Filed pursuant to Rule 497(e)
THE ALLIANCE PORTFOLIOS:
ALLIANCE CONSERVATIVE INVESTORS FUND
ALLIANCE GROWTH INVESTORS FUND(R)
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P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature Toll Free (800) 227-4618
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STATEMENT OF ADDITIONAL INFORMATION
September 1, 1999
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This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Funds' current Prospectus (the "Prospectus") dated
September 1, 1999, as revised or supplemented from time to time. A copy
of the Prospectus may be obtained by contacting Alliance Fund Services, Inc. at
the address or the "For Literature" telephone number shown above.
TABLE OF CONTENTS
INVESTMENT POLICIES AND RESTRICTIONS.............................
ADDITIONAL INVESTMENT TECHNIQUES OF THE FUNDS....................
INVESTMENT RESTRICTIONS..........................................
MANAGEMENT OF THE FUNDS.......................
PORTFOLIO TRANSACTIONS EXPENSES OF THE FUNDS......................
PURCHASE OF SHARES...............................................
REDEMPTION AND REPURCHASE OF SHARES..............................
SHAREHOLDER SERVICES.............................................
NET ASSET VALUE..................................................
DIVIDENDS, DISTRIBUTIONS AND TAXES...............................
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(R) This registered service mark used under license from the owner,
Alliance Capital Management L.P.
GENERAL INFORMATION..............................................
FINANCIAL STATEMENTS.............................................
REPORT OF INDEPENDENT ACCOUNTANTS................................
APPENDIX.........................................................
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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 hedges 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.
Certain Fundamental Investment Policies. The Funds have adopted certain
fundamental investment policies which may not be changed without shareholder
approval, including policies which provide that each Fund may not: (i) invest
more than 5% of its total assets in the securities of any one issuer (other
than U.S. Government securities and repurchase agreements relating thereto),
although up to 25% of a Fund's total assets may be invested without regard to
this restriction; or (ii) invest 25% or more of its total assets in the
securities of any one industry. Additional investment policies and restrictions
are discussed in the Statement of Additional Information.
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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
4
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 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
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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 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
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Funds generally may not invest more than 10% of their total assets in such
securities without obtaining appropriate regulatory relief.
Lending of Securities
The Funds may seek to increase income by lending portfolio securities.
Under present regulatory policies, including those of the Board of Governors of
the Federal Reserve System and the SEC, such loans may be made only to member
firms of the New York Stock Exchange (the "Exchange") and would be required to
be secured continuously by collateral in cash, cash equivalents, or U.S.
Treasury Bills maintained on a current basis at an amount at least equal to the
market value of the securities loaned. A Fund would have the right to call a
loan and obtain the securities loaned at any time on five days' notice. During
the existence of a loan, a Fund would continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities loaned and would
also receive compensation based on investment of the collateral. A Fund would
not, however, have the right to vote any securities having voting rights during
the existence of the loan but would call the loan in anticipation of an
important vote to be taken among holders of the securities or of the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit there are risks of delay in recovery or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, the loans would be made only to firms deemed by the
Adviser to be of good standing, and when, in the judgment of the Adviser, the
consideration that can be earned currently from securities loans of this type
justifies the attendant risk. The value of the securities loaned will not
exceed 25% of the value of such Fund's total assets at the time any such loan
is made.
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.
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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 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
8
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 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
9
price of the underlying security alone. If the call options are exercised in
such transactions, a Fund's maximum gain will be the premium received by it for
writing the option, adjusted upwards or downwards by the difference between the
Fund's purchase price of the security and the exercise price. If the options
are not exercised and the price of the underlying security declines, the amount
of such decline will be offset in part, or entirely, by the premium received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and a Fund's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, a Fund may elect to close the position or retain
the option until it is exercised, at which time the Fund will be required to
take delivery of the security at the exercise price; the Fund's return will be
the premium received from the put option minus the amount by which the market
price of the security is below the exercise price, which could result in a
loss. Out-of-the-money put options may be written when it is expected that the
price of the underlying security will decline moderately during the option
period. In-the-money put options may be used when it is expected that the
premiums received from writing the put option plus the appreciation in the
market price of the underlying security up to the exercise price will be
greater than the appreciation in the price of the underlying security alone.
Each of the Funds may also write combinations of put and call options on
the same security, known as "straddles," with the 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
10
put option, a Fund assumes the risk that it may be required to purchase the
underlying security for an exercise price above its then current market value,
resulting in a capital loss unless the security subsequently appreciates in
value. Where options are written for hedging purposes, such transactions
constitute only a partial hedge against declines in the value of portfolio
securities or against increases in the value of securities to be acquired, up
to the amount of the premium.
Each of the Funds may purchase put options to hedge against a decline in
the value of portfolio securities. If such decline occurs, the put options
will permit the Fund to sell the securities at the exercise price or to close
out the options at a profit. By using put options in this way, a Fund will
reduce any profit it might otherwise have realized on the underlying security
by the amount of the premium paid for the put option and by transaction costs.
A Fund may purchase call options to hedge against an increase in the price
of securities that the Fund anticipates purchasing in the future. If such
increase occurs, the call option will permit the Fund to purchase the
securities at the exercise price, or to close out the options at a profit. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by a Fund upon exercise of the option, and, unless
the price of the underlying security rises sufficiently, the option may expire
worthless to the Fund and the Fund will suffer a loss on the transaction to the
extent of the premium paid.
Options on Securities Indexes. Each 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
11
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 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
12
would have much the same effect as selling some of the long-term bonds in that
Fund's portfolio. However, since the futures market is more liquid than the
cash market, the use of interest rate futures contracts as a hedging technique
allows a Fund to hedge its interest rate risk without having to sell its
portfolio securities. If interest rates were to increase, the value of the
debt securities in the portfolio would decline, but the value of that Fund's
interest rate futures contracts would be expected to increase at approximately
the same rate, thereby keeping the net asset value of that Fund from declining
as much as it otherwise would have. On the other hand, if interest rates were
expected to decline, interest rate futures contracts could be purchased to
hedge in anticipation of subsequent purchases of long-term bonds at higher
prices. Because the fluctuations in the value of the interest rate futures
contracts should be similar to those of long-term bonds, a Fund could protect
itself against the effects of the anticipated rise in the value of long-term
bonds without actually buying them until the necessary cash became available or
the market had stabilized. At that time, the interest rate futures contracts
could be liquidated and that Fund's cash reserves could then be used to buy
long-term bonds on the cash market.
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
13
under such circumstances, however, and the price of securities to be acquired
instead declines as a result of appreciation of the dollar, the Fund will
sustain losses on its futures position which could reduce or eliminate the
benefits of the reduced cost of portfolio securities to be acquired.
The Funds may also engage in currency "cross hedging" when, in the opinion
of the Adviser, the historical relationship among foreign currencies suggests
that a Fund may achieve protection against fluctuations in currency exchange
rates similar to that described above at a reduced cost through the use of a
futures contract relating to a currency other than the U.S. dollar or the
currency in which the foreign security is denominated. Such "cross hedging" is
subject to the same risks as those described above with respect to an
unanticipated increase or decline in the value of the subject currency relative
to the dollar.
Options on Futures Contracts. The writing of a call option on a Futures
Contract constitutes a partial hedge against declining prices of the securities
in the Fund's portfolio. If the futures price at expiration of the option is
below the exercise price, a Fund will retain the full amount of the option
premium, which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio holdings. The writing of a put option on a
Futures Contract constitutes a partial hedge against increasing prices of the
securities or other instruments required to be delivered under the terms of the
futures contract. If the futures price at expiration of the put option is
higher than the exercise price, a Fund will retain the full amount of the
option premium, 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
14
acquisition, due to a market advance or changes in interest or exchange rates,
a Fund could purchase call options on Futures Contracts, rather than purchasing
the underlying Futures Contracts. If the market advances, the increased cost
of securities to be purchased may be offset by a profit on the call. However,
if the market declines, the Fund will suffer a loss equal to the price of the
call, but the securities which the Fund intends to purchase may be less
expensive.
Forward Foreign Currency Exchange Contracts
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.
15
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 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.
16
Through the writing of options on foreign currencies, a Fund also may be
required to forego all or a portion of the benefits which might otherwise have
been obtained from favorable movements in exchange rates.
Risk Factors in Options, Futures and Forward Transactions
Risk of Imperfect Correlation of Hedging Instruments With a Fund's
Portfolio. The Funds' abilities effectively to hedge all or a portion of their
portfolios through transactions in options, Futures Contracts, options on
Futures Contracts, Forward Contracts and options on foreign currencies depend
on the degree to which price movements in the underlying index or instrument
correlate with price movements in the securities that are the subject of the
hedge. In the case of futures and options based on an index, the portfolio
will not duplicate the components of the index, and in the case of futures and
options on 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
17
time of performance thereunder. This could increase the extent of any loss
suffered by a Fund in connection with such transactions.
If a Fund purchases futures or options in order to hedge against a possible
increase in the price of securities before the Fund is able to invest its cash
in such securities, the Fund faces the risk that the market may instead
decline. If the Fund does not then invest in such securities because of
concern as to possible further market declines or for other reasons, the Fund
may realize a loss on the futures or option contract that is not offset by a
reduction in the price of securities purchased.
In writing a call option on a security, foreign currency, index or futures
contract, a Fund also incurs the risk that changes in the value of the assets
used to cover the position will not correlate closely with changes in the value
of the option or underlying index or instrument. For example, when a Fund
writes a call option on a stock index, the securities used as "cover" may not
match the composition of the index, and the Fund may not be fully covered. As
a result, the Fund could suffer a loss on the call which is not entirely offset
or 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.
18
In the event of the occurrence of any of the foregoing adverse market
events, a Fund's overall return may be lower than if it had not engaged in the
transactions described above.
With respect to the writing of straddles on securities, a Fund incurs the
risk that the price of the underlying security will not remain stable, that one
of the options written will be exercised and that the resulting loss will not
be offset by the amount of the premiums received. Such transactions,
therefore, while creating an opportunity for increased return by providing a
Fund with two simultaneous premiums on the same security, nonetheless involve
additional risk, because the Fund may have an option exercised against it
regardless of whether the price of the security increases or decreases.
Potential Lack of a Liquid Secondary Market. Prior to exercise or
expiration, a futures or option position can be terminated only by entering
into a closing purchase or sale transaction. This requires a secondary market
for such instruments on the exchange on which the initial transaction was
entered into. While the Funds will enter into options or futures positions
only if there appears to be a liquid secondary market therefor, there can be no
assurance that such a market will exist for any particular contracts at any
specific time. In that event, it may not be possible to close out a position
held by a Fund, and the Fund could be required to purchase or sell the
instrument underlying an option, make or receive a cash settlement or meet
ongoing variation margin requirements. Under such circumstances, if the Fund
has insufficient cash available to meet margin requirements, it may be
necessary to liquidate portfolio securities at a time when, in the opinion of
the Adviser, it is disadvantageous to do so. The inability to close 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
19
or clearing house or other disruptions of normal trading activity, which could
at times make it difficult or impossible to liquidate existing positions or to
recover excess variation margin payments.
The staff of the SEC has taken the position that over-the- counter options
and the assets used as cover for over-the-counter options are illiquid
securities, unless certain arrangements are made with the other party to the
option contract, permitting the prompt liquidation of the option position. The
Funds will enter into those special arrangements only with primary U.S.
Government securities dealers recognized by the Federal Reserve Bank of New
York ("primary dealers"). Under these special arrangements, the Trust will
enter into contracts with primary dealers which provide that each Fund has the
absolute right to repurchase an option it writes at any time at a repurchase
price which represents fair market value, as determined in good faith through
negotiation between the parties, but which in no event will exceed a price
determined pursuant to a formula contained in the contract. Although the
specific details of the formula may vary between contracts with different
primary dealers, the formula will generally be based on a multiple of the
premium received by the Fund for writing the option, plus the amount, if any,
by which the option is "in-the-money." The formula will also include a factor
to account for the difference between the price of the security and the strike
price of the option if the option is written "out-of-the-money." Under such
circumstances, the Fund only needs to treat as illiquid that amount of the
"cover" assets equal to the amount by which (i) the formula price exceeds (ii)
any amount by which the market value of the security subject to the option
exceeds the exercise price of the option (the amount by which the option is
"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
20
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 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
21
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 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
22
are not able to determine at this time whether or to what extent additional
restrictions on the trading of over-the-counter options on foreign currencies
may be imposed at some point in the future, or the effect that any such
restrictions may have on the hedging strategies to be implemented by them.
As discussed below, CFTC regulations require that a Fund not enter into
transactions in commodity futures contracts or commodity option contracts for
other than "bona fide" hedging purposes, unless the aggregate initial margin
and premiums do not exceed 5% of the fair market value of the Fund's total
assets. Premiums paid to purchase over-the-counter options on foreign
currencies, and margins paid in connection with the writing of such options,
are required to be included in determining 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
23
by the over-the-counter market. For example, exercise and settlement of such
options must be made exclusively through the OCC, which has established banking
relationships in applicable foreign countries for this purpose. As a result,
if the OCC determines that foreign governmental restrictions or taxes would
prevent the orderly settlement of foreign currency option exercises, or would
result in undue burdens on the OCC or its clearing member, the OCC may impose
special procedures on exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
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
24
the unrealized gain or loss on such open positions, adjusted for the historical
volatility relationship between the portfolio and futures and options contracts.
Each Fund's ability to employ the options and futures strategies described
above will depend in part on the availability of liquid markets in such
instruments. Markets in financial futures and related options are still
developing. It is impossible to predict the amount of trading interest that
may hereafter exist in various types of options or futures. Therefore 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
25
majority of the outstanding voting securities of the relevant Fund.
Neither of the Funds will:
(1) Borrow money in excess of 10% of the value (taken
at the lower of cost or current value) of its total
assets (not including the amount borrowed) at the
time the borrowing is made, and then only from
banks as a temporary measure to facilitate the
meeting of redemption requests (not for leverage)
which might otherwise require the untimely
disposition of portfolio 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.)
(6) Purchase securities (other than securities of the
U.S. Government, its agencies or instrumentalities)
if, as a result, more than 25% of the Fund's total
assets would be invested in any one industry.*
* In determining industry classification, the Funds will normally use the
current DIRECTORY OF COMPANIES FILING ANNUAL REPORTS WITH THE SECURITIES
AND EXCHANGE COMMISSION.
It is also a fundamental policy of each Fund that it may purchase and sell
futures contracts and related options.
26
In addition, the following is a description of operating policies which the
Trust has adopted on behalf of the Funds but which are not fundamental and are
subject to change without shareholder approval.
Neither of the Funds will:
(a) Pledge, mortgage, hypothecate or otherwise encumber
an amount of its assets taken at current value in
excess of 15% of its total assets (taken at the
lower of cost or current value) and then only to
secure borrowings permitted by restriction (1)
above. For the purpose of this restriction, the
deposit of securities and other collateral
arrangements 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 short,
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.
27
(e) Purchase voting securities of any issuer if such
purchase, at the time thereof, would cause more
than 10% of the outstanding voting securities of
such issuer to be held by such Fund; or purchase
securities of any issuer if such purchase at the
time thereof would cause more than 10% of any class
of securities of such issuer to be held by such
Fund. For this purpose all indebtedness of an
issuer shall be 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.
28
(k) Purchase warrants, if, as a result, a Fund would
have more than 5% of its total assets invested in
warrants or more than 2% of its total assets
invested in warrants which are not listed on the
New York Stock Exchange or the American Stock
Exchange.
(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 adviser managing client
accounts with assets as of June 30, 1999 totaling more than $321 billion (of
which approximately $140 billion represented assets of investment companies).
As of June
29
30, 1999, the Adviser managed retirement assets for many of the largest public
and private employee benefit plans (including 29 of the nation's Fortune 100
companies), for public employee retirement funds in 32 out of the 50 states,
for investment companies, and for foundations, endowments, banks and insurance
companies worldwide. The 54 registered investment companies, with more than
120 separate portfolios, managed by the Adviser currently have over 4.5 million
shareholder accounts.
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, a French
insurance holding company. As of March 1, 1999, AXA and certain of its
subsidiaries beneficially owned approximately 58.4% of ECI's outstanding common
stock. ECI is a public company with shares traded on the New York Stock
Exchange.
AXA, a French company, is the holding company for an international group of
insurance and related financial services companies. AXA's insurance operations
include activities in life insurance, property and casualty insurance and
reinsurance. The insurance operations are diverse geographically with
activities principally in Western Europe, North America, the Asia-Pacific area
and, to a lesser extent, in Africa and South America. 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.
For insurance regulatory purposes the shares of capital stock of ECI
beneficially owned by AXA and its subsidiaries have been deposited into a
voting trust which has an initial term of ten years commencing in 1992. The
trustees of the voting trust (the "Voting Trustees") have agreed to protect the
legitimate economic interests of AXA, but with a view of ensuring that certain
minority shareholders of AXA do not exercise control over ECI or certain of its
insurance subsidiaries. As of March 1, 1999, AXA, ECI, Equitable and certain
subsidiaries of Equitable were the beneficial owners of approximately 56.6% of
the issued and outstanding units representing assignments of beneficial
ownership of limited partnership interests ("Units") in the Adviser.
Based on information provided by AXA, on March 1, 1999, approximately 20.7%
of the issued ordinary shares (representing 32.7% of the voting power) of AXA
were owned directly and indirectly by Finaxa, a French holding company. As of
March 1, 1999, 61.7% of the shares (representing 72.3% of the voting
30
power) of Finaxa were owned by four French mutual insurance companies (the
"Mutuelles AXA") (one of which, AXA Assurances I.A.R.D. Mutuelle, owned 35.4%
of the shares, representing 41.5% of the voting power of Finaxa, and 22.7% of
the shares of Finaxa (representing 13.7% of the voting power) were owned by
Paribas, a French bank. Including the ordinary shares owned by Finaxa, on
March 1, 1999, the Mutuelles AXA directly and indirectly owned approximately
23.9% of the issued ordinary shares (representing 37.6% of the voting power) of
AXA. The Voting Trustees may be deemed to be beneficial owners of all Units
beneficially owned by AXA and its subsidiaries. By virtue of the provisions of
the voting trust agreement, AXA may be deemed to have shares voting power with
respect to the Units. In addition, the Mutuelles AXA, as a group, and Finaxa
may be deemed to be beneficial owners of all Units beneficially owned by AXA
and its subsidiaries. AXA and its subsidiaries have the power to dispose or
direct the disposition of all shares of the capital stock of ECI deposited in
the voting trust. The Mutuelles AXA, as a group, and Finaxa may be deemed to
share the power to vote or to direct the vote and to dispose or to direct the
disposition of all the Units of the Adviser beneficially owned by AXA and its
subsidiaries. By reason of their relationship, AXA, the Voting Trustees, the
Mutuelles, AXA, Finaxa, ECI, Equitable, Equitable Holdings, L.L.C., Equitable
Investment Corporation, Alliance Capital Management Corporation and Equitable
Capital Management Corporation may be deemed to share the power to vote or to
direct the vote and to dispose or direct ration may be deemed to share the
power to vote or to direct the vote and to dispose or direct the disposition of
all or a portion of the Units beneficially owned by AXA and its subsidiaries.
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.
31
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 4, 1999.
During the period May 1, 1998 through April 30, 1999, the Adviser earned
$355,320 in management fees from the Conservative Investors Fund ($167,387 of
which was waived) and $895,036 from the Growth Investors Fund. During the
period May 1, 1997 through April 30, 1998, the Adviser earned $332,496 in
management fees from the Conservative Investors Fund ($219,865 of which was
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 ($245,071 of which was waived) and
$723,109 from the Growth Investors Fund ($167,543 of which was waived).
The Investment Advisory Contract provides that it will continue in effect
for two years from its date of execution and thereafter from year to year if
its continuance is approved at least annually (i) by the Board of Trustees or
by vote of a 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
32
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 Board of Trustees is responsible for generally overseeing the business
and affairs of the Fund. The Trustees and officers of the Fund, their ages and
their principal occupations during the past five years are set forth below.
Each such Trustee and officer is also a trustee, director or officer of other
registered investment companies sponsored by the Adviser. Unless otherwise
specified, the address of each such person is 1345 Avenue of the Americas, New
York, New York 10105.
TRUSTEES
JOHN D. CARIFA 1, 54, Chairman of the Board, is the President, Chief
Operating Officer and a Director of Alliance Capital Management Corporation,
the general partner of the Adviser ("ACMC"), with which he has been associated
since prior to 1994.
RUTH BLOCK, 68, was formerly an Executive Vice President and the Chief
Insurance Officer of Equitable. She is a Director of Ecolab Incorporated
(specialty chemicals) and BP Amoco Corporation (oil and gas). Her address is
P.O. Box 4623, Stamford, Connecticut 06903.
DAVID H. DIEVLER, 69, is an independent consultant. He was formerly a
Senior Vice President of ACMC until December 1994. His address is P.O. Box
167, Spring Lake, New Jersey 07762.
JOHN H. DOBKIN, 57, has been the President of Historic Hudson Valley
(historic preservation) since prior to 1994. Previously, he was Director of
the National Academy of Design. His address is 150 White Plains Road,
Tarrytown, New York 10591.
WILLIAM H. FOULK, JR., 66, is an Investment Adviser and an independent
consultant. He was formerly Senior Manager of Barrett Associates, Inc., a
registered investment adviser, with which he had been associated since 1986.
His address is Room 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
BRENTON W. HARRIES, 71, is a Director of Enhance Reinsurance Co. and was
formerly the President and Chief Executive Officer of Global Electronic Markets
Company. His address is 14 Point Road, Wilson Point, South Norwalk, Connecticut
06854.
DR. JAMES M. HESTER, 75, is President of the Harry Frank Guggenheim
Foundation, with which he has been associated
_________________________
1 An "interested person" of the Fund, as defined in the 1940 Act.
33
since prior to 1994. He was formerly President of New York University, the New
York Botanical Garden and Rector of the United Nations University. His address
is 25 Cleveland Lane, Princeton, New Jersey 08540.
CLIFFORD L. MICHEL, 60, is a member of the law firm of Cahill Gordon &
Reindel, with which he has been associated since prior to 1994. He is
President and Chief Executive Officer of Wenonah Development Company
(investments) and a Director of Placer Dome, Inc. (mining). His address is St.
Bernard's Road, Gladstone, New Jersey 07934.
DONALD J. ROBINSON, 65, is Senior Counsel to the law firm of Orrick,
Herrington & Sutcliffe and was formerly a senior partner and a member of the
Executive Committee of that firm. He was also a Trustee of the Museum of the
City of New York from 1977 to 1995. His address is 98 Hell's Peak Road,
Weston, Vermont 05161.
OFFICERS
JOHN D. CARIFA, CHAIRMAN AND PRESIDENT (see biography, above).
BRUCE W. CALVERT, 52, Senior Vice President, is the Vice Chairman and Chief
Executive Officer of ACMC. His address is 1345 Avenue of the Americas, New
York, New York 10105.
KATHLEEN A. CORBET, SENIOR VICE PRESIDENT, 39, is an Executive Vice
President of ACMC with which she has been associated since prior to 1994.
WAYNE D. LYSKI, SENIOR VICE PRESIDENT, 57, is Executive Vice President of
ACMC. His address is 1345 Avenue of the Americas, New York, New York 10105.
NICHOLAS D.P. CARN, VICE PRESIDENT, 42, is a Vice President of ACMC since
1997. Prior thereto, he was Chief Investment Officer and Portfolio Manager at
Draycott Partners.
EDMUND P. BERGAN, JR., SECRETARY, 49, is a Senior Vice President and the
General Counsel of Alliance Fund Distributors, Inc.("AFD") and Alliance Fund
Services, Inc. ("AFS") with which he has been associated since prior to 1994.
MARK D. GERSTEN, TREASURER AND CHIEF FINANCIAL OFFICER, 48, is a Senior
Vice President of AFS, with which he has been associated since prior to 1994.
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, 1999, the aggregate compensation paid to each of the Trustees during
calendar year 1998 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
34
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.
<TABLE>
<CAPTION>
Total Number
Total Number of Investment
of Investment Portfolios
Companies Within
Total in the Alliance the Alliance
Compensation Fund Complex, Fund Complex,
From the Including Including
Compensation Compensation Alliance the Fund, the Fund,
from from Fund Complex, as to which as to which
Conservative Growth Including the Trustee the Trustee
Investors Investors the Fund, is a Director is a Director
Name of Trustee Fund Fund During 1998 or Trustee or Trustee*
- --------------------- ------------ ------------ ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
John D. Carifa $ -0- $ -0- $ -0- 56 116
Ruth Block 3,820 3,820 180,763 37 79
David H. Dievler* -0- -0- 216,288 44 86
John H. Dobkin* -0- -0- 185,363 42 97
William H. Foulk, Jr. 4,700 4,700 241,003 45 111
Brenton W. Harries 5,775 5,775 92,000 2 18
James M. Hester* -0- -0- 172,913 38 80
Clifford L. Michel* -0- -0- 187,763 39 96
Donald J. Robinson 193,709 41 105
</TABLE>
* Elected a Trustee of the Trust on July 8, 1999.
As of August 10, 1999, the Trustees and officers of the Fund as a group
owned less than 1% of the shares of the Fund.
The Trust undertakes to provide assistance to shareholders in
communications concerning the removal of any Trustee of the Trust in accordance
with Section 16 of the 1940 Act.
35
________________________________________________________________
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 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, 1999 were as follows: with respect to
36
the Conservative Investors Fund, $27,239,048 and, in connection therewith,
brokerage commissions of $28,900 (100%) were allocated to persons or firms
supplying research information; and with respect to the Growth Investors Fund,
$110,523,432 and, in connection therewith, brokerage commission of $142,555
(100%) were allocated to persons or firms supplying research information.
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 supplying research information.
For the fiscal year ended April 30, 1999, the Conservative Investors Fund
paid an aggregate of $28,900 in brokerage commissions; and the Growth Investors
Fund paid an aggregate of $142,555 in brokerage commissions. 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.
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
37
the Adviser as a factor in the selection of broker-dealers to execute portfolio
transactions for the Funds.
The Funds may from time to time place orders for the purchase or sale of
securities (including listed call options) with Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") and with brokers which may have their
transactions cleared or settled, or both, by the Pershing Division of DLJ, for
which DLJ may receive a portion of the brokerage commissions. In such
instances, the placement of orders with such brokers would be consistent with
the Funds' objective of obtaining the best execution and would not be dependent
upon the fact that DLJ is an affiliate of the Adviser. With respect to orders
placed with DLJ for execution on a national securities exchange, commissions
received must conform to Section 17(e)(2)(A) of the 1940 Act and Rule 17e-1
thereunder, which permit an affiliated person of a registered investment
company (such as the Trust), or any affiliated person of such person, to
receive a brokerage commission from such registered investment company provided
that such commission is reasonable and fair compared to the commissions
received by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time.
The brokerage transactions engaged in by the Funds with DLJ and its
affiliates during the fiscal years ended April 30, 1998, April 30, 1997 and
April 30, 1996, are set forth below:
% of Fund's
Fiscal % of Fund's Aggregate
Year Amount of Aggregate Dollar
Ended Brokerage Brokerage Amount of
April 30, Commissions Commissions Transactions
1999 Growth Investors $0 0% 0%
Conservative Investors $0 0% 0%
1998 Growth Investors $0 0% 0%
Conservative Investors $0 0% 0%
1997 Growth Investors $50 0.02% 0%
Conservative Investors $123 0.23% 0%
The annual portfolio turnover rates of the Conservative Investors Fund and
the Growth Investors Fund for the fiscal years ended April 30, 1999, April 30,
1998 and April 30, 1997 were 105%, 138% and 174% for Conservative Investors and
84%, 137% and 133% for Growth Investors, respectively.
38
________________________________________________________________
EXPENSES OF THE FUNDS
________________________________________________________________
In addition to the payments to the Adviser under the Investment Advisory
Contract described above, the Trust pays certain other costs including (a)
brokerage and commission expenses, (b) federal, state and local taxes,
including issue and transfer taxes incurred by or levied on a Fund, (c)
interest charges on borrowing, (d) fees and expenses of registering the shares
of the Funds under the appropriate federal securities laws and of qualifying
shares of the Funds under applicable state securities laws including expenses
attendant upon renewing and increasing such registrations and qualifications,
(e) expenses of printing and distributing the Funds' prospectuses and other
reports to shareholders, (f) costs of proxy solicitations, (g) transfer agency
fees described below, (h) charges and expenses of the Trust's custodian, (i)
compensation of the Trust's officers, Trustees and employees who do not devote
any part of their time to the affairs of the Adviser or its affiliates, (j)
costs of stationery and supplies, and (k) such promotional expenses as may be
contemplated by the Distribution Services Agreement described below.
Distribution Arrangements
Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment
company to directly or indirectly pay expenses associated with the distribution
of its shares in accordance with a duly adopted and approved plan. The Trust
has adopted a plan for each class of shares of the Funds pursuant to Rule
12b-1 (each a "Plan" and collectively the "Plans"). Pursuant to the Plans,
each Fund pays 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
39
received by the Adviser from the Trust or other investment companies which it
manages and the Adviser's past profits, to finance the distribution of the
Funds' shares.
Each Plan may be terminated with respect to the class of shares of any Fund
to which the Plan relates by vote of a majority of the Trustees who are not
"interested persons" of the Trust and who have no direct or indirect financial
interest in the operation of the Plans or in any agreement related to the Plans
(the "Qualified Trustees"), or by vote of a majority of the outstanding voting
securities of that class. Each Plan may be amended by vote of the Trustees,
including a majority of the Qualified Trustees, cast in person at a meeting
called for that purpose. Any change in a Plan that would materially increase
the distribution costs to the class of shares of any Fund to which the Plan
relates requires approval by the affected class of shareholders of that Fund.
The Trustees review quarterly a written report of such distribution costs and
the purposes for which such costs have been incurred with respect to each
Fund's Class A, Class B and Class C shares. For so long as the Plans are in
effect, selection and nomination of those Trustees who are not interested
persons of the Trust shall be committed to the discretion of such disinterested
persons.
The Plans may be terminated with respect to any Fund or class of shares
thereof at any time on 60 days' written notice without payment of any penalty
by the Principal Underwriter or by vote of a majority of the outstanding voting
securities of that Fund or that class (as appropriate) or by vote of a majority
of the Qualified Trustees.
The Plans will continue in effect with respect to each Fund and each class
of shares thereof for successive one-year periods, provided that each such
continuance is specifically approved (i) by the vote of a majority of the
Qualified Trustees and (ii) by the vote of a majority of the entire Board of
Trustees cast in person at a meeting called for that purpose.
For services rendered by the Principal Underwriter in connection with the
distribution of Class A shares pursuant to the Plan applicable to such shares,
the Principal Underwriter received $43,449 and $115,391 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, 1999. 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
40
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 B shares pursuant to the Plan applicable to such shares,
the Principal Underwriter received $280,866 and $721,138 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, 1999. 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, 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 C shares pursuant to the Plan applicable to such shares,
the Principal Underwriter received $48,065 and $87,608 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, 1999. 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.
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, 1999:
41
CONSERVATIVE INVESTORS FUND
Amount of Expense and Allocated Cost
Category
of Expense Class A Shares Class B Shares Class C Shares
Advertising/
Marketing $ 20,441 $ 63,589 $ 15,045
Printing and
Mailing of
Prospectuses
and Semi-Annual
and Annual
Reports to Other
than Current
Shareholders $ (391) $ (2,675) $ 192
Compensation to
Underwriters $ 66,280 $128,709 $ 34,830
Compensation to
Dealers $ 75,532 $522,574 $ 68,360
Compensation to
Sales
Personnel $ 5,695 $ 6,020 $ 1,647
Interest, Carrying or
Other
Financing Charges $ 0 $ 31,917 $ 5,374
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) $106,198 $189,127 $ 50,335
Total $273,755 $939,261 $175,783
42
Growth Investors Fund
Amount of Expense and Allocated Cost
Category
of Expense Class A Shares Class B Shares Class C Shares
Advertising/
Marketing $ 28,205 $ 65,321 $ 17,496
Printing and
Mailing of
Prospectuses
and Semi-Annual
and Annual
Reports to Other
than Current
Shareholders $ (3,206) $ 3,850 $ 2,394
Compensation to
Underwriters $ 83,121 $ 133,389 $ 40,835
Compensation to
Dealers $146,794 $ 660,124 $104,170
Compensation to
Sales
Personnel $ 11,108 $ 7,750 $ 1,894
Interest, Carrying or
Other
Financing Charges $ 0 $ 81,138 $ 9,801
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) $143,864 $ 195,495 $ 58,814
Total $409,886 $1,147,067 $235,404
The Glass-Steagall Act and other applicable laws may limit the ability of
a bank or other depository institution to become an underwriter or distributor
of securities. However, in the opinion of the Fund's management, based on the
advice of counsel, these laws do not prohibit such depository institutions from
providing services for investment companies such as the administrative,
accounting and other services referred to in the agreements between the
Principal Underwriter and such institutions. In the event that a change in
these laws prevented a bank from providing such services, it is expected that
other service arrangements would be made and that shareholders would not be
adversely affected.
Custodial Arrangements
State Street Bank and Trust Company, 225 Franklin Street, Boston, MA, 02110
("State Street Bank") is the Trust's custodian, but plays no part in deciding
the purchase or sale of portfolio securities. Subject to the supervision of
the Fund's Trustees, State Street may enter into subcustodial agreements for the
43
holding of the Fund's securities outside of the United States.
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.
________________________________________________________________
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, or 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.
44
Investors may purchase shares of the Funds either through selected
broker-dealers, agents, financial intermediaries or other financial
representatives, or directly through the Principal Underwriter. A transaction,
service, administrative or other similar fee may be charged by your
broker-dealer, agent, financial intermediary or other financial representative
with respect to the purchase, sale or exchange of Class A, Class B or Class C
shares made through such financial representative. Such financial
representative may also impose requirements with respect to the purchase, sale
or exchange of shares that are different from, or in addition to, those imposed
by the Fund, including requirements as to the minimum initial and subsequent
investment amounts. Sales personnel of selected dealers and agents
distributing the Funds' shares may receive differing compensation for selling
Class A, Class B 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
45
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
representatives, as applicable, the applicable public offering price will be
the net asset value as so determined, but only if the selected dealer, agent or
financial representative receives the order prior to the close of regular
trading on the Exchange and transmits it to the Principal Underwriter prior to
5:00 p.m. Eastern time. The selected dealer, agent or financial
representative, as applicable, is responsible for transmitting such orders by
5:00 p.m. Eastern time. (Certain selected dealers, agents or financial
representatives may enter into operating agreements permitting them to transmit
purchase information to the Principal Underwriter after 5:00 p.m. Eastern time
and receive that day's net asset value.) If the selected dealer, agent or
financial representative, as applicable, fails to do so, the investor's right
to purchase shares at that day's closing price must be settled between the
investor and the selected dealer, agent or 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
46
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
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
47
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 A, Class B and Class C shares has exclusive
voting rights with respect to provisions of the Rule 12b-1 Plan pursuant to
which its distribution services fee is paid and other matters for which
separate class voting is appropriate under applicable law, provided that, if
the Fund submits to a vote 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 and 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.
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
48
this reason, the Principal Underwriter will reject any order for more than
$1,000,000 for Class C shares.
Class A shares are subject to a lower distribution services fee and,
accordingly, pay correspondingly higher dividends per share than Class B shares
or Class C shares. However, because initial sales charges are deducted at the
time of purchase, investors purchasing Class A shares would not have all their
funds invested initially and, therefore, would initially own fewer shares.
Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time might consider
purchasing Class A shares because the accumulated continuing distribution
charges on Class B shares or Class C shares may exceed the initial sales charge
on Class A shares during the life of the investment. Again, however, such
investors must weigh this consideration against the fact that, because of such
initial sales charges, not all their funds will be invested initially.
Other investors might determine, however, that it would be more
advantageous to purchase Class B shares or Class C shares in order to have all
their funds invested initially, although remaining subject to higher continuing
distribution charges and being subject to a contingent deferred sales charge
for a four- year and one-year period, respectively. For example, based on
current fees and expenses, an investor subject to the 4.25% initial sales
charge on Class A shares would have to hold his or her investment approximately
seven years for the Class C distribution services fee to exceed the initial
sales charge plus 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:
49
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 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
50
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 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, 1999:
Conservative Investors Fund
Net Asset Value per Class A Share at April 30, 1999: $11.88
Per Share Sales Charge - 4.25% of offering price (4.42% of net asset value per
share) $.53
Class A Per Share Offering Price to the
Public $12.41
Growth Investors Fund
Net Asset Value per Class A Share at
April 30, 1999 $15.80
Per Share Sales Charge - 4.25% of offering
51
price (4.42% of net asset value per share) $.70
Class A Per Share Offering Price to
the Public $16.50
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 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
-Quality Bond Portfolio
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
52
Alliance Growth and Income Fund, Inc.
Alliance Health Care 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
-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 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:
53
(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.
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
54
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 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
55
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, 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;
56
(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 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.
57
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 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
Years since or After August 2, Shares Purchased On or
Subject to 1993 but Before After November 19,
Purchase November 19, 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
58
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, and the rules and regulations thereunder (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).
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.
59
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 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.
60
61
_________________________________________________________________
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 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.
62
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, 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
63
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 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
64
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.
_________________________________________________________________
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
65
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 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
66
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 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
67
charge a commission for handling telephone requests for exchanges.
The exchange privilege is available only in states where shares of the
Alliance Mutual Funds being acquired may legally be sold. Each Alliance Mutual
Fund reserves the right, at any time on 60 days' notice to its shareholders to
modify, restrict or terminate the exchange privilege.
Retirement Plans
The Funds may be a suitable investment vehicle for part or all of the
assets held in various types of retirement plans, such as those listed below.
The Funds have available forms of such plans pursuant to which investments can
be made in a Fund and other Alliance Mutual Funds. Persons desiring
information concerning these plans should contact AFS at the "For Literature"
telephone number on the cover of this Statement of Additional Information, or
write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 07096-1520
Individual Retirement Account ("IRA"). Individuals who receive
compensation, including earnings from self-employment, are entitled to
establish and make contributions to an IRA. Taxation of the income and gains
paid to an IRA by a Fund is deferred until distribution from the IRA. An
individual's eligible 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
68
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.
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
69
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 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
70
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 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
71
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 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
72
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, Class B and 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.
_________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_________________________________________________________________
Dividends paid by the Fund, if any, with respect to Class A, Class B and
Class C shares will be calculated in the same manner at the same time on the
same day and will be in the same amount, except that the higher distribution
services applicable to Class A, Class B and Class C shares, and any incremental
transfer agency costs relating to Class B and Class C shares, will be borne
exclusively by the class to which they relate, and will reduce the amount of
dividends payable in respect of shares of such class.
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
73
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 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. Distributions of net income and short-term capital gains will
be taxable to a shareholder as ordinary income.
74
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.
Dividends and distributions on a Fund's shares are generally subject to
federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when a Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed, even when a Fund's net asset value also reflects unrealized losses.
If a Fund engages in hedging transactions, including short sales against
the box and hedging transactions in options, futures contracts, and straddles,
or other similar transactions, it will be subject to special tax rules
(including constructive sale, mark-to-market, straddle, wash sale, and short
sale rules), the effect of which may be to accelerate income to the Fund,
defer losses to the Fund, cause adjustments in the holding periods of the
Fund's securities, or convert short-term capital losses into long-term capital
losses. These rules could therefore affect the amount, timing and character of
distributions to shareholders.
For federal income tax purposes, when equity call options which a Fund has
written expire unexercised, the premiums received by the Fund give rise to
short-term capital gains at the time of expiration. When a call written by a
Fund is exercised, the selling price or purchase price of stock is increased by
the amount of the premium, and the nature of the gain or loss on the sale of
stock depends upon the holding period of the stock. There may be short-term
gains or losses associated with closing purchase transactions.
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 supplements and should be read in conjunction with
the tax information in the Prospectus, and 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.
75
_________________________________________________________________
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 four
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 and the Alliance Growth 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 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.
It is anticipated that annual shareholder meetings will not be held;
shareholder meetings will be held only when required by
76
federal or state law. Shareholders have available certain procedures for the
removal of Trustees.
A shareholder will be entitled to share pro rata with other holders of the
same class of shares all dividends and distributions arising from the Fund's
assets and, upon redeeming shares, will receive the then-current net asset
value of the Fund represented by the redeemed shares less any applicable
contingent deferred sales charge. The Fund is empowered to establish, without
shareholder approval, additional portfolios, which may have different
investment objectives and policies than those of the Fund, and additional
classes of shares within the Fund. If an additional portfolio or class were
established in the Fund, each share of the portfolio or class would normally be
entitled to one vote for all purposes. Generally shares of each portfolio and
class would vote together as a single class on matters, such as the election of
Trustees, that affect each portfolio and class in substantially the same
manner. Class A, Class B and Class C shares have identical voting, dividend,
liquidation and other rights, except that each class bears its own transfer
agency expenses, each of Class A, Class B and Class C shares of the Fund bears
its own distribution expenses and Class B shares convert to Class A shares
under certain circumstances. Each class of shares of the Fund votes separately
with respect to the Fund's Rule 12b-1 distribution plan and other matters for
which separate class voting is appropriate under applicable law. Shares are
freely transferable, are entitled to dividends as determined by the Trustees
and, in liquidation of the Fund, are entitled to receive the net assets of the
Fund.
Capitalization
Except as noted below under "Shareholder and Trustee
Liability," all shares of the Funds when duly issued will be fully paid and
non-assessable.
Set forth below is certain information as to all persons who owned of
record or beneficially 5% or more of any class of the Funds' outstanding shares
at August 10, 1999:
ALLIANCE CONSERVATIVE INVESTORS FUND
----------------------------------
CLASS B SHARES NO. OF SHARES % OF
- -------------- ------------- ------
Merrill Lynch Smith Fenner 767,368 26.70%
For the sole Benefit of its Customers
Attn: Fund Administration (97886)
4800 Deer Lake Drive East 2nd Fl.
Jacksonville, Florida 32246-6484
CLASS C SHARES
- --------------
Merrill Lynch Smith Fenner 44,971 9.65%
For the sole Benefit of its Customers
Attn: Fund Administration (97887)
4800 Deer Lake Drive East 2nd Fl.
Jacksonville, Florida 32246-6484
ALLIANCE GROWTH INVESTORS FUND
----------------------------------
5% Beneficial Ownership
----------------------
CLASS B SHARES
- --------------
Merrill Lynch Smith Fenner 271,698 5.75%
For the sole Benefit of its Customers
Attn: Fund Administration (97879)
4800 Deer Lake Drive East 2nd Fl.
Jacksonville, Florida 32246-6484
CLASS C SHARES
- --------------
Merrill Lynch Smith Fenner 110,209 16.98%
For the sole Benefit of its Customers
Attn: Fund Administration (97880)
4800 Deer Lake Drive East 2nd Fl.
Jacksonville, Florida 32246-6484
77
Voting Rights
As summarized in the Prospectus, shareholders are entitled to one vote for
each full share held (with fractional votes for fractional shares held) and
will vote (to the extent provided herein) in the election of Trustees and the
termination of the Trust or a Fund and on other matters submitted to the vote
of shareholders.
The By-Laws of the Trust provide that the shareholders of any particular
series or class shall not be entitled to vote on any matters as to which such
series or class is not affected. Except with respect to matters as to which
the Trustees have determined that only the interests of one or more particular
series or classes are affected or as required by law, all of the shares of each
series or class shall, on matters as to which such series or class is entitled
to vote, vote with other series or classes so entitled as a single class.
Notwithstanding the foregoing, with respect to matters which would otherwise be
voted on by two or more series or classes as a single class, the Trustees may,
in their sole discretion, submit such matters to the shareholders of any or all
such series or classes, separately. Rule 18f-2 under the 1940 Act provides in
effect that a series shall be deemed to be affected by a matter unless it is
clear that the interests of each series in the matter are substantially
identical or that the matter does not affect any interest of such series.
Although not governed by Rule 18f-2, shares of each class of a Fund will vote
separately with respect to matters pertaining to the respective Distribution
Plans applicable to each class.
The terms "shareholder approval" and "majority of the outstanding voting
securities" as used in the Prospectus and this Statement of Additional
Information mean the lesser of (i) 67% or more of the shares of the applicable
Fund or applicable class thereof represented at a meeting at which more than
50% of the outstanding shares of such Fund or such class are represented or
(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
78
Trustees holding office have been elected by shareholders, and (ii) if, as a
result of a vacancy on the Board of Trustees, less than two-thirds of the
Trustees holding office have been elected by the shareholders, that vacancy may
only be filled by a vote of the shareholders. The Funds' shares have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of Trustees can elect 100% of the Trustees
if they choose to do so, and in such event the holders of the remaining less
than 50% of the shares voting for such election of Trustees will not be able to
elect any person or persons to the Board of Trustees. A special meeting of
shareholders for any purpose may be called by 10% of the Trust's outstanding
shareholders.
Except as set forth above, the Trustees shall continue to hold office and
may appoint successor Trustees.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust except
(i) to change the Trust's name, (ii) to establish, change or eliminate the par
value of shares or (iii) to supply any omission, cure any ambiguity or cure,
correct or supplement any defective or inconsistent provision contained in the
Declaration of Trust.
Shareholder and Trustee Liability
Under Massachusetts law shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by the Trust or
the Trustees. The Declaration of Trust provides for indemnification out of a
Fund's property for all loss and expense of any shareholder of that Fund held
liable on account of being or having been a shareholder. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund of which he or she was a shareholder
would be unable to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of 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
79
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, 1999, 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 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 8.59% and 16.81%,
respectively, for the one-year period ended April 30, 1999. The average annual
compounded total return for Class A shares of the Conservative Investors and
Growth Investors Funds was 9.07% and 14.22%, respectively, for the period May
4, 1992 (commencement of distribution of Class A shares) through April 30,
1999. The average annual compounded total return for Class B shares of the
Conservative Investors and Growth Investors Funds was 7.82% and 15.96%,
respectively, for the one year period ended April 30, 1999. The average annual
compounded total return for Class B shares of the Conservative Investors and
80
Growth Investors Funds was 8.30% and 13.41%, respectively, for the period May
4, 1992 (commencement of distribution of Class B shares) through April 30,
1999. The average annual compounded total return for Class C shares of the
Conservative Investors and Growth Investors Funds was 7.91% and 15.88%
respectively, for the one-year period ended April 30, 1999. The average annual
compounded total return for Class C shares of the Conservative Investors and
Growth Investors Funds was 7.65% and 12.91%, respectively, for the period
August 2, 1993 (commencement of distribution of Class C shares) through April
30, 1999.
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.
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.
81
FINANCIAL STATEMENTS
PORTFOLIO OF INVESTMENTS
APRIL 30, 1999 ALLIANCE GROWTH INVESTORS FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER INVESTMENTS-54.8%
UNITED STATES INVESTMENTS-44.2%
CONSUMER SERVICES-9.8%
BROADCASTING & CABLE-2.5%
AT&T Corp. - Liberty
Media Group Cl.A (a) 52,300 $ 3,340,662
ENTERTAINMENT & LEISURE-1.6%
Harley-Davidson, Inc. 34,900 2,080,913
RETAIL - GENERAL MERCHANDISE-5.7%
Dayton Hudson Corp. 52,300 3,520,444
Home Depot, Inc. 43,600 2,613,275
Wal-Mart Stores, Inc. 34,800 1,600,800
------------
7,734,519
------------
13,156,094
FINANCE-9.6%
BANKING - MONEY CENTER-4.7%
BankAmerica Corp. 38,400 2,764,800
Chase Manhattan Corp. 43,600 3,607,900
------------
6,372,700
BROKERAGE & MONEY MANAGEMENT-1.9%
Morgan Stanley, Dean Witter & Co. 26,200 2,598,712
INSURANCE-1.9%
American International Group, Inc. 21,800 2,560,138
MISCELLANEOUS-1.1%
MBNA Corp. 52,300 1,474,206
------------
13,005,756
TECHNOLOGY-7.5%
COMPUTER HARDWARE-1.6%
Dell Computer Corp. (a) 52,400 2,158,225
COMPUTER SOFTWARE-3.2%
Microsoft Corp. (a) 52,400 4,260,775
NETWORKING SOFTWARE-1.9%
Cisco Systems, Inc. (a) 21,800 2,486,562
SEMI-CONDUCTOR COMPONENTS-0.8%
Altera Corp. (a) 15,700 1,134,325
------------
10,039,887
HEALTH CARE-5.6%
DRUGS-4.7%
Bristol-Myers Squibb Co. 52,400 3,330,675
Pfizer, Inc. 7,800 897,487
Schering-Plough Corp. 43,600 2,106,425
------------
6,334,587
MEDICAL PRODUCTS-0.9%
Medtronic, Inc. 17,400 1,251,713
------------
7,586,300
CONSUMER STAPLES-4.5%
COSMETICS-0.8%
Gillette Co. 21,800 1,137,688
RETAIL - FOOD & DRUG-1.4%
Kroger Co. (a) 34,900 1,895,506
F-1
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE GROWTH INVESTORS FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) U.S. $ VALUE
- -------------------------------------------------------------------------
TOBACCO-2.3%
Philip Morris Cos., Inc. 87,600 $ 3,071,475
------------
6,104,669
ENERGY-3.0%
OIL SERVICE-3.0%
Halliburton Co. 47,800 2,037,475
Noble Drilling Corp. (a) 101,900 1,999,788
------------
4,037,263
UTILITIES-2.1%
TELEPHONE UTILITY-2.1%
MCI WorldCom, Inc. (a) 34,900 2,868,344
MULTI INDUSTRY COMPANY-2.1%
Tyco International, Ltd. 34,900 2,835,625
Total United States Investments
(cost $38,842,196) 59,633,938
FOREIGN INVESTMENTS-10.6%
FINLAND-2.5%
Nokia AB OY Corp. 43,600 3,360,007
FRANCE-2.3%
Carrefour, SA (a) 1,050 831,915
Sanofi, SA 5,230 819,353
SEITA 10,460 629,847
Total, SA Cl.B 6,100 835,148
------------
3,116,263
GERMANY-0.4%
ProSieben Media AG
3.40% pfd. 10,460 491,723
JAPAN-0.4%
Honda Motor Co. 13,000 572,601
NETHERLANDS-0.6%
Akzo Nobel NV 17,400 785,803
SPAIN-1.1%
Banco Bilbao Vizcaya, SA 26,200 391,916
Tabacalera, SA Series A 26,200 510,100
Telefonica rights,
expiring 5/20/99 (a) 13,100 12,178
Telefonica de Espana 13,100 613,752
------------
1,527,946
SWEDEN-0.5%
AstraZeneca Group Plc 17,607 686,583
SWITZERLAND-1.6%
Nestle, SA 349 645,754
Novartis AG 436 638,126
Zurich Allied AG 1,308 842,737
------------
2,126,617
UNITED KINGDOM-1.2%
Royal Bank of Scotland Group 26,661 629,619
United News Media Plc 34,900 424,446
Vodafone Group Plc 35,040 645,423
------------
1,699,488
Total Foreign Investments
(cost $10,997,100) 14,367,031
Total Common Stocks & Other Investments
(cost $49,839,296) 74,000,969
DEBT OBLIGATIONS-20.1%
U.S. GOVERNMENT OBLIGATIONS-20.1%
U.S. Treasury Notes
3.875%, 1/15/09 (b) $13,681 13,663,955
4.25%, 11/15/03 485 465,828
6.00%, 8/15/00 5,485 5,550,107
6.50%, 8/31/01 3,275 3,372,726
6.50%, 5/31/02 3,570 3,699,413
6.875%, 5/15/06 380 412,714
Total Debt Obligations
(cost $27,268,355) 27,164,743
F-2
ALLIANCE GROWTH INVESTORS FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
COMPANY (000) U.S. $ VALUE
- -------------------------------------------------------------------------
SHORT-TERM INVESTMENT-24.8%
TIME DEPOSIT-24.8%
State Street Cayman Islands
4.50%, 5/03/99
(amortized cost $33,486,000) $33,486 $ 33,486,000
TOTAL INVESTMENTS-99.7%
(cost $110,593,651) $134,651,712
Other assets less liabilities-0.3% 437,623
NET ASSETS-100% $135,089,335
(a) Non-income producing security.
(b) Treasury Inflation Protection Securities.
See notes to financial statements.
F-3
PORTFOLIO OF INVESTMENTS
APRIL 30, 1999 ALLIANCE CONSERVATIVE INVESTORS FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER INVESTMENTS-18.9%
UNITED STATES INVESTMENTS-14.8%
FINANCE-3.3%
BANKING - MONEY CENTER-1.7%
BankAmerica Corp. 7,400 $ 532,800
Chase Manhattan Corp. 5,200 430,300
------------
963,100
BROKERAGE & MONEY MANAGEMENT-0.5%
Morgan Stanley, Dean Witter & Co. 2,900 287,644
INSURANCE-0.6%
American International Group, Inc. 2,750 322,953
MISCELLANEOUS-0.5%
MBNA Corp. 8,799 248,022
------------
1,821,719
CONSUMER SERVICES-3.0%
BROADCASTING & CABLE-0.6%
AT&T Corp. - Liberty
Media Group Cl.A (a) 5,200 332,150
ENTERTAINMENT & LEISURE-0.6%
Harley-Davidson, Inc. 5,200 310,050
RETAIL - GENERAL MERCHANDISE-1.8%
Dayton Hudson Corp. 6,600 444,262
Home Depot, Inc. 5,200 311,675
Wal-Mart Stores, Inc. 5,800 266,800
------------
1,022,737
------------
1,664,937
HEALTH CARE-2.3%
DRUGS-1.9%
Bristol-Myers Squibb Co. 8,800 559,350
Pfizer, Inc. 1,500 172,594
Schering-Plough Corp. 7,400 357,512
------------
1,089,456
MEDICAL PRODUCTS-0.4%
Medtronic, Inc. 2,900 208,619
------------
1,298,075
TECHNOLOGY-2.2%
COMPUTER HARDWARE-0.5%
Dell Computer Corp. (a) 7,400 304,787
COMPUTER SOFTWARE-0.8%
Microsoft Corp. (a) 5,800 471,612
NETWORKING SOFTWARE-0.5%
Cisco Systems, Inc. (a) 2,200 250,938
SEMI-CONDUCTOR COMPONENTS-0.4%
Altera Corp. (a) 2,900 209,525
------------
1,236,862
CONSUMER STAPLES-1.6%
COSMETICS-0.3%
Gillette Co. 2,900 151,344
RETAIL - FOOD & DRUGS-0.5%
Kroger Co. (a) 5,200 282,425
TOBACCO-0.8%
Philip Morris Cos., Inc. 12,400 434,775
------------
868,544
F-4
ALLIANCE CONSERVATIVE INVESTORS FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) U.S. $ VALUE
- -------------------------------------------------------------------------
ENERGY-1.0%
OIL SERVICE-1.0%
Halliburton Co. 6,800 $ 289,850
Noble Drilling Corp. (a) 14,400 282,600
------------
572,450
UTILITIES-0.7%
TELEPHONE UTILITY-0.7%
MCI WorldCom, Inc. (a) 4,400 361,625
MULTI INDUSTRY COMPANY-0.7%
Tyco International, Ltd. 4,400 357,500
Total United States Investments
(cost $5,293,305) 8,181,712
FOREIGN INVESTMENTS-4.1%
FINLAND-1.0%
Nokia AB OY Corp. 7,400 570,276
FRANCE-0.7%
Carrefour, SA (a) 100 79,230
Sanofi, SA 740 115,932
SEITA 1,470 88,516
Total, SA Cl.B 880 120,480
------------
404,158
GERMANY-0.1%
ProSieben Media AG 3.40% pfd. 1,470 69,104
JAPAN-0.3%
Honda Motor Co. 3,000 132,139
NETHERLANDS-0.2%
Akzo Nobel NV 2,600 117,419
SPAIN-0.5%
Banco Bilbao Vizcaya, SA 3,700 55,347
Tabacalera, SA Series A 4,400 85,665
Telefonica rights, expiring 5/20/99 (a) 2,900 2,696
Telefonica de Espana 2,900 135,869
------------
279,577
SWEDEN-0.2%
AstraZeneca Group Plc 2,623 102,284
SWITZERLAND-0.6%
Nestle, SA 59 109,167
Novartis AG 52 76,107
Zurich Allied AG 221 142,389
------------
327,663
UNITED KINGDOM-0.5%
Royal Bank of Scotland Group 3,793 89,574
United News Media Plc 4,400 53,512
Vodafone Group Plc 5,928 109,192
------------
252,278
Total Foreign Investments
(cost $1,710,014) 2,254,898
Total Common Stocks & Other Investments
(cost $7,003,319) 10,436,610
DEBT OBLIGATIONS-49.3%
U.S. GOVERNMENT OBLIGATIONS-49.3%
U.S. Treasury Notes
3.875%, 1/15/09 (b) $5,868 5,860,274
4.25%, 11/15/03 550 528,259
5.25%, 8/15/03 750 749,648
6.00%, 8/15/00 4,435 4,487,643
6.25%, 4/30/01 925 944,943
6.375%, 5/15/99 2,700 2,700,837
6.50%, 8/31/01 3,095 3,187,355
6.50%, 5/31/02 1,480 1,533,650
6.875%, 5/15/06 6,725 7,303,955
Total Debt Obligations
(cost $27,533,920) 27,296,564
F-5
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE CONSERVATIVE INVESTORS FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
COMPANY (000) U.S. $ VALUE
- -------------------------------------------------------------------------
SHORT-TERM INVESTMENT-29.0%
TIME DEPOSIT-29.0%
State Street Cayman Islands
4.50%, 5/03/99
(amortized cost $16,071,000) $16,071 $16,071,000
TOTAL INVESTMENTS-97.2%
(cost $50,608,239) $53,804,174
Other assets less liabilities-2.8% 1,553,962
NET ASSETS-100% $55,358,136
(a) Non-income producing security.
(b) Treasury Inflation Protection Securities.
See notes to financial statements.
F-6
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 30, 1999
ALLIANCE GROWTH INVESTORS AND
CONSERVATIVE INVESTORS FUNDS
_______________________________________________________________________________
GROWTH CONSERVATIVE
INVESTORS INVESTORS
FUND FUND
------------- ------------
ASSETS
Investments in securities, at value
(cost $110,593,651 and $50,608,239,
respectively) $ 134,651,712 $ 53,804,174
Cash 1,912 749
Receivable for shares of beneficial
interest sold 1,413,583 1,665,601
Interest and dividends receivable 415,525 514,741
Foreign taxes receivable 33,926 5,370
Total assets 136,516,658 55,990,635
LIABILITIES
Payable for shares of beneficial
interest redeemed 1,069,401 457,308
Distribution fee payable 84,508 33,942
Advisory fee payable 83,726 29,562
Accrued expenses 189,688 111,687
Total liabilities 1,427,323 632,499
NET ASSETS $ 135,089,335 $ 55,358,136
COMPOSITION OF NET ASSETS
Shares of beneficial interest,
at par $85 $46
Additional paid-in capital 104,161,979 50,235,541
Distribution in excess of net
investment income (145,875) (6,668)
Accumulated net realized gain on
investments and foreign currency
transactions 7,022,088 1,936,297
Net unrealized appreciation of
investments, other liabilities and
foreign currency denominated assets
and liabilities 24,051,058 3,192,920
$ 135,089,335 $ 55,358,136
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price
per share ($47,916,701 / 3,032,720
and $18,492,594 / 1,556,671 shares of
beneficial interest issued and
outstanding, respectively) $15.80 $11.88
Sales charge--4.25% of public
offering price .70 .53
Maximum offering price $16.50 $12.41
CLASS B SHARES
Net asset value and offering price
per share ($77,554,200 / 4,884,656
and $31,177,380 / 2,571,718 shares of
beneficial interest issued and
outstanding, respectively) $15.88 $12.12
CLASS C SHARES
Net asset value and offering price
per share ($9,618,434 / 605,519
and $5,688,162 / 469,115 shares of
beneficial interest issued and
outstanding, respectively) $15.88 $12.13
See notes to financial statements.
F-7
STATEMENTS OF OPERATIONS ALLIANCE GROWTH INVESTORS AND
YEAR ENDED APRIL 30, 1999 CONSERVATIVE INVESTORS FUNDS
_______________________________________________________________________________
GROWTH CONSERVATIVE
INVESTORS INVESTORS
FUND FUND
----------- -----------
INVESTMENT INCOME
Interest $ 2,468,381 $ 2,042,393
Dividends (net of foreign tax withheld of
$58,688 and $8,135, respectively) 713,684 124,519
Total income 3,182,065 2,166,912
EXPENSES
Advisory fee 895,036 355,320
Distribution fee - Class A 115,391 43,449
Distribution fee - Class B 721,138 280,866
Distribution fee - Class C 87,608 48,065
Transfer agency 266,621 98,846
Custodian 122,891 102,435
Printing 105,211 27,840
Audit and legal 56,748 45,014
Registration 35,401 28,955
Trustees' fees 35,000 28,000
Miscellaneous 8,391 8,603
Total expenses 2,449,436 1,067,393
Less: expenses waived and assumed by
adviser (See Note B) -0- (167,387)
Less: expense offset arrangement
(See Note B) (17,119) (6,491)
Net expenses 2,432,317 893,515
Net investment income 749,748 1,273,397
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions 12,939,690 3,468,275
Net realized loss on foreign currency
transactions (169,987) (42,579)
Net change in unrealized appreciation
(depreciation) of:
Investments 4,675,002 (1,015,805)
Other liabilities and foreign currency
denominated assets and liabilities 16,827 (135)
Net gain on investments and foreign
currency transactions 17,461,532 2,409,756
NET INCREASE IN NET ASSETS FROM OPERATIONS $18,211,280 $ 3,683,153
See notes to financial statements.
F-8
ALLIANCE GROWTH INVESTORS AND
STATEMENT OF CHANGES IN NET ASSETS CONSERVATIVE INVESTORS FUNDS
_______________________________________________________________________________
GROWTH INVESTORS FUND CONSERVATIVE INVESTORS FUND
----------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
APRIL 30, 1999 APRIL 30, 1998 APRIL 30, 1999 APRIL 30, 1998
-------------- -------------- -------------- --------------
INCREASE (DECREASE)
IN NET ASSETS FROM
OPERATIONS
Net investment
income $ 749,748 $ 316,926 $ 1,273,397 $ 1,246,838
Net realized gain
on investments,
futures contracts
and foreign
currency
transactions 12,769,703 14,237,544 3,425,696 3,344,528
Net change in
unrealized
appreciation
(depreciation)
of investments
and foreign
currency
denominated
assets and
liabilities 4,691,829 10,644,067 (1,015,940) 2,461,319
Net increase in
net assets
from operations 18,211,280 25,198,537 3,683,153 7,052,685
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment
income
Class A (418,359) (316,225) (466,063) (410,778)
Class B (295,401) (90,880) (687,634) (759,381)
Class C (35,988) (9,212) (119,700) (109,342)
Distribution in
excess of net
investment
income
Class A (214,001) -0- (61,173) -0-
Class B (150,826) -0- (89,189) -0-
Class C (17,942) -0- (15,332) -0-
Net realized gain
on investments
Class A (3,526,765) (2,631,810) (804,489) (787,612)
Class B (6,296,282) (6,052,618) (1,442,985) (1,864,487)
Class C (761,076) (613,482) (254,273) (269,390)
TRANSACTIONS IN
SHARES OF BENEFICIAL
INTEREST
Net increase
(decrease) 14,418,907 3,496,273 11,307,818 (2,590,456)
Total increase 20,913,547 18,980,583 11,050,133 261,239
NET ASSETS
Beginning of
year 114,175,788 95,195,205 44,308,003 44,046,764
End of year
(including
undistributed
net investment
income of
$145,372 and
$152,080
respectively,
at April 30,
1998) $135,089,335 $114,175,788 $55,358,136 $44,308,003
See notes to financial statements.
F-9
NOTES TO FINANCIAL STATEMENTS ALLIANCE GROWTH INVESTORS AND
APRIL 30, 1999 CONSERVATIVE INVESTORS FUNDS
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Growth Investors Fund and Alliance 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 may 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 prices. 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 company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
F-10
ALLIANCE GROWTH INVESTORS AND
CONSERVATIVE INVESTORS FUNDS
_______________________________________________________________________________
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 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 passive foreign investments company sales and foreign currency
transactions, resulted in a net decrease in distributions in excess of net
investment income and a corresponding decrease in accumulated net realized gain
on investments and foreign currency transactions. This reclassification had no
effect on net assets.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the 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 waive its fees and bear certain
expenses to the extent necessary to limit total operating expenses on an annual
basis to 1.40%, 2.10%, and 2.10% of the daily average net assets for Class A,
Class B and Class C shares, respectively, of the Conservative Investors Fund.
For the year ended April 30, 1999, such reimbursement amounted to $167,387 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 $185,978 and $65,123 for the Growth Investors Fund and Conservative
Investors Fund, respectively, for the year ended April 30, 1999.
For the year ended April 30, 1999, the Funds' expenses were reduced by $17,119
and $6,491 for the Growth Investors Fund and the Conservative Investors Fund,
respectively, under expense offset arrangements with Alliance Fund Services.
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 $12,401 from the sales of Class
A shares and $56,535 and $3,063 in contingent deferred sales charges imposed
upon redemptions by shareholders of Class B and Class C shares, respectively,
for the year ended April 30, 1999 for the Growth Investors Fund. The
Distributor also received front-end sales charges of $5,299 from the sales of
Class A shares and $37,588 and $2,596 in contingent deferred sales charges
imposed upon redemptions by shareholders of Class B and Class C shares,
respectively, for the year ended April 30, 1999 for the Conservative Investors
Fund.
Brokerage commissions paid on investment transactions for the year ended April
30, 1999 amounted to $142,555 and $28,900 for the Growth Investors and
Conservative Investors Funds, respectively, none of which was paid to
Donaldson, Lufkin & Jenrette Securities Corp., an affiliate of the Adviser.
F-11
ALLIANCE GROWTH INVESTORS AND
NOTES TO FINANCIAL STATEMENTS (CONTINUED) CONSERVATIVE INVESTORS FUNDS
_______________________________________________________________________________
Accrued expenses includes amounts owed to two of the Trustees under a deferred
compensation plan of $17,139 each, 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
$38,680,521 and $71,842,911, respectively, for the year ended April 30, 1999.
There were purchases of $44,278,099 and sales of $32,304,216 of U.S. government
and government agency securities for the year ended April 30, 1999. At April
30, 1999, 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. Gross unrealized appreciation of investments was
$24,801,737 and gross unrealized depreciation of investments was $743,676
resulting in net unrealized appreciation of $24,058,061 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
$6,455,384 and $20,783,664, respectively, for the year ended April 30, 1999.
There were purchases of $36,049,883 and sales of $27,961,025, of U.S.
government and government agency obligations for the year ended April 30, 1999.
At April 30, 1999, 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. Gross unrealized appreciation of investments was
$3,533,635 and gross unrealized depreciation of investments was $337,700
resulting in net unrealized appreciation of $3,195,935 (excluding foreign
currency transactions).
The Alliance Growth Investors and Conservative Investors Funds incurred and
elected to defer post October currency losses of $128,736 and $30,878,
respectively, for the year ended April 30, 1999. 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.
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
F-12
ALLIANCE GROWTH INVESTORS AND
CONSERVATIVE INVESTORS FUNDS
_______________________________________________________________________________
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, 1999, 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,
1999, 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,
1999 1998 1999 1998
-------- --------- ----------- -----------
CLASS A
Shares sold 566,266 224,299 $ 8,776,626 $ 3,232,642
Shares issued in
reinvestment of
dividends and
distributions 281,053 216,972 4,047,170 2,877,051
Shares converted
from Class B 510,928 117,685 7,806,714 1,696,586
Shares redeemed (527,391) (449,023) (8,032,657) (6,467,086)
Net increase 830,856 109,933 $12,597,853 $ 1,339,193
F-13
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,
1999 1998 1999 1998
------------ ------------ -------------- --------------
CLASS B
Shares sold 964,442 658,517 $ 14,830,200 $ 9,583,213
Shares issued in
reinvestment of
dividends and
distributions 453,061 453,712 6,573,928 6,043,860
Shares converted
to Class A (509,338) (117,679) (7,806,714) (1,696,586)
Shares redeemed (827,094) (897,932) (12,604,631) (12,997,170)
Net increase 81,071 96,618 $ 992,783 $ 933,317
CLASS C
Shares sold 210,668 192,391 $ 3,218,152 $ 2,775,334
Shares issued in
reinvestment of
dividends and
distributions 54,989 46,021 798,413 613,462
Shares redeemed (211,237) (147,143) (3,188,294) (2,165,033)
Net increase 54,420 91,269 $828,271 $1,223,763
ALLIANCE CONSERVATIVE INVESTORS FUND
-----------------------------------------------------------
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
APRIL 30, APRIL 30, APRIL 30, APRIL 30,
1999 1998 1999 1998
------------ ------------ -------------- --------------
CLASS A
Shares sold 346,984 89,645 $ 4,157,099 $ 1,062,839
Shares issued in
reinvestment of
dividends and
distributions 107,403 99,918 1,256,931 1,132,237
Shares converted
from Class B 390,356 63,018 4,672,943 754,998
Shares redeemed (267,054) (322,476) (3,183,427) (3,841,307)
Net increase
(decrease) 577,689 (69,895) $ 6,903,546 $ (891,233)
CLASS B
Shares sold 1,094,428 460,037 $ 13,349,393 $ 5,586,632
Shares issued in
reinvestment of
dividends and
distributions 173,141 214,784 2,068,607 2,476,221
Shares converted
to Class A (388,535) (62,011) (4,672,943) (754,998)
Shares redeemed (639,564) (721,523) (7,883,521) (8,753,508)
Net increase
(decrease) 239,470 (108,713) $ 2,861,536 $(1,445,653)
CLASS C
Shares sold 216,203 82,073 $ 2,631,544 $ 988,763
Shares issued in
reinvestment of
dividends and
distributions 30,304 31,107 362,040 358,640
Shares redeemed (118,770) (132,931) (1,450,848) (1,600,973)
Net increase
(decrease) 127,737 (19,751) $ 1,542,736 $ (253,570)
F-14
ALLIANCE GROWTH INVESTORS AND
CONSERVATIVE INVESTORS FUNDS
_______________________________________________________________________________
NOTEF: BANK BORROWING
A number of open-end mutual funds managed by the Adviser, including the Funds,
participate in a $750 million revolving credit facility (the "Facility")
intended to provide for short-term financing if necessary, subject to certain
restrictions, in connection with abnormal redemption activity. Commitment fees
related to the Facility are paid by the participating funds and are included in
miscellaneous expenses in the statement of operations. The Funds did not
utilize the Facility during the year ended April 30, 1999.
F-15
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,
---------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $15.09 $13.12 $14.08 $12.08 $11.61
INCOME FROM INVESTMENT OPERATIONS
Net investment income .17(a) .12(a) .16(a)(b) .10(b) .25(b)
Net realized and unrealized gain
on investment transactions 2.20 3.34 .76 2.75 .38
Net increase in net asset value
from operations 2.37 3.46 .92 2.85 .63
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.16) (.16) (.19) (.26) (.15)
Distributions in excess of net
investment income (.09) -0- -0- -0- -0-
Distributions from net realized gains (1.41) (1.33) (1.69) (.59) (.01)
Total dividends and distributions (1.66) (1.49) (1.88) (.85) (.16)
Net asset value, end of year $15.80 $15.09 $13.12 $14.08 $12.08
TOTAL RETURN
Total investment return based on
net asset value (c) 16.81% 27.96% 6.69% 23.87% 5.57%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $47,917 $33,222 $27,453 $30,608 $22,189
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 1.56%(d) 1.60%(d) 1.56%(d) 1.40% 1.40%
Expenses, before waivers/reimbursements 1.56% 1.60% 1.73% 1.65% 1.97%
Net investment income 1.12% .81% 1.14% 2.02% 2.32%
Portfolio turnover rate 84% 137% 133% 209% 134%
</TABLE>
See footnote summary on page 31.
F-16
ALLIANCE GROWTH INVESTORS FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------
YEAR ENDED APRIL 30,
---------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $15.12 $13.11 $14.08 $12.09 $11.65
INCOME FROM INVESTMENT OPERATIONS
Net investment income .06(a) .01(a) .06(a)(b) .06(b) .17(b)
Net realized and unrealized gain
on investment transactions 2.21 3.35 .77 2.70 .38
Net increase in net asset value
from operations 2.27 3.36 .83 2.76 .55
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.07) (.02) (.11) (.18) (.10)
Distributions in excess of net
investment income (.03) -0- -0- -0- -0-
Distributions from net realized gains (1.41) (1.33) (1.69) (.59) (.01)
Total dividends and distributions (1.51) (1.35) (1.80) (.77) (.11)
Net asset value, end of year $15.88 $15.12 $13.11 $14.08 $12.09
TOTAL RETURN
Total investment return based on
net asset value (c) 15.96% 27.04% 5.98% 23.06% 4.83%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $77,554 $72,618 $61,709 $59,978 $43,328
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 2.29%(d) 2.31%(d) 2.27%(d) 2.10% 2.10%
Expenses, before waivers/reimbursements 2.29% 2.31% 2.44% 2.35% 2.67%
Net investment income .39% .10% .42% 1.15% 1.62%
Portfolio turnover rate 84% 137% 133% 209% 134%
</TABLE>
See footnote summary on page 31.
F-17
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE GROWTH INVESTORS FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------------------
YEAR ENDED APRIL 30,
---------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $15.13 $13.12 $14.09 $12.10 $11.65
INCOME FROM INVESTMENT OPERATIONS
Net investment income .06(a) .02(a) .06(a)(b) .06(b) .18(b)
Net realized and unrealized gain
on investment transactions 2.20 3.34 .77 2.70 .38
Net increase in net asset value
from operations 2.26 3.36 .83 2.76 .56
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.07) (.02) (.11) (.18) (.10)
Distributions in excess of net
investment income (.03) -0- -0- -0- -0-
Distributions from net realized gains (1.41) (1.33) (1.69) (.59) (.01)
Total dividends and distributions (1.51) (1.35) (1.80) (.77) (.11)
Net asset value, end of year $15.88 $15.13 $13.12 $14.09 $12.10
TOTAL RETURN
Total investment return based on
net asset value (c) 15.88% 27.02% 5.97% 23.04% 4.91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $9,618 $8,336 $6,033 $5,915 $4,247
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 2.28%(d) 2.30%(d) 2.28%(d) 2.10% 2.10%
Expenses, before waivers/reimbursements 2.28% 2.30% 2.43% 2.36% 2.66%
Net investment income .40% .11% .42% 1.15% 1.62%
Portfolio turnover rate 84% 137% 133% 209% 134%
</TABLE>
See footnote summary on page 31.
F-18
ALLIANCE CONSERVATIVE INVESTORS FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
YEAR ENDED APRIL 30,
---------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $11.97 $11.31 $11.14 $10.38 $10.37
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .38(a) .39(a) .41(a) .51 .48
Net realized and unrealized gain (loss)
on investment transactions .61 1.54 .46 .80 (.02)
Net increase in net asset value
from operations .99 1.93 .87 1.31 .46
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.38) (.43) (.45) (.55) (.45)
Distributions in excess of net
investment income (.05) -0- -0- -0- -0-
Distributions from net realized gains (.65) (.84) (.25) -0- -0-
Total dividends and distributions (1.08) (1.27) (.70) (.55) (.45)
Net asset value, end of year $11.88 $11.97 $11.31 $11.14 $10.38
TOTAL RETURN
Total investment return based on
net asset value (c) 8.59% 17.87% 7.90% 12.69% 4.65%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $18,493 $11,715 $11,860 $14,161 $16,105
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 1.41%(d) 1.41%(d) 1.40%(d) 1.40% 1.40%
Expenses, before waivers/reimbursements 1.74% 1.91% 1.90% 1.73% 1.83%
Net investment income (b) 3.17% 3.33% 3.66% 4.43% 4.66%
Portfolio turnover rate 105% 138% 174% 267% 248%
</TABLE>
See footnote summary on page 31.
F-19
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE CONSERVATIVE INVESTORS FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------
YEAR ENDED APRIL 30,
---------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $12.19 $11.49 $11.31 $10.51 $10.47
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .30(a) .32(a) .34(a) .43 .46
Net realized and unrealized gain (loss)
on investment transactions .63 1.55 .46 .82 (.02)
Net increase in net asset value
from operations .93 1.87 .80 1.25 .44
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.31) (.33) (.37) (.45) (.40)
Distributions in excess of net
investment income (.04) -0- -0- -0- -0-
Distributions from net realized gains (.65) (.84) (.25) -0- -0-
Total dividends and distributions (1.00) (1.17) (.62) (.45) (.40)
Net asset value, end of year $12.12 $12.19 $11.49 $11.31 $10.51
TOTAL RETURN
Total investment return based on
net asset value (c) 7.82% 17.04% 7.10% 11.95% 3.91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $31,177 $28,432 $28,037 $31,979 $30,542
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 2.11%(d) 2.11%(d) 2.10%(d) 2.10% 2.10%
Expenses, before waivers/reimbursements 2.48% 2.61% 2.61% 2.44% 2.52%
Net investment income (b) 2.48% 2.63% 2.96% 3.72% 3.96%
Portfolio turnover rate 105% 138% 174% 267% 248%
</TABLE>
See footnote summary on page 31.
F-20
ALLIANCE CONSERVATIVE INVESTORS FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------------
YEAR ENDED APRIL 30,
---------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $12.19 $11.49 $11.31 $10.52 $10.47
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .30(a) .32(a) .34(a) .41 .46
Net realized and unrealized gain (loss)
on investment transactions .64 1.55 .46 .83 (.01)
Net increase in net asset value
from operations .94 1.87 .80 1.24 .45
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.31) (.33) (.37) (.45) (.40)
Distribution in excess of net
investment income (.04) -0- -0- -0- -0-
Distributions from net realized gains (.65) (.84) (.25) -0- -0-
Total dividends and distributions (1.00) (1.17) (.62) (.45) (.40)
Net asset value, end of year $12.13 $12.19 $11.49 $11.31 $10.52
TOTAL RETURN
Total investment return based on
net asset value (c) 7.91% 17.04% 7.10% 11.84% 4.01%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $5,688 $4,162 $4,150 $5,326 $4,419
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 2.11%(d) 2.11%(d) 2.10%(d) 2.10% 2.10%
Expenses, before waivers/reimbursements 2.47% 2.61% 2.60% 2.45% 2.52%
Net investment income (b) 2.47% 2.63% 2.96% 3.71% 3.97%
Portfolio turnover rate 105% 138% 174% 267% 248%
</TABLE>
(a) Based on average shares outstanding.
(b) Net of fees waived and expenses reimbursed by Adviser.
(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 periods shown below the net expense ratios were as
follows:
<TABLE>
<CAPTION>
ALLIANCE GROWTH INVESTORS ALLIANCE CONSERVATIVE INVESTORS
------------------------------------- -------------------------------------
YEAR ENDED APRIL 30, YEAR ENDED APRIL 30,
------------------------------------- -------------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Class A 1.54% 1.59% 1.55% 1.40% 1.40% 1.40%
Class B 2.27% 2.29% 2.26% 2.10% 2.10% 2.10%
Class C 2.27% 2.29% 2.26% 2.10% 2.10% 2.10%
</TABLE>
F-21
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 parts of The Alliance Portfolios, hereafter referred to
as the "Funds") at April 30, 1999, 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, 1999 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
June 23, 1999
F-22
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 interest and principal
A-1
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
characteristics,
A-2
these are outweighed by large uncertainties or major risk exposures to adverse
debt conditions.
C1-- The rating C1 is reserved for income bonds on which no interest is
being paid.
D-- Debt rated D is in default and payment of interest and/or repayment
of principal is in arrears.
The ratings from AAA to CC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
A-3
WRITER'S DIRECT DIAL NUMBER: (617) 951-7569
WRITER'S E-MAIL ADDRESS: [email protected]
September 3, 1999
ELECTRONIC SUBMISSION - VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: The Alliance Portfolios
(File Nos. 33-12988 and 811-05088);
Alliance Conservative Investors Fund
Alliance Growth Investors Fund
Prospectus and Statement of Additional Information
Ladies and Gentlemen:
Transmitted herewith for filing on behalf of The Alliance Portfolios pursuant
to Rule 497(c) promulgated under the Securities Act of 1933, as amended, are
the Prospectus and the Statement of Additional Information dated September 1,
1999.
Please direct any questions you may have with respect to the enclosed materials
to me at the number indicated above or, in my absence, to Brian McCabe (ext.
7801) of this office.
Sincerely,
JOHN B. MCGINTY, JR.
John B. McGinty, Jr.
JBM/jbm
cc: Edmund P. Bergan, Jr., Esq.
Andrew L. Gangolf, Esq.
Joseph B. Kittredge, Esq.
Brian D. McCabe, Esq.
