60 days
or less, or by amortizing their fair value as of the 61st day
prior to maturity if their original term to maturity exceeded 60
days (unless in either case the Board of Trustees of the Trust
determines that this method does not represent fair value). All
other assets, including restricted securities of a Fund, are
valued in such manner as the Board of Trustees of the Trust in
good faith deems appropriate to reflect their fair market value.
The Trustees may suspend the determination of a Fund's
net asset value (and the offering and sales of shares), subject
to the rules of the SEC 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
a 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 SEC by order permits a suspension of the right
of redemption or a postponement of the date of payment on
redemption.
The assets belonging to the Class A shares, the Class B
shares and the Class C shares will be invested together in a
single portfolio. The net asset value of each class will be
determined separately by subtracting the accrued expenses and
liabilities allocated to that class from the assets belonging to
that class pursuant to a multi-class plan adopted by the Trust
pursuant to Rule 18f-3 under the 1940 Act.
71
<PAGE>
_______________________________________________________________
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 Internal Revenue
Code of 1986, as amended, 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 the
securities of other regulated investment companies) or of two or
more issuers that the Fund controls and that are engaged in the
same, similar, or related trades or businesses. These
requirements may limit the range of the Fund's investments.
If 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 Fund distributions
during its taxable year equal or exceed the sum of (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
72
<PAGE>
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.
Distributions of net capital gains (i.e. the excess of
net gains from capital assets held for more than one year over
net losses from capital assets held for not more than one year)
that are designated by a Fund as capital gain dividends will
generally be taxable to a shareholder receiving such
distributions as long-term capital gain (generally taxed at 20
percent tax rate for noncorporate shareholders) regardless of how
long the shareholder has held its shares. Some 1998
distributions of gain realized in 1997 may be subject to tax at a
28 percent rate.
Capital gains distributions are not eligible for the
dividends-received deduction referred to above. Any dividend or
distribution received by a shareholder on shares of the Fund
(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 less than six months will be
treated as a long-term capital loss for federal income tax
purposes to the extent of any capital gain distribution 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.
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
73
<PAGE>
sale of stock depends upon the holding period of the stock.
There may be short-term gains or losses associated with closing
purchase transactions.
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, or if the Fund is notified that you have under-reported
income in the past.
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 the Alliance Short-Term U.S.
Government Fund, the Alliance Growth Fund and the Alliance
Strategic Balanced Fund.
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
74
<PAGE>
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 and Class C 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.
75
<PAGE>
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 August 14, 1998:
Names and Addresses % of Class
Conservative Investors Fund - Class B
Merrill Lynch Pierce Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration (97B86)
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484 5.39%
Growth Investors Fund - Class C
Alliance Plans Div/FTC
C/F Howard E. Seufer IRA
Rollover Account
115 Par Metta Extension
Waverly, WV 26184-9738 6.34%
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
76
<PAGE>
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
(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
77
<PAGE>
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
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 Conservative Investors
Fund and Growth Investors Fund for the fiscal year ended
April 30, 1998, which are included in this Statement of
Additional Information, have been audited by
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New
York, New York 10036, 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.
Total Return Quotations
From time to time, a Fund may advertise its "total
return." Total return is computed separately for Class A, Class B
and Class C shares. Such advertisements disclose a Fund's
average annual compounded total return for recent 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
78
<PAGE>
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 Conservative Investors and Growth Investors Funds
was 17.87% and 27.96%, respectively, for the one-year period
ended April 30, 1998. The average annual compounded total return
for Class A shares of the Conservative Investors and Growth
Investors Funds was 9.15% and 13.80%, respectively, for the
period May 4, 1992 (commencement of distribution of Class A
shares) through April 30, 1998. The average annual compounded
total return for Class B shares of the Conservative Investors and
Growth Investors Funds was 17.04% and 27.04%, respectively, for
the one year period ended April 30, 1998. The average annual
compounded total return for Class B shares of the Conservative
Investors and Growth Investors Funds was 8.38% and 12.99%,
respectively, for the period May 4, 1992 (commencement of
distribution of Class B shares) through April 30, 1998. The
average annual compounded total return for Class C shares of the
Conservative Investors and Growth Investors Funds was 17.04% and
27.02% respectively, for the one-year period ended April 30,
1998. The average annual compounded total return for Class C
shares of the Conservative Investors and Growth Investors Funds
was 7.59% and 12.30%, respectively, for the period August 2, 1993
(commencement of distribution of Class C shares) through
April 30, 1998.
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
New York Times, The Wall Street Journal, Barrons, Investor's
Business Daily, Money, Changing Times, Business Week and Forbes
or other media on behalf of such Fund.
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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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PORTFOLIO OF INVESTMENTS
APRIL 30, 1998 ALLIANCE GROWTH INVESTORS FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER INVESTMENTS-74.9%
UNITED STATES INVESTMENTS-54.1%
CONSUMER SERVICES-12.7%
BROADCASTING & CABLE-4.6%
Cox Communications, Inc. Cl.A (a) 35,000 $ 1,561,875
Scripps E.W. Co. Cl.A 30,000 1,700,625
Tele-Communications, Inc. -
Liberty Media Group Cl.A (a) 60,000 1,991,250
------------
5,253,750
ENTERTAINMENT & LEISURE-4.4%
Harley-Davidson, Inc. 70,000 2,520,000
Walt Disney Co. 20,000 2,486,250
------------
5,006,250
RETAIL - GENERAL MERCHANDISE-3.7%
Dayton Hudson Corp. 25,000 2,182,812
Home Depot, Inc. 30,000 2,088,750
------------
4,271,562
------------
14,531,562
FINANCE-12.5%
BANKING - MONEY CENTER-4.2%
BankAmerica Corp. 25,000 2,125,000
Chase Manhattan Corp. 19,000 2,632,687
------------
4,757,687
BANKING - REGIONAL-1.0%
Banc One Corp. 20,000 1,176,250
BROKERAGE & MONEY MANAGEMENT-2.9%
Merrill Lynch & Co., Inc. 21,000 1,842,750
Morgan Stanley, Dean Witter and Co. 19,000 1,498,625
------------
3,341,375
INSURANCE-2.6%
American International Group, Inc. 12,000 1,578,750
Travelers Group, Inc. 22,500 1,376,719
------------
2,955,469
MISCELLANEOUS-1.8%
MBNA Corp. 60,000 2,032,500
------------
14,263,281
CONSUMER STAPLES-7.2%
COSMETICS-3.8%
Avon Products, Inc. 20,000 1,643,750
Gillette Co. 12,000 1,385,250
The Estee Lauder Co., Inc. Cl.A 20,000 1,328,750
------------
4,357,750
RETAIL - FOOD & DRUG-1.5%
Kroger Co. (a) 40,000 1,675,000
TOBACCO-1.9%
Philip Morris Cos., Inc. 60,000 2,238,750
------------
8,271,500
TECHNOLOGY-5.9%
COMMUNICATION EQUIPMENT-0.6%
Tellabs, Inc. (a) 10,000 708,750
COMPUTER HARDWARE-1.0%
Compaq Computer Corp. 40,000 1,122,500
COMPUTER SERVICES-0.9%
First Data Corp. 30,000 1,016,250
NETWORKING SOFTWARE-1.9%
Cisco Systems, Inc. (a) 30,000 2,197,500
11
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE GROWTH INVESTORS FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
SEMI-CONDUCTOR COMPONENTS-1.5%
Altera Corp. (a) 18,000 $ 729,000
Intel Corp. 12,000 969,750
------------
1,698,750
------------
6,743,750
HEALTH CARE-5.9%
DRUGS-5.0%
Bristol-Myers Squibb Co. 25,000 2,646,875
Merck & Co., Inc. 25,000 3,012,500
------------
5,659,375
MEDICAL PRODUCTS-0.9%
Medtronic, Inc. 20,000 1,052,500
------------
6,711,875
ENERGY-5.0%
DOMESTIC PRODUCERS-0.9%
Apache Corp. 30,000 1,061,250
OIL SERVICE-4.1%
Halliburton Co. 40,000 2,200,000
Noble Drilling Corp. (a) 75,000 2,423,438
------------
4,623,438
------------
5,684,688
UTILITIES-2.3%
TELEPHONE UTILITY-2.3%
WorldCom, Inc. (a) 60,000 2,566,875
MULTI INDUSTRY COMPANIES-1.3%
Tyco International, Ltd. 14,000 763,000
U.S. Industries, Inc. 25,000 678,125
------------
1,441,125
CAPITAL GOODS-1.0%
MISCELLANEOUS-1.0%
United Technologies Corp. 12,000 1,181,250
CONSUMER MANUFACTURING-0.3%
APPLIANCES-0.3%
Sunbeam Corp. 14,900 374,363
Total United States Investments
(cost $46,504,740) 61,770,269
FOREIGN INVESTMENTS-20.8%
BRAZIL-0.6%
Telecomunicacoes Brasilieras SA (ADR) 6,000 730,875
DENMARK-0.7%
Ratin Series B 4,000 768,652
FINLAND-2.4%
Nokia AB OY Corp.
Series A 30,000 2,015,937
Orion-Yhtymae OY Cl.B 25,000 775,713
------------
2,791,650
FRANCE-2.5%
Sanofi SA 4,000 485,111
SEITA 12,000 539,012
Total, SA Cl.B 9,000 1,070,537
Unibail, SA 5,018 717,930
------------
2,812,590
GERMANY-1.0%
Adidas AG 3,000 497,339
ProSieben Media AG pfd. 12,000 618,540
------------
1,115,879
HONG KONG-0.8%
Cheung Kong Holdings, Ltd. 50,000 332,429
Dickson Concepts International, Ltd. 70,000 96,695
Hutchison Whampoa, Ltd. 20,000 123,677
Sun Hung Kai Properties, Ltd. 60,000 356,313
------------
909,114
12
ALLIANCE GROWTH INVESTORS FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) U.S. $ VALUE
- -------------------------------------------------------------------------------
JAPAN-3.4%
Canon, Inc. 16,000 $ 378,419
Daiwa Securities Co., Ltd. 90,000 340,033
Fuji Photo Film Co. 12,000 427,082
Honda Motor Co. 12,000 435,243
Japan Tobacco, Inc. 50 357,791
Nintendo Corp., Ltd. 5,000 458,667
Rohm Co. 8,000 903,128
Yamanouchi Pharmaceutical Co., Ltd. 25,000 591,280
------------
3,891,643
MEXICO-0.4%
Coca-Cola Femsa SA (ADS) 30,000 510,000
NETHERLANDS-2.9%
AKZO Nobel NV 6,000 1,219,247
ASM Lithography Holding NV 9,000 816,643
ING Groep NV 20,000 1,295,975
------------
3,331,865
SPAIN-0.4%
Telefonica de Espana 10,000 417,597
Telefonica rights,
expiring 5/07/98 (a) 10,000 7,879
------------
425,476
SWEDEN-0.5%
Ericsson LM Telecom
Series B 10,000 526,995
SWITZERLAND-3.1%
Ciba Specialty Chemicals AG 5,000 604,798
Nestle, SA 600 1,163,612
Novartis AG 500 826,391
Zurich Versicherungsgesellschaft 1,500 913,696
------------
3,508,497
UNITED KINGDOM-2.1%
BPB Plc 90,000 $612,710
Compass Group Plc 60,000 1,038,746
Tomkins Plc 75,000 441,593
United News Media Plc 25,000 339,140
------------
2,432,189
Total Foreign Investments
(cost $19,779,432) 23,755,425
Total Common Stocks & Other Investments
(cost $66,284,172) 85,525,694
DEBT OBLIGATIONS-17.4%
U.S. GOVERNMENT & AGENCY OBLIGATIONS-14.0%
Federal Home Loan Bank
7.00%, 9/01/11 $ 849 868,075
Federal National Mortgage Association
6.50%, 1/01/11 84 84,636
6.50%, 5/01/11 1,655 1,662,841
7.00%, 5/01/26 951 961,215
Government National Mortgage Association
7.00%, 2/15/28 1,092 1,105,167
7.50%, 6/15/27 1,707 1,754,296
U.S. Treasury Bond
6.125%, 11/15/27 2,365 2,419,679
U.S. Treasury Notes
6.00%, 8/15/00 1,850 1,865,022
6.375%, 5/15/99 1,015 1,022,775
6.50%, 8/31/01 2,175 2,229,723
6.50%, 5/31/02 1,825 1,878,892
6.875%, 5/15/06 130 139,181
------------
15,991,502
13
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE GROWTH INVESTORS FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
CORPORATE DEBT OBLIGATIONS-2.3%
FINANCIAL-0.9%
Credit Suisse First Boston
6.50%, 5/01/08 (b) $ 500 $ 497,350
Lehman Brothers, Inc.
6.50%, 4/15/08 600 596,502
------------
1,093,852
INDUSTRIAL-1.4%
Beckman Instruments, Inc.
7.45%, 3/04/08 (b) 385 386,400
Coltec Industries, Inc.
7.50%, 4/15/08 (b) 420 415,800
Time Warner, Inc.
9.125%, 1/15/13 625 748,469
------------
1,550,669
------------
2,644,521
YANKEE BOND-1.1%
Corporacion Andina De Fomento
7.10%, 2/01/03 600 609,279
Fuji LLC
9.87%, 12/31/49 (b) 400 $379,706
NTL, Inc.
Zero Coupon, 4/01/08 (b) 350 225,750
------------
1,214,735
Total Debt Obligations
(cost $19,709,221) 19,850,758
SHORT-TERM INVESTMENT-5.7%
Federal Home Loan Mortgage Corp.
5.45%, 5/01/98
(amortized cost $6,500,000) 6,500 6,500,000
TOTAL INVESTMENTS -98.0%
(cost $92,493,393) 111,876,452
Other assets less liabilities-2.0% 2,299,336
NET ASSETS-100% $ 114,175,788
(a) Non-income producing security.
(b) Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At April 30, 1998,
these securities amounted to $1,905,006 or 1.7% of net assets.
Glossary:
ADR - American Depositary Receipt
ADS - American Depositary Shares
See notes to financial statements.
14
PORTFOLIO OF INVESTMENTS
APRIL 30, 1998 ALLIANCE CONSERVATIVE INVESTORS FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER INVESTMENTS-36.1%
UNITED STATES INVESTMENTS-25.5%
FINANCE-6.2%
BANKING - MONEY CENTER-1.9%
BankAmerica Corp. 5,000 $ 425,000
Chase Manhattan Corp. 3,000 415,687
------------
840,687
BANKING - REGIONAL-0.4%
Banc One Corp. 3,000 176,438
BROKERAGE & MONEY MANAGEMENT-1.4%
Merrill Lynch & Co., Inc. 4,500 394,875
Morgan Stanley, Dean Witter and Co. 3,000 236,625
------------
631,500
INSURANCE-1.5%
American International Group, Inc. 3,000 394,687
Travelers Group, Inc. 4,500 275,344
------------
670,031
MISCELLANEOUS-1.0%
MBNA Corp. 12,375 419,203
------------
2,737,859
CONSUMER SERVICES-5.3%
BROADCASTING & CABLE-2.1%
Cox Communications, Inc. Cl.A (a) 7,000 312,375
Scripps E.W. Co. Cl.A 6,000 340,125
Tele-Communications, Inc. -
Liberty Media Group Cl.A (a) 8,000 265,500
------------
918,000
ENTERTAINMENT & LEISURE-1.8%
Harley-Davidson, Inc. 12,000 432,000
Walt Disney Co. 3,000 372,937
------------
804,937
RETAIL - GENERAL MERCHANDISE-1.4%
Dayton Hudson Corp. 4,000 349,250
Home Depot, Inc. 4,000 278,500
------------
627,750
------------
2,350,687
CONSUMER STAPLES-3.2%
COSMETICS-1.7%
Avon Products, Inc. 4,000 328,750
Gillette Co. 2,000 230,875
The Estee Lauder Co., Inc. Cl.A 3,000 199,312
------------
758,937
RETAIL - FOOD & DRUG-0.7%
Kroger Co. (a) 7,000 293,125
TOBACCO-0.8%
Philip Morris Cos., Inc. 10,000 373,125
------------
1,425,187
TECHNOLOGY-3.1%
COMMUNICATION EQUIPMENT-0.5%
Tellabs, Inc. (a) 3,000 212,625
COMPUTER HARDWARE-0.5%
Compaq Computer Corp. 8,000 224,500
COMPUTER SERVICES-0.5%
First Data Corp. 6,000 203,250
NETWORKING SOFTWARE-0.8%
Cisco Systems, Inc. (a) 5,000 366,250
15
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE CONSERVATIVE INVESTORS FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
SEMI-CONDUCTOR COMPONENTS-0.8%
Altera Corp. (a) 4,800 $ 194,400
Intel Corp. 2,000 161,625
------------
356,025
------------
1,362,650
HEALTH CARE-2.9%
DRUGS-2.4%
Bristol-Myers Squibb Co. 5,500 582,313
Merck & Co., Inc. 4,000 482,000
------------
1,064,313
MEDICAL PRODUCTS-0.5%
Medtronic, Inc. 4,000 210,500
------------
1,274,813
ENERGY-1.9%
DOMESTIC PRODUCERS-0.4%
Apache Corp. 5,000 176,875
OIL SERVICE-1.5%
Halliburton Co. 6,000 330,000
Noble Drilling Corp. (a) 10,000 323,125
------------
653,125
------------
830,000
UTILITIES-0.9%
TELEPHONE UTILITY-0.9%
WorldCom, Inc. (a) 10,000 427,813
MULTI INDUSTRY COMPANIES-0.9%
Tyco International, Ltd. 4,000 218,000
U.S. Industries, Inc. 7,000 189,875
------------
407,875
CAPITAL GOODS-0.9%
MISCELLANEOUS-0.9%
United Technologies Corp. 4,000 393,750
CONSUMER MANUFACTURING-0.2%
APPLIANCES-0.2%
Sunbeam Corp. 4,100 103,013
Total United States Investments
(cost $8,326,633) 11,313,647
FOREIGN INVESTMENTS-10.6%
BRAZIL-0.3%
Telecomunicacoes Brasilieras SA (ADR) 1,200 146,175
DENMARK-0.4%
Ratin Series B 1,000 192,163
FINLAND-1.2%
Nokia AB OY Corp.
Series A 6,000 403,187
Orion-Yhtymae OY Cl.B 4,200 130,320
------------
533,507
FRANCE-1.2%
Sanofi SA 1,000 121,278
SEITA 2,000 89,835
Total, SA Cl.B 1,500 178,423
Unibail, SA 1,002 143,357
------------
532,893
GERMANY-0.5%
Adidas AG 700 116,046
ProSieben Media AG pfd. 2,000 103,090
------------
219,136
HONG KONG-0.3%
Cheung Kong Holdings, Ltd. 8,000 53,189
Dickson Concepts
International, Ltd. 12,000 16,576
Hutchison Whampoa, Ltd. 3,000 18,552
Sun Hung Kai Properties, Ltd. 10,000 59,385
------------
147,702
16
ALLIANCE CONSERVATIVE INVESTORS FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) U.S. $ VALUE
- -------------------------------------------------------------------------
JAPAN-1.5%
Canon, Inc. 3,000 $ 70,953
Daiwa Securities Co., Ltd. 12,000 45,338
Fuji Photo Film Co. 2,000 71,180
Honda Motor Co. 3,000 108,811
Japan Tobacco, Inc. 12 85,870
Nintendo Corp., Ltd. 1,000 91,733
Rohm Co. 1,000 112,891
Yamanouchi Pharmaceutical Co., Ltd. 4,000 94,605
------------
681,381
MEXICO-0.2%
Coca-Cola Femsa SA (ADS) 6,000 102,000
NETHERLANDS-1.7%
AKZO Nobel NV 1,000 203,208
ASM Lithography Holding NV 3,000 272,214
Internationale Nederlanden Groep NV 4,000 259,195
------------
734,617
SPAIN-0.3%
Telefonica de Espana 3,000 125,279
Telefonica rights,
expiring 5/07/98 (a) 3,000 2,364
------------
127,643
SWEDEN-0.3%
Ericsson LM Telecom
Series B 2,000 105,399
SWITZERLAND-1.5%
Ciba Specialty Chemicals AG 800 96,768
Nestle, SA 100 193,936
Novartis AG 100 165,278
Zurich Versicherungsgesellschaft 300 182,739
------------
638,721
UNITED KINGDOM-1.2%
BPB Plc 25,000 170,197
Compass Group Plc 12,000 207,749
Tomkins Plc 17,000 100,094
United News Media Plc 4,000 54,263
------------
532,303
Total Foreign Investments
(cost $3,821,558) 4,693,640
Total Common Stocks & Other Investments
(cost $12,148,191) 16,007,287
DEBT OBLIGATIONS-59.3%
U.S. GOVERNMENT & AGENCY OBLIGATIONS-45.3%
Federal National Mortgage Association
6.50%, 6/01/11 $2,887 2,900,795
6.50%, 6/01/11 475 477,326
7.00%, 5/01/26 1,426 1,441,823
Government National Mortgage Association
7.00%, 7/15/27 392 397,694
7.00%, 2/15/28 992 1,004,046
7.50%, 6/15/27 1,610 1,654,050
U.S. Treasury Bond
6.125%, 11/15/27 2,560 2,619,187
U.S. Treasury Notes
6.00%, 8/15/00 350 352,842
6.25%, 4/30/01 925 940,466
6.375%, 5/15/99 2,700 2,720,682
6.50%, 8/31/01 1,725 1,768,401
6.50%, 5/31/02 1,865 1,920,073
6.875%, 5/15/06 1,755 1,878,938
------------
20,076,323
CORPORATE DEBT OBLIGATIONS-9.2%
BANKING-2.3%
Long Island Savings Bank
7.00%, 6/13/02 1,000 1,018,410
17
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE CONSERVATIVE INVESTORS FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
INDUSTRIAL-4.6%
Comcast Cable Communications
8.375%, 5/01/07 $1,100 $ 1,224,291
Time Warner, Inc.
9.125%, 1/15/13 700 838,285
------------
2,062,576
TRANSPORTATION-2.3%
Enterprise Rent A Car USA Finance Co.
6.95%, 3/01/04 (b) 1,000 1,013,667
------------
4,094,653
YANKEE BONDS-4.8%
Royal Caribbean Cruises, Ltd.
7.50%, 10/15/27 1,050 1,064,322
St. George Bank, Ltd.
7.15%, 10/15/05 (b) 1,000 1,033,100
------------
2,097,422
Total Debt Obligations
(cost $25,915,754) 26,268,398
SHORT-TERM INVESTMENT-2.9%
Federal Home Loan Mortgage Corp.
5.45%, 5/01/98
(amortized cost $1,300,000) 1,300 1,300,000
TOTAL INVESTMENTS -98.3%
(cost $39,363,945) 43,575,685
Other assets less liabilities-1.7% 732,318
NET ASSETS-100% $ 44,308,003
(a) Non-income producing security.
(b) Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At April 30, 1998,
these securities amounted to $2,046,767 or 4.6% of net assets.
Glossary:
ADR - American Depositary Receipt
ADS - American Depositary Shares
See notes to financial statements.
18
STATEMENTS OF ASSETS AND LIABILITIES ALLIANCE GROWTH INVESTORS AND
APRIL 30, 1998 CONSERVATIVE INVESTORS FUNDS
_______________________________________________________________________________
GROWTH CONSERVATIVE
INVESTORS FUND INVESTORS FUND
-------------- --------------
ASSETS
Investments in securities, at value (cost
$92,493,393 and $39,363,945, respectively) $ 111,876,452 $ 43,575,685
Foreign cash, at value (cost $1,905,323 and
$320,225, respectively) 1,905,334 320,225
Cash 22,100 17,472
Receivable for investment securities and
foreign currency sold 2,879,561 373,760
Receivable for shares of beneficial
interest sold 519,644 146,448
Interest and dividends receivable 358,228 433,995
Foreign taxes receivable 25,764 4,212
Total assets 117,587,083 44,871,797
LIABILITIES
Payable for investment securities and foreign
currency purchased 2,691,081 251,115
Payable for shares of beneficial interest
redeemed 421,128 114,536
Distribution fee payable 74,706 29,907
Advisory fee payable 70,196 57,687
Accrued expenses 154,184 110,549
Total liabilities 3,411,295 563,794
NET ASSETS $ 114,175,788 $ 44,308,003
COMPOSITION OF NET ASSETS
Shares of beneficial interest, at par $ 76 $ 37
Additional paid-in capital 89,743,081 38,927,732
Undistributed net investment income 145,372 152,080
Accumulated net realized gain on investments,
futures contracts and foreign currency
transactions 4,928,030 1,019,294
Net unrealized appreciation of investments
and foreign currency denominated assets
and liabilities 19,359,229 4,208,860
$ 114,175,788 $ 44,308,003
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($33,222,216/2,201,864 and $11,714,630/
978,982 shares of beneficial interest issued
and outstanding, respectively) $15.09 $11.97
Sales charge--4.25% of public offering price .67 .53
Maximum offering price $15.76 $12.50
CLASS B SHARES
Net asset value and offering price per share
($72,617,870/4,803,585 and $28,431,858/
2,332,248 shares of beneficial interest
issued and outstanding, respectively) $15.12 $12.19
CLASS C SHARES
Net asset value and offering price per share
($8,335,702/551,099 and $4,161,515/341,378
shares of beneficial interest issued and
outstanding, respectively) $15.13 $12.19
See notes to financial statements.
19
STATEMENTS OF OPERATIONS ALLIANCE GROWTH INVESTORS AND
YEAR ENDED APRIL 30, 1998 CONSERVATIVE INVESTORS FUNDS
_______________________________________________________________________________
GROWTH CONSERVATIVE
INVESTORS FUND INVESTORS FUND
-------------- --------------
INVESTMENT INCOME
Interest $ 1,574,537 $ 1,918,068
Dividends (net of foreign tax withheld of
$54,340 and $8,366, respectively) 941,208 177,630
Total income 2,515,745 2,095,698
EXPENSES
Advisory fee 788,159 332,496
Distribution fee - Class A 90,118 35,259
Distribution fee - Class B 679,834 285,077
Distribution fee - Class C 70,649 40,720
Custodian 214,644 178,280
Transfer agency 191,379 81,481
Audit and legal 60,631 52,173
Printing 54,558 11,187
Registration 33,320 22,222
Trustees' fees 26,677 27,283
Miscellaneous 4,573 8,698
Total expenses 2,214,542 1,074,876
Less: expenses waived and assumed by adviser
(See Note B) -0- (219,865)
Less: expense offset arrangement (See Note B) (15,723) (6,151)
Net expenses 2,198,819 848,860
Net investment income 316,926 1,246,838
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions 15,060,041 3,545,876
Net realized loss on futures contracts (654,592) (158,434)
Net realized loss on foreign currency
transactions (167,905) (42,914)
Net change in unrealized appreciation
(depreciation) of:
Investments 10,662,782 2,462,169
Foreign currency denominated assets and
liabilities (18,715) (850)
Net gain on investments, futures contracts and
foreign currency transactions 24,881,611 5,805,847
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 25,198,537 $ 7,052,685
See notes to financial statements.
20
ALLIANCE GROWTH INVESTORS AND
STATEMENT OF CHANGES IN NET ASSETS CONSERVATIVE INVESTORS FUNDS
_______________________________________________________________________________
<TABLE>
<CAPTION>
GROWTH INVESTORS FUND CONSERVATIVE INVESTORS FUND
-------------------------------- --------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
APRIL 30, 1998 APRIL 30, 1997 APRIL 30, 1998 APRIL 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income $ 316,926 $ 611,440 $ 1,246,838 $ 1,528,962
Net realized gain on investments,
futures contracts and foreign
currency transactions 14,237,544 2,985,209 3,344,528 593,982
Net change in unrealized appreciation
(depreciation) of investments,
futures contracts and foreign
currency denominated assets and
liabilities 10,644,067 2,361,782 2,461,319 1,321,406
Net increase in net assets from
operations 25,198,537 5,958,431 7,052,685 3,444,350
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income
Class A (316,225) (345,352) (410,778) (516,046)
Class B (90,880) (444,447) (759,381) (967,390)
Class C (9,212) (43,458) (109,342) (154,474)
Net realized gain on investments
Class A (2,631,810) (3,066,309) (787,612) (278,463)
Class B (6,052,618) (7,140,766) (1,864,487) (644,643)
Class C (613,482) (698,222) (269,390) (100,968)
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Net increase (decrease) 3,496,273 4,473,662 (2,590,456) (8,201,003)
Total increase (decrease) 18,980,583 (1,306,461) 261,239 (7,418,637)
NET ASSETS
Beginning of year 95,195,205 96,501,666 44,046,764 51,465,401
End of year (including undistributed
net investment income of $145,372,
$379,445, $152,080 and $216,263,
respectively) $ 114,175,788 $ 95,195,205 $ 44,308,003 $ 44,046,764
</TABLE>
See notes to financial statements.
21
NOTES TO FINANCIAL STATEMENTS ALLIANCE GROWTH INVESTORS AND
APRIL 30, 1998 CONSERVATIVE INVESTORS FUNDS
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Growth Investors Fund and Conservative Investors Fund (the "Funds"),
two series of The Alliance Portfolios (the "Trust"), are registered under the
Investment Company Act of 1940 as diversified, open-end investment companies.
The Funds offer Class A, Class B and Class C shares. Class A shares are sold
with a front-end sales charge of up to 4.25% for purchases not exceeding
$1,000,000. With respect to purchases of $1,000,000 or more, Class A shares
redeemed within one year of purchase will be subject to a contingent deferred
sales charge of 1%. Class B shares are currently sold with a contingent
deferred sales charge which declines from 4% to zero depending on the period of
time the shares are held. Shares purchased before August 2, 1993 and redeemed
within six years of purchase are subject to different rates than shares
purchased after that date. Class B shares purchased on or after August 2, 1993
and held for a period ending eight years after the end of the calendar month of
purchase will convert to Class A shares. Class C shares are subject to a
contingent deferred sales charge of 1% on redemptions made within the first
year after purchase. All three classes of shares have identical voting,
dividend, liquidation and other rights, except that each class bears different
distribution expenses and has exclusive voting rights with respect to its
distribution plan. The financial statements have been prepared in conformity
with generally accepted accounting principles which require management to make
certain estimates and assumptions that affect the reported amounts of assets
and liabilities in the financial statements and amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Funds.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported 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 price. U.S. government and fixed income
securities which mature in 60 days or less are valued at amortized cost, unless
this method does not represent fair value. Securities for which current market
quotations are not readily available are valued at their fair value as
determined in good faith by, or in accordance with procedures adopted by, the
Board of 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 price of such currencies against the U.S.
dollar. Purchases and sales of portfolio securities are translated into U.S.
dollars at the rates of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated into U.S. dollars at rates of
exchange prevailing when accrued.
Net realized foreign currency gains and losses represent foreign exchange gains
and losses from sales and maturities of 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 interest recorded on the Funds' books and the U.S. dollar equivalent
amounts actually received or paid. The Funds do not isolate the effect of
fluctuations in foreign currency exchange rates when determining the gain or
loss upon the sale of equity securities. Net currency gains and losses from
valuing foreign currency denominated assets and liabilities at period end
exchange rates are reflected as a component of net unrealized appreciation of
investments and foreign currency denominated assets and liabilities.
3. TAXES
It is each Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment
22
ALLIANCE GROWTH INVESTORS AND
CONSERVATIVE INVESTORS FUNDS
_______________________________________________________________________________
company taxable income and net realized gains, if any, to shareholders.
Therefore, no provisions for federal income or excise taxes are required.
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Investment transactions are accounted for on the date securities are
purchased or sold. The Funds accrete discounts and amortize 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 Funds are borne on a pro-rata
basis by each outstanding class of shares, based on the proportionate interest
in each Fund represented by the net assets of such class, except that each
Fund's Class B and Class C shares bear higher distribution and in the case of
Class B higher transfer agent fees than Class A shares. Expenses of the Trust
are charged to each 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 and passive foreign investment,
resulted in a net decrease in undistributed net investment income and an
increase in accumulated net realized gain on investments, future contracts 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 Funds pay Alliance
Capital Management L.P. (the "Adviser"), an advisory fee at an annual rate of
.75% of each Fund's average daily net assets. Such fee is accrued daily and
paid monthly. The Adviser has agreed to voluntarily waive its fees and bear
certain expenses so that total expenses do not exceed on an annual basis 1.40%,
2.10% and 2.10% of average net assets, respectively, for the Class A, Class B
and Class C shares of the Conservative Investors Fund. For the year ended April
30, 1998, such reimbursement amounted to $219,865 for the Conservative
Investors Fund.
The Funds compensate Alliance Fund Services, Inc., a wholly-owned subsidiary of
the Adviser, under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Funds. Such compensation
amounted to $129,397 and $48,566 for the Growth Investors Fund and Conservative
Investors Fund, respectively, for the year ended April 30, 1998.
In addition, for the year ended April 30, 1998, the Funds' expenses were
reduced by $15,723 and $6,151 for the Growth Investors Fund and the
Conservative Investors Fund, respectively, under expense offset arrangements
with Alliance Fund Services. Transfer Agency fees reported in the Statements of
Operations exclude these credits.
Alliance Fund Distributors, Inc., (the "Distributor"), a wholly-owned
subsidiary of the Adviser, serves as the Distributor of each Fund's shares. The
Distributor received front-end sales charges of $901 from the sales of Class A
shares and $5,511, $77,308 and $3,089 in contingent deferred sales charges
imposed upon redemptions by shareholders of Class A, Class B and Class C
shares, respectively, for the year ended April 30, 1998 for the Growth
Investors Fund. The Distributor also received front-end sales charges of $1,084
from the sales of Class A shares and $1,568, $53,864 and $2,405 in contingent
deferred sales charges imposed upon redemptions by shareholders of Class A,
Class B and Class C shares, respectively, for the year ended April 30, 1998 for
the Conservative Investors Fund.
Brokerage commissions paid on investment transactions for the year ended April
30, 1998 amounted to $342,009 and $61,480 for the Growth Investors and
Conservative Investors Funds, respectively, none of which was paid to
23
ALLIANCE GROWTH INVESTORS AND
NOTES TO FINANCIAL STATEMENTS (CONTINUED) CONSERVATIVE INVESTORS FUNDS
_______________________________________________________________________________
Donaldson, Lufkin & Jenrette Securities Corp., an affiliate of the Adviser.
Accrued expenses includes amounts owed to two of the Trustees under a deferred
compensation plan of $45,924 and $16,169 for the Growth Investors and
Conservative Investors Funds, respectively.
NOTE C: DISTRIBUTION PLANS
The Funds have adopted a Plan for each class of shares of the Funds pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (each a "Plan" and
collectively the "Plans"). Under the Plans, the Funds pay a distribution fee to
the Distributor at an annual rate of up to .50% of each Fund's average daily
net assets attributable to the 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 each 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 Funds are 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 each Fund's shares. Since the
Distributor's compensation is not directly tied to its expenses, the amount of
compensation received by it under the Plan during any year may be more or less
than its actual expenses. For this reason, the Plans are characterized by the
staff of the 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 Funds 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 each Fund's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) for the Growth Investors Fund aggregated
$110,067,088 and $113,670,222, respectively, for the year ended April 30, 1998.
There were purchases of $27,607,255 and sales of $28,147,457 of U.S. government
and government agency securities for the year ended April 30, 1998. At April
30, 1998, the cost of investments for federal income tax purposes for the
Growth Investors Fund was substantially the same as the cost for financial
reporting purposes. Accordingly, gross unrealized appreciation of investments
was $20,803,599 and gross unrealized depreciation of investments was $1,420,540
resulting in net unrealized appreciation of $19,383,059 excluding foreign
currency transactions.
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) for the Conservative Investors Fund aggregated
$26,360,649 and $26,090,997, respectively, for the year ended April 30, 1998.
There were purchases of $32,331,229 and sales of $36,010,742, of U.S.
government and government agency obligations for the year ended April 30, 1998.
At April 30, 1998, the cost of investments for federal income tax purposes for
the Conservative Investors Fund was substantially the same as the cost for
financial reporting purposes. Accordingly, gross unrealized appreciation of
investments was $4,476,314 and gross unrealized depreciation of investments was
$264,574 resulting in net unrealized appreciation of $4,211,740 excluding
foreign currency transactions.
The Alliance Growth Investors and Conservative Investors Funds incurred and
elected to defer post October currency losses of $116,818 and $26,532,
respectively, for the year ended April 30, 1998. To the extent that any post
October loss is used to offset future capital gains, it is probable that these
gains will not be distributed to shareholders.
24
ALLIANCE GROWTH INVESTORS AND
CONSERVATIVE INVESTORS FUNDS
_______________________________________________________________________________
1. FORWARD EXCHANGE CURRENCY CONTRACTS
The Growth Investors and Conservative Investors Funds enter into forward
exchange currency contracts in order to hedge exposure to changes in foreign
currency exchange rates on foreign portfolio holdings. 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 held are
recorded for financial reporting purposes as unrealized gains or losses by the
Funds.
The Funds' custodian will place and maintain cash not available for investment
or other liquid assets in a separate account of the Funds having a value equal
to the aggregate amount of the Funds' 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. The face or contract amount, in U.S.
dollars, reflects the total exposure the Funds have in that particular currency
contract.
At April 30, 1998, there were no outstanding forward exchange currency
contracts for the Growth Investors Fund and the Conservative Investors Fund.
2. FINANCIAL FUTURES CONTRACTS
The Funds may buy or sell financial futures contracts for the purpose of
hedging their portfolios against adverse affects of anticipated movements in
the market. The Funds bear 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 Funds enter into a futures contract, each Fund deposits and
maintains with their custodian as collateral an initial margin as required by
the exchange on which the transaction is effected. Pursuant to the contract,
the Funds agree 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
Funds as unrealized gains or losses. When the contract is closed, the Funds
record 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 April 30,
1998, the Funds had no outstanding futures contracts.
NOTE E: SHARES OF BENEFICIAL INTEREST
There is an unlimited number of $0.00001 par value shares of beneficial
interest authorized, divided into three classes, designated Class A, Class B
and Class C shares for both Funds. Transactions in shares of beneficial
interest were as follows:
ALLIANCE GROWTH INVESTORS FUND
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
APRIL 30, APRIL 30, APRIL 30, APRIL 30,
1998 1997 1998 1997
------------ ------------ -------------- --------------
CLASS A
Shares sold 224,299 416,498 $ 3,232,642 $ 5,723,360
Shares issued in
reinvestment of
dividends and
distributions 216,972 255,265 2,877,051 3,305,692
Shares converted
from Class B 117,685 88,258 1,696,586 1,193,716
Shares redeemed (449,023) (842,362) (6,467,086) (11,968,491)
Net increase
(decrease) 109,933 (82,341) $ 1,339,193 $ (1,745,723)
25
ALLIANCE GROWTH INVESTORS AND
NOTES TO FINANCIAL STATEMENTS (CONTINUED) CONSERVATIVE INVESTORS FUNDS
_______________________________________________________________________________
ALLIANCE GROWTH INVESTORS FUND
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
APRIL 30, APRIL 30, APRIL 30, APRIL 30,
1998 1997 1998 1997
------------ ------------ -------------- --------------
CLASS B
Shares sold 658,517 772,493 $ 9,583,213 $ 10,626,034
Shares issued in
reinvestment of
dividends and
distributions 453,712 564,549 6,043,860 7,322,203
Shares converted
to Class A (117,679) (88,353) (1,696,586) (1,193,716)
Shares redeemed (897,932) (802,824) (12,997,170) (11,040,599)
Net increase 96,618 445,865 $ 933,317 $ 5,713,922
CLASS C
Shares sold 192,391 187,433 $ 2,775,334 $ 2,572,550
Shares issued in
reinvestment of
dividends and
distributions 46,021 51,785 613,462 672,170
Shares redeemed (147,143) (199,231) (2,165,033) (2,739,257)
Net increase 91,269 39,987 $ 1,223,763 $ 505,463
ALLIANCE CONSERVATIVE INVESTORS FUND
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
APRIL 30, APRIL 30, APRIL 30, APRIL 30,
1998 1997 1998 1997
------------ ------------ -------------- --------------
CLASS A
Shares sold 89,645 155,230 $ 1,062,839 $ 1,741,912
Shares issued in
reinvestment of
dividends and
distributions 99,918 66,216 1,132,237 747,524
Shares converted
from Class B 63,018 41,333 754,998 468,493
Shares redeemed (322,476) (484,981) (3,841,307) (5,464,450)
Net decrease (69,895) (222,202) $(891,233) $(2,506,521)
CLASS B
Shares sold 460,037 378,962 $ 5,586,632 $ 4,341,413
Shares issued in
reinvestment of
dividends and
distributions 214,784 130,177 2,476,221 1,495,849
Shares converted
to Class A (62,011) (40,723) (754,998) (468,493)
Shares redeemed (721,523) (856,038) (8,753,508) (9,795,661)
Net decrease (108,713) (387,622) $ (1,445,653) $ (4,426,892)
CLASS C
Shares sold 82,073 98,699 $ 988,763 $ 1,120,987
Shares issued in
reinvestment of
dividends and
distributions 31,107 20,142 358,640 231,457
Shares redeemed (132,931) (228,588) (1,600,973) (2,620,034)
Net decrease (19,751) (109,747) $ (253,570) $ (1,267,590)
26
FINANCIAL HIGHLIGHTS ALLIANCE GROWTH INVESTORS FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
YEAR ENDED APRIL 30,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $13.12 $14.08 $12.08 $11.61 $11.35
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .12(b) .16(b) .10 .25 .12
Net realized and unrealized gain on
investment transactions 3.34 .76 2.75 .38 .39
Net increase in net asset value from
operations 3.46 .92 2.85 .63 .51
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.16) (.19) (.26) (.15) (.11)
Distributions from net realized gains (1.33) (1.69) (.59) (.01) (.14)
Total dividends and distributions (1.49) (1.88) (.85) (.16) (.25)
Net asset value, end of year $15.09 $13.12 $14.08 $12.08 $11.61
TOTAL RETURN
Total investment return based on net
asset value (c) 27.96% 6.69% 23.87% 5.57% 4.46%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $33,222 $27,453 $30,608 $22,189 $16,759
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 1.60%(d) 1.56%(d) 1.40% 1.40% 1.40%
Expenses, before waivers/reimbursements 1.60% 1.73% 1.65% 1.97% 2.33%
Net investment income .81% 1.14% 2.02% 2.32% 1.67%
Portfolio turnover rate 137% 133% 209% 134% 96%
</TABLE>
See footnote summary on page 32.
27
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE GROWTH INVESTORS FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------
YEAR ENDED APRIL 30,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $13.11 $14.08 $12.09 $11.65 $11.41
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .01(b) .06(b) .06 .17 .07
Net realized and unrealized gain on
investment transactions 3.35 .77 2.70 .38 .37
Net increase in net asset value from
operations 3.36 .83 2.76 .55 .44
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.02) (.11) (.18) (.10) (.06)
Distributions from net realized gains (1.33) (1.69) (.59) (.01) (.14)
Total dividends and distributions (1.35) (1.80) (.77) (.11) (.20)
Net asset value, end of year $15.12 $13.11 $14.08 $12.09 $11.65
TOTAL RETURN
Total investment return based on net
asset value (c) 27.04% 5.98% 23.06% 4.83% 3.84%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $72,618 $61,709 $59,978 $43,328 $30,871
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 2.31%(d) 2.27%(d) 2.10% 2.10% 2.11%
Expenses, before waivers/reimbursements 2.31% 2.44% 2.35% 2.67% 3.00%
Net investment income .10% .42% 1.15% 1.62% .95%
Portfolio turnover rate 137% 133% 209% 134% 96%
</TABLE>
See footnote summary on page 32.
28
ALLIANCE GROWTH INVESTORS FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------------
AUGUST 2,
YEAR ENDED APRIL 30, 1993(E)
-------------------------------------------------- TO APRIL 30,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.12 $14.09 $12.10 $11.65 $11.88
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .02(b) .06(b) .06 .18 .08
Net realized and unrealized gain (loss)
on investment transactions 3.34 .77 2.70 .38 (.11)
Net increase (decrease) in net asset
value from operations 3.36 .83 2.76 .56 (.03)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.02) (.11) (.18) (.10) (.06)
Distributions from net realized gains (1.33) (1.69) (.59) (.01) (.14)
Total dividends and distributions (1.35) (1.80) (.77) (.11) (.20)
Net asset value, end of period $15.13 $13.12 $14.09 $12.10 $11.65
TOTAL RETURN
Total investment return based on net
asset value (c) 27.02% 5.97% 23.04% 4.91% (.26)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $8,336 $6,033 $5,915 $4,247 $3,280
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 2.30%(d) 2.28%(d) 2.10% 2.10% 2.10%(f)
Expenses, before waivers/reimbursements 2.30% 2.43% 2.36% 2.66% 3.02%(f)
Net investment income .11% .42% 1.15% 1.62% 1.04%(f)
Portfolio turnover rate 137% 133% 209% 134% 96%
</TABLE>
See footnote summary on page 32.
29
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE CONSERVATIVE INVESTORS FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
YEAR ENDED APRIL 30,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $11.31 $11.14 $10.38 $10.37 $10.79
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .39(b) .41(b) .51 .48 .31
Net realized and unrealized gain (loss)
on investment transactions 1.54 .46 .80 (.02) (.26)
Net increase in net asset value from
operations 1.93 .87 1.31 .46 .05
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.43) (.45) (.55) (.45) (.29)
Distributions from net realized gains (.84) (.25) -0- -0- (.18)
Total dividends and distributions (1.27) (.70) (.55) (.45) (.47)
Net asset value, end of year $11.97 $11.31 $11.14 $10.38 $10.37
TOTAL RETURN
Total investment return based on net
asset value (c) 17.87% 7.90% 12.69% 4.65% .35%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $11,715 $11,860 $14,161 $16,105 $15,595
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 1.41%(d) 1.40%(d) 1.40% 1.40% 1.40%
Expenses, before waivers/reimbursements 1.91% 1.90% 1.73% 1.83% 2.03%
Net investment income 3.33% 3.66% 4.43% 4.66% 3.43%
Portfolio turnover rate 138% 174% 267% 248% 133%
</TABLE>
See footnote summary on page 32.
30
ALLIANCE CONSERVATIVE INVESTORS FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------
YEAR ENDED APRIL 30,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $11.49 $11.31 $10.51 $10.47 $10.88
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .32(b) .34(b) .43 .46 .24
Net realized and unrealized gain (loss)
on investment transactions 1.55 .46 .82 (.02) (.26)
Net increase (decrease) in net asset
value from operations 1.87 .80 1.25 .44 (.02)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.33) (.37) (.45) (.40) (.21)
Distributions from net realized gains (.84) (.25) -0- -0- (.18)
Total dividends and distributions (1.17) (.62) (.45) (.40) (.39)
Net asset value, end of year $12.19 $11.49 $11.31 $10.51 $10.47
TOTAL RETURN
Total investment return based on net
asset value (c) 17.04% 7.10% 11.95% 3.91% (.31)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $28,432 $28,037 $31,979 $30,542 $29,697
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 2.11%(d) 2.10%(d) 2.10% 2.10% 2.11%
Expenses, before waivers/reimbursements 2.61% 2.61% 2.44% 2.52% 2.73%
Net investment income 2.63% 2.96% 3.72% 3.96% 2.72%
Portfolio turnover rate 138% 174% 267% 248% 133%
</TABLE>
See footnote summary on page 32.
31
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE CONSERVATIVE INVESTORS FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------------
AUGUST 2,
YEAR ENDED APRIL 30, 1993(E)
-------------------------------------------------- TO APRIL 30,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.49 $11.31 $10.52 $10.47 $11.12
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) .32(b) .34(b) .41 .46 .18
Net realized and unrealized gain (loss)
on investment transactions 1.55 .46 .83 (.01) (.50)
Net increase (decrease) in net asset
value from operations 1.87 .80 1.24 .45 (.32)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.33) (.37) (.45) (.40) (.15)
Distributions from net realized gains (.84) (.25) -0- -0- (.18)
Total dividends and distributions (1.17) (.62) (.45) (.40) (.33)
Net asset value, end of period $12.19 $11.49 $11.31 $10.52 $10.47
TOTAL RETURN
Total investment return based on net
asset value (c) 17.04% 7.10% 11.84% 4.01% (2.98)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $4,162 $4,150 $5,326 $4,419 $4,375
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 2.11%(d) 2.10%(d) 2.10% 2.10% 2.10%(f)
Expenses, before waivers/reimbursements 2.61% 2.60% 2.45% 2.52% 2.69%(f)
Net investment income 2.63% 2.96% 3.71% 3.97% 2.94%(f)
Portfolio turnover rate 138% 174% 267% 248% 133%
</TABLE>
(a) Net of fees waived and expenses reimbursed by Adviser and expense offset
arrangements with the transfer agent.
(b) Based on average shares outstanding.
(c) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. 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.
(d) Ratios reflect expenses grossed up for expense offset arrangement with the
transfer agent. For the year ended April 30, 1998 and the year ended April 30,
1997, the ratios of expenses net of waivers/reimbursements would have been
1.59%, 2.29% and 2.29% and 1.55%, 2.26% and 2.26% for Class A, B and C shares
of the Growth Investors Fund, respectively, and 1.40%, 2.10% and 2.10% and
1.40%, 2.10% and 2.10% for Class A, B and C shares of the Conservative
Investors Fund, respectively.
(e) Commencement of distribution.
(f) Annualized.
32
ALLIANCE GROWTH INVESTORS AND
REPORT OF INDEPENDENT ACCOUNTANTS CONSERVATIVE INVESTORS FUNDS
_______________________________________________________________________________
TO THE TRUSTEES AND SHAREHOLDERS OF ALLIANCE GROWTH INVESTORS FUND
AND ALLIANCE CONSERVATIVE INVESTORS FUND
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Alliance Growth
Investors Fund and Alliance Conservative Investors Fund (separately managed
portfolios constituting part of The Alliance Portfolios, hereafter referred to
as the "Funds") at April 30, 1998, the results of each of their operations for
the year then ended, the changes in each of their 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 Funds' 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 April 30, 1998 by correspondence with the custodian and brokers
and the application of alternative auditing procedures where confirmations from
brokers were not received, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
New York, New York
June 16, 1998
<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
Description of the bond ratings of Moody's Investors
Service, Inc. are as follows:
Aaa-- Bonds which are rated Aaa are judged to be of the
best quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edge." Interest payments
are protected by a large or by an exceptionally stable margin,
and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa-- Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are
rated lower than the best bond because margins of protection may
not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat
greater than the Aaa securities.
A-- Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper-medium-
grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the
future.
Baa-- Bonds which are rated Baa are considered as medium
grade obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security appear
adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba-- Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments
may be very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B-- Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of
A-1
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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 rating category; the modifier "2" indicates
a mid-range ranking; and the modifier "3" indicates that the
issue ranks in the lower end of its rating category.
Descriptions of the bond ratings of Standard & Poor's
are as follows:
AAA-- Debt rated AAA has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal
is extremely strong.
AA-- Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from the higher rated
issues only in small degree.
A-- Debt rated A has a strong capacity to pay interest
and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB-- Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than for debt in higher rated
categories.
BB, B, CCC, CC, or C -- Debt rated BB, B, CCC, CC or C
is regarded, on balance, as predominantly speculative with
respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. While
such debt will likely have some quality and protective
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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.
00250184.BB3
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