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As filed with the Securities and Exchange
Commission on July 1, 1999
Registration Nos. 33-12988;
811-05088
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OF 1933 / X /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 35 / X /
REGISTRATION STATEMENT UNDER THE INVESTMENT / X /
Amendment No. 37 / X /
THE ALLIANCE PORTFOLIOS
(Exact Name of Registrant as Specified in Declaration of Trust)
1345 Avenue of the Americas
New York, New York 10105
(Address of Principal Executive Offices, including zip code)
800-221-5672
(Registrant's Telephone Number, including Area Code)
Please Send Copies of all Communications to:
Edmund P. Bergan, Jr. J.B. Kittredge, Esq.
Alliance Capital Management L.P. Ropes & Gray
1345 Avenue of the Americas One International Place
New York, New York Boston, MA 02110-2624
10105
Approximate Date of Proposed Public Offering: Continuous.
It is proposed that this filing will become effective (check
appropriate box):
Immediately upon filing purusant to paragraph (b) / /
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On (date) pursuant to paragraph (b) / /
60 days after filing pursuant to paragraph (a) (1) / /
On (August 31, 1999) pursuant to paragraph (a) (1) / X /
75 days after filing pursuant to (a) (2) / /
On (date) pursuant to paragraph (a) (2) of Rule 485. / /
If appropriate, check the following box:
This post-effecitve amendment designates a new
effective date for a previously filed post-effective
amendment. / /
NOTE: THIS AMENDMENT RELATES SOLELY TO SHARES OF BENEFICIAL
INTEREST IN THE ALLIANCE CONSERVATIVE INVESTORS FUND AND THE
ALLIANCE GROWTH INVESTORS FUND. INFORMATION CONTAINED IN THE
REGISTRANT'S REGISTRATION STATEMENT RELATING TO THE OTHER SERIES
OF THE REGISTRANT IS NEITHER AMENDED NOR SUPERSEDED HEREBY.
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Alliance Asset Prospectus
Allocation Funds September 1, 1999
The Alliance Asset Allocation Funds invest in a variety of fixed-
income securities, money market instruments and equity
securities, each pursuant to a different asset allocation
strategy.
- Alliance Conservative Investors
Fund
- Alliance Growth Investors Fund
The Securities and Exchange Commission has not approved or
disapproved of these securities or passed upon the adequacy of
this prospectus. Any representation to the contrary is a
criminal offense.
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TABLE OF CONTENTS
Page
RISK/RETURN SUMMARY.......................................
The Alliance Conservative Investors Fund..................
The Alliance Growth Investors Fund........................
FEES AND EXPENSES OF THE FUNDS............................
GLOSSARY..................................................
DESCRIPTION OF THE FUNDS .................................
Investment Objectives and Policies........................
Description of Investment Practices.......................
Additional Risk Considerations............................
MANAGEMENT OF THE FUNDS...................................
PURCHASE AND SALE OF SHARES...............................
How The Funds Value Their Shares..........................
How To Buy Shares.........................................
How To Exchange Shares....................................
How To Sell Shares........................................
DIVIDENDS, DISTRIBUTIONS AND TAXES........................
DISTRIBUTION ARRANGEMENTS.................................
GENERAL INFORMATION.......................................
FINANCIAL HIGHLIGHTS......................................
APPENDIX A -- BOND RATINGS................................
APPENDIX B -- PERFORMANCE INFORMATION.....................
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The Funds' investment adviser is Alliance Capital Management
L.P. ("Alliance" or "the Adviser"), a global investment manager
providing diversified services to institutions and individuals
through a broad line of investments including more than 100
mutual funds.
RISK/RETURN SUMMARY
The following is a summary of certain key information about the
Alliance Asset Allocation Funds. You will find additional
information about each Fund, including a detailed description of
the risks of an investment in each Fund, after this Summary.
The Risk/Return Summary describes each Fund's investment
objective, principal investment strategies, principal risks and
fees. Each Fund's summary page includes a short discussion of
some the principle risks of investing in that Fund. A further
discussion of these and other risks begins on page 8.
More detailed descriptions of the Funds, including the risks
associated with investing in the Funds, can be found further back
in this Prospectus. Please be sure to read this additional
information BEFORE you invest. Each of the Funds may at times
use certain types of investment derivatives such as options,
futures, forwards and swaps. The use of these techniques
involves special risks that are discussed in this Prospectus.
The Risk/Return Summary includes a table for each Fund showing
its average annual returns and a bar chart showing its annual
returns. The table and bar chart provide an indication of the
historical risk of an investment in each Fund by showing:
- -- how the Funds average annual returns for one, five, and 10
years (or over the life of the Fund if the Fund is less than
10 years old) compare to those of a broad based securities
market index; and
- -- changes in the Funds performance from year to year over 10
years (or over the life of the Fund if the Fund is less than
10 years old).
A Funds past performance, of course, does not necessarily
indicate how it will perform in the future.
Other important things for you to note:
- -- You may lose money by investing in the Funds.
- -- An investment in the Funds is not a deposit in a bank and is
not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
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Alliance Conservative Investors Fund
- -- Objective: The Fund seeks to achieve a high total return
without, in the opinion of Alliance, undue risk to principal.
- -- Principal Investment Strategies and Risks: The Fund invests
varying portions of its assets in debt and equity securities.
The Fund normally invests between 50% and 90% (generally
approximately 70%) of its total assets in fixed-income
securities and money market instruments, with equity
securities comprising the remainder of the Fund's holdings.
The Fund's equity investments will consist of common stocks
and securities convertible into common stocks issued by
companies with a favorable outlook for earnings and whose
rate of growth Alliance expects to exceed that of the U.S.
economy over time. All fixed-income securities held by the
Fund will be of investment grade at the time of purchase.
The Fund may invest in foreign securities and may also make
use of various other investment strategies, including
securities lending. The Fund may use derivatives.
Among the principal risks of investing in the Fund are market
risk, derivatives risk, liquidity risk and management risk.
The Fund is subject to credit risk through its investments in
debt securities and to foreign investment risk and currency
risk through its investments in foreign securities.
The table and bar chart provide an indication of the historical
risk of an investment in the Fund.
Alliance Conservative Investors Fund
The annual returns in the bar chart are for the Fund's Class A
shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
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BAR CHART
[To be updated.]
You should consider an investment in the Fund a long-term
investment. The Fund's returns will fluctuate over long and
short periods. For example, for the quarter ended March 31, 1999
the Portfolio's return was %, and during the periods shown in
the bar chart, the Fund's:
Best quarter was up ___%, __ quarter, 19__; and
Worst quarter was down __%, __ quarter, 19__.
PERFORMANCE TABLE
Past One Year Past Five Years Since Inception
Class A
Class B
Class C
70% Lehman
Brothers
Government
Corporate Bond
Index/ 30% S&P 500
Index
The average annual total returns in the performance table for the
periods ended December 31, 1998 reflect the imposition of the
maximum front-end or contingent deferred sales charges and
conversion of Class B shares to Class A shares after the
applicable period. Since Inception returns are from the
inception of Class A and Class B shares (5/4/92). Index returns
are from month-end following inception of Class A and Class B
shares. Performance information for periods prior to the
inception of Class C shares (8/2/93) is the performance of the
Fund's Class A shares adjusted to reflect the higher expense
ratio of Class C shares. The average annual total return for
Class C since its actual inception date was __%. The index
return for the comparable period (which dates from month-end
following the Class C inception date) was __%.
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Alliance Growth Investors Fund
- -- Objective: This Fund seeks to achieve the highest total
return consistent with Alliance's determination of reasonable
risk.
- -- Principal Investment Strategies and Risks: The Fund invests
varying portions of its assets in equity and debt securities.
Over time, the Fund's holdings are expected on average to be
allocated 70% to equity securities and 30% to debt
securities. The Fund's equity investments will consist of
common stocks and securities convertible into common stocks
issued by companies with a favorable outlook for earnings and
whose rate of growth Alliance expects to exceed that of the
U.S. economy over time and may include securities issued by
intermediate- and small-sized companies with favorable growth
prospects. Debt investments will include investment grade
fixed-income securities and may include securities that are
below investment grade ("junk bonds"). The Fund may invest
in foreign securities and may also make use of various other
investment strategies, including securities lending. The
Fund may use derivatives.
Among the principal risks of investing in the Fund are market
risk, derivatives risk, liquidity risk and management risk.
The Fund is subject to heightened credit risk through its
investments in lower quality debt securities, to foreign
investment risk and currency risk to the extent that it
invests in securities of foreign issuers, and to smaller
company risk to the extent that it invests in securities of
companies with smaller capitalizations.
The table and bar chart provide an indication of the historical
risk of an investment in the Fund.
Alliance Growth Investors Fund
The annual returns in the bar chart are for the Fund's Class A
shares and do not reflect sales loads. If sales loads were
reflected, returns would be lower than those shown.
BAR CHART
[To be updated.]
You should consider an investment in the Fund a long-term
investment. The Fund's returns will fluctuate over long and
short periods. For example, for the quarter ended March 31, 1999
the Portfolio's return was %, and during the periods shown in
the bar chart, the Fund's:
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Best quarter was up ___%, __ quarter, 19__; and
Worst quarter was down __%, __ quarter, 19__.
PERFORMANCE TABLE
Past One Year Past Five Years Since Inception
Class A
Class B
Class C
70% S&P 500/ 30%
Lehman Brothers
Government
Corporate Bond
Index
The average annual total returns in the performance table for the
periods ended December 31, 1998 reflect the imposition of the
maximum front-end or contingent deferred sales charges and
conversion of Class B shares to Class A shares after the
applicable period. Since Inception returns are from the
inception of Class A and Class B shares (5/4/92). Index returns
are from month-end following inception of Class A and Class B
shares. Performance information for periods prior to the
inception of Class C shares (8/2/93) is the performance of the
Fund's Class A shares adjusted to reflect the higher expense
ratio of Class C shares. The average annual total return for
Class C since its actual inception date was __%. The index
return for the comparable period (which dates from month-end
following the Class C inception date) was __%.
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SUMMARY OF PRINCIPAL RISKS
The value of your investment in a Fund will change with the
values of the Fund's investments. Many factors can affect those
values. This summary describes the principal risks that may
affect a Fund's portfolio as a whole. Either Fund could be
subject to additional principal risks because the types of
investments made by the Funds can change over time. Investments
mentioned in this summary and described in greater detail under
"Description of the Funds" or "Investment Techniques" appear in
bold type. These sections also include more information about
the Funds, their investments and the related risks.
- -- Market and Interest Rate Risk. Each of the Funds is subject
to market risk, which is the general risk of unfavorable
changes in the market value of a Fund's securities. These
include the risks of broader market declines as well as more
company-specific risks, such as poor management performance,
inappropriate financial leverage, industry problems and
reduced demand for a particular company's products.
Interest rate risk is the risk that interest rates will rise
causing a Fund's investments to decline in value. Because
the Funds invest in debt securities such as bonds, notes and
asset-backed securities, they are subject to this type of
market risk. Debt securities are obligations of an issuer to
make fixed payments of principal and/or interest on future
dates. If the interest rate paid by an issuer on a
particular debt security is high relative to market interest
rates, that security is attractive to investors and valuable.
Accordingly, if market interest rates rise, your investment
in a Fund that holds debt securities is likely to become less
valuable because its debt securities are likely to drop in
value.
Even the Alliance Conservative Investors Fund is subject to
interest rate risk despite the fact that it invests
substantial portions of its assets in high quality debt
securities. Interest rate risk is generally greater,
however, for the Alliance Growth Investors Fund because it
invests significantly in lower-rated securities and
comparable unrated securities.
Interest rate risk is generally greater when a Fund invests
in debt securities with longer maturities. Market risk
generally is greater for Funds that invest to a material
extent in mortgage-related or other asset-backed securities
that may be prepaid. These securities bear greater market
risk because they have variable maturities that tend to
lengthen when least desirable - when interest rates are
rising. Increased market risk is also likely for Funds that
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invest to a material extent in debt securities paying no
interest, such as zero coupon, principal-only and interest-
only securities, or paying non-cash interest in the form of
other debt securities (pay-in-kind securities).
- -- Credit Risk. Credit risk is the risk that the issuer or the
guarantor of a debt security or the counterparty to a
transaction will be unable or unwilling to make timely
principal and/or interest payments, or otherwise to honor its
obligations. Each of the Funds may be subject to credit risk
to the extent that it invests in debt securities or engages
in transactions, such as securities loans, which involve a
promise by a third party to honor an obligation to the Fund.
Varying degrees of credit risk, often reflected in credit
ratings, apply to different third parties and related
transactions.
Credit risk is particularly significant for the Alliance
Growth Investors Fund because it invests a material portion
of its assets in lower-rated securities. These debt
securities and similar unrated securities (commonly known as
"junk bonds") have speculative elements or are predominantly
speculative credit risks. Even debt securities that are
"investment grade" may have some speculative characteristics.
As a result of their investments in foreign securities, the
Funds are also subject to increased credit risk because of
the difficulties of requiring foreign entities, including
issuers of sovereign debt, to honor their contractual
commitments, and because a number of foreign governments and
other issuers are already in default.
- -- Currency Risk. The Funds will be subject to currency risk
because they may invest in securities denominated in, and/or
receiving revenues in, foreign currencies. This is the risk
that those currencies will decline in value relative to the
U.S. Dollar, or, in the case of hedging positions, that the
U.S. Dollar will decline in value relative to the currency
hedged. In either event, the dollar value of such
investments would be the adversely affected.
- -- Foreign Investment Risk. To the extent that they invest in
foreign securities, the Funds may experience more rapid and
extreme changes in value than Funds with investments solely
in securities of U.S. companies. This is because the
securities markets of many foreign countries are relatively
small, with a limited number of companies representing a
small number of industries.
Additionally, foreign securities issuers are usually not
subject to the same degree of regulation as U.S. issuers.
Reporting, accounting and auditing standards of foreign
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countries differ, in some cases significantly, from U.S.
standards. Also, nationalization, expropriation or
confiscatory taxation, currency blockage, political changes
or diplomatic developments could adversely affect a Fund's
investments in a foreign country. In the event of
nationalization, expropriation or other confiscation, a Fund
could lose its entire investment.
- -- Leveraging Risk. When a Fund is borrowing money or otherwise
leveraging its portfolio, the value of an investment in that
Fund will be more volatile and all other risks will tend to
be compounded. Each of the Funds may take on leveraging risk
by investing collateral from securities loans and by
borrowing money to meet redemption requests.
- -- Derivatives Risk. Each of the Funds may use derivatives,
which are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference
rate or index. Alliance will sometimes use derivatives as
part of a strategy designed to reduce other risks and
sometimes will use derivatives for leverage, which increases
opportunities for gain but also involves greater risk. In
addition to other risks such as the credit risk of the
counterparty, derivatives involve the risk of mispricing or
improper valuation and the risk that changes in the value of
the derivative may not correlate perfectly with relevant
assets, rates and indices.
- -- Liquidity Risk. Liquidity risk exists when particular
investments are difficult to purchase or sell, possibly
preventing a Fund from selling out of these illiquid
securities at an advantageous price. Each Fund is subject to
liquidity risk because foreign investments and securities
involving substantial market and/or credit risk tend to
involve greater liquidity risk because they can be hard to
sell.
- -- Smaller Company Risk. Market risk and liquidity risk are
particularly pronounced for the Alliance Growth Investors
Fund to the extent that it invests in the stocks of companies
with relatively small market capitalizations. These
investments often involve greater risk because smaller
companies may have limited product lines, markets or
financial resources or may depend on a few key employees.
- -- Management Risk. Each Fund is subject to management risk
because it is an actively managed investment Fund. Alliance
will apply its investment techniques and risk analyses in
making investment decisions for the Funds, but there can be
no guarantee that they will produce the desired results. In
some cases, certain investments may be unavailable or
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Alliance may choose not to use them under market conditions
when, in retrospect, their use would have been beneficial to
the Funds.
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FEES AND EXPENSES
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Funds.
Shareholder Transaction Expenses (paid directly from your
investment)
Class A Shares Class B Shares Class C Shares
Maximum Sales
Charge (Load)
Imposed on
Purchases (as a
percentage of
offering price) 4.25% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is lower) None 4.0% during 1.0% during
the 1st year, the 1st year,
decreasing 1.0% 0% thereafter
annually to 0%
after the
4th year*
Exchange Fee None None None
________________________________________________________________
* Class B shares automatically convert to Class A shares after
6 years.
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets) and Examples
The Examples are to help you compare the cost of investing in a
Fund with the cost of investing in other mutual funds. They
assume that you invest $10,000 in a Fund for the time periods
indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment earns a
5% return each year, that the Fund's operating expenses remain
the same, and that all dividends and distributions are
reinvested. Your actual costs may be higher or lower.
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Operating Expenses Examples
Alliance
Conservative
Investors Fund [To be updated]
Class A Class B Class C Class A Class B Class C
Management Fees % % % After $ $ $
1 Year
Distribution and
Shareholder Service
(12b-1) Fees .30% 1.00% 1.00% After $ $ $
3 Years
Interest Expense % % % After $ $ $
5 Years
Other Expenses % % % After $ $ $
20
Years
Total Fund Operating
Expenses % % %
Waiver and/or
Expense Reimbursement % % %
Net Expenses % % %
Alliance Growth
Investors Fund
Class A Class B Class C Class A Class B Class C
Management Fees % % % After $ $ $
1 Year
Distribution and
Shareholder Service
(12b-1) Fees .30% 1.00% 1.00% After $ $ $
3 Years
Interest Expense % % % After $ $ $
5 Years
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Other Expenses % % % After 10 $ $ $
10
Years
Total Fund Operating
Expenses % % %
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GLOSSARY
This Prospectus uses the following terms.
Types of Securities
Bonds are fixed, floating, and variable rate debt obligations.
Convertible securities are fixed-income securities that are
convertible into common and preferred stock.
Debt securities are bonds, debentures, notes, and bills.
Depositary receipts include American Depositary Receipts (ADRs),
Global Depositary Receipts (GDRs) and other types of depositary
receipts.
Equity securities include (i) common stocks, partnership
interests, business trust shares and other equity or ownership
interests in business enterprises, and (ii) securities
convertible into, and rights and warrants to subscribe for the
purchase of, such stocks, shares and interests.
Fixed-income securities are debt securities and preferred stocks,
including floating rate and variable rate instruments.
Foreign government securities are securities issued or
guaranteed, as to payment of principal and interest, by foreign
governments, quasi-governmental entities, or governmental
agencies or other entities.
Interest-only or IO securities are debt securities that receive
only the interest payments on an underlying debt that has been
structured to have two classes, one of which is the IO class and
the other of which is the principal-only or PO class, that
receives only the principal payments on the underlying debt
obligation. POs are similar to, and are sometimes referred to as,
zero coupon securities, which are debt securities issued without
interest coupons.
Mortgage-related securities are pools of mortgage loans that are
assembled for sale to investors (such as mutual funds) by various
governmental, government-related, and private organizations.
These securities include:
- -- ARMS, which are adjustable-rate mortgage securities;
- -- SMRS, which are stripped mortgage-related securities;
- -- CMOs, which are collateralized mortgage obligations;
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- -- GNMA certificates, which are securities issued by the
Government National Mortgage Association or GNMA;
- -- FNMA certificates, which are securities issued by the Federal
National Mortgage Association or FNMA; and
- -- FHLMC certificates, which are securities issued by the
Federal Home Loan Mortgage Corporation or FHLMC.
Rule 144A securities are securities that may be resold pursuant
to Rule 144A under the Securities Act.
Sovereign debt obligations are foreign government debt
securities, loan participations between foreign governments and
financial institutions, and interests in entities organized and
operated for the purpose of restructuring the investment
characteristics of foreign government securities.
U.S. Government securities are securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
Rating Agencies, Rated Securities and Indexes
Duff & Phelps is Duff & Phelps Credit Rating Company.
Fitch is Fitch IBCA, Inc.
Investment grade securities are fixed-income securities rated Baa
and above by Moodys or B and above by S&P, Duff & Phelps or
Fitch, or determined by Alliance to be of equivalent quality.
Lower-rated securities are fixed-income securities rated Ba or
below by Moodys or BB or below by S&P, Duff & Phelps or Fitch, or
determined by Alliance to be of equivalent quality, and are
commonly referred to as junk bonds.
Moodys is Moodys Investors Service, Inc.
S&P is Standard & Poors Ratings Services.
S&P 500 Index is S&Ps 500 Composite Stock Price Index, a widely
recognized unmanaged index of market activity.
Other
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
Commission is the Securities and Exchange Commission.
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Duration is a measure that relates the price volatility of a
security to changes in interest rates. The duration of a debt
security is the weighted average term to maturity, expressed in
years, of the present value of all future cash flows, including
coupon payments and principal repayments. Thus, by definition,
duration is always less than or equal to full maturity.
Exchange is the New York Stock Exchange.
Non-U.S. Company is an entity that (i) is organized under the
laws of a foreign country and conducts business in a foreign
country, (ii) derives 50% or more of its total revenues from
business in foreign countries, or (iii) issues equity or debt
securities that are traded principally on a stock exchange in a
foreign country.
Securities Act is the Securities Act of 1933, as amended.
World Bank is the commonly used name for the International Bank
for Reconstruction and Development.
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DESCRIPTION OF THE FUNDS
This section of the Prospectus provides a more complete
description of each Fund's investment objectives and principal
strategies and risks. Of course, there can be no assurance that
any Fund will achieve its investment objective.
Please note that:
- -- Additional discussion of the Funds' investments, including
the risks of the investments, can be found in the discussion
under Description of Investment Practices following this
section.
- -- The description of the principal risks for a Fund may include
risks described in the Summary of Principal Risks above.
Additional information about the risks of investing in a Fund
can be found in the discussion under Additional Risk
Considerations.
- -- Additional descriptions of each Fund's strategies,
investments, and risks can be found in the Statement of
Additional Information or SAI.
- -- Except for certain investment restrictions designated as
fundamental in this Prospectus and the Statement of
Additional Information, the investment objectives and
policies of the Funds are not fundamental policies and may be
changed by the Trustees without shareholder approval. The
Trust will give shareholders contemporaneous notice of any
change in a Fund's investment objective.
INVESTMENT OBJECTIVES AND POLICIES
Asset Allocation Funds Generally
The Conservative Investors and Growth Investors Funds invest in a
variety of fixed-income securities, money market instruments and
equity securities, each pursuant to a different asset allocation
strategy, as described below. The term "asset allocation" is used
to describe the process of shifting assets among discrete
categories of investments in an effort to adjust risk while
producing desired return objectives. Portfolio management,
therefore, will consist not only of selecting specific securities
but also of setting, monitoring and changing, when necessary, the
asset mix.
Each Fund has been designed with a view toward a particular
"investor profile." The "conservative investor" has a relatively
short-term investment bias, either because of a limited tolerance
for market volatility or a short investment horizon. This
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investor is averse to taking risks that may result in principal
loss, even though such aversion may reduce the potential for
higher long-term gains and result in lower performance during
periods of equity market strength. Consequently, the asset mix
for the Conservative Investors Fund attempts to reduce volatility
while providing modest upside potential. The "growth investor"
has a longer-term investment horizon and therefore is willing to
take more risks in an attempt to achieve long-term growth of
principal. This investor wishes, in effect, to be risk conscious
without being risk averse. The asset mix for the Growth Investors
Fund is therefore intended to provide for upside potential
without excessive volatility.
Alliance has established an asset allocation committee (the
"Committee"), which is responsible for setting and continually
reviewing the asset mix ranges of each Fund. Under normal market
conditions, the Committee is expected to change allocation ranges
approximately three to five times per year. However, the
Committee has broad latitude to establish the frequency, as well
as the magnitude, of allocation changes within the guidelines
established for each Fund. During periods of severe market
disruption, allocation ranges may change frequently. It is also
possible that in periods of stable and consistent outlook no
change will be made. The Committee's decisions are based on and
may be limited by a variety of factors, including liquidity,
portfolio size, tax consequences and general market conditions,
always within the context of the appropriate investor profile for
each Fund. Consequently, asset mix decisions for the Conservative
Investors Fund principally emphasize risk assessment of each
asset class viewed over the shorter term, while decisions for the
Growth Investors Fund are principally based on an assessment of
the longer term total return potential for each asset class.
The Funds are permitted to use a variety of hedging techniques to
attempt to reduce market, interest rate and currency risks.
Alliance Conservative Investors Fund
Alliance Conservative Investors Fund seeks a high total return
without, in the view of Alliance, undue risk to principal. The
Fund attempts to achieve its investment objective by allocating
varying portions of its assets among investment grade, publicly
traded fixed-income securities, money market instruments and
publicly traded common stocks and other equity securities of U.S.
and non-U.S. issuers.
All fixed-income securities owned by the Fund will be of
investment grade at the time of purchase. This means that they
will be in one of the top four rating categories assigned by S&P,
Moody's, Duff & Phelps or Fitch, or will be unrated securities of
comparable quality as determined by Alliance. Securities in the
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fourth such rating category (rated BBB by S&P, Duff & Phelps or
Fitch, or Baa by Moody's) have speculative characteristics, and
changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity to make principal and
interest payments on such obligations than in the case of higher-
rated securities. In the event that the rating of any security
held by the Conservative Investors Fund falls below investment
grade (or, in the case of an unrated security, Alliance
determines that it is no longer of investment grade), the Fund
will not be obligated to dispose of such security and may
continue to hold the obligation if, in the opinion of Alliance,
such investment is appropriate under the circumstances. For a
description of the ratings referred to above, see Appendix A.
The equity securities the Conservative Investors Fund invests in
will consist of common stocks and securities convertible into
common stocks, such as convertible bonds, convertible preferred
stocks and warrants, issued by companies with a favorable outlook
for earnings and whose rate of growth Alliance expects to exceed
that of the U.S. economy over time.
The Conservative Investors Fund will at all times hold at least
40% of its total assets in investment grade fixed-income
securities, each having a duration less than that of a 10-year
Treasury bond (the "Fixed Income Core").
The Conservative Investors Fund is generally expected to hold
approximately 70% of its total assets in fixed-income securities
(including the Fixed Income Core, cash and money market
instruments) and 30% in equity securities. Actual asset mixes
will be adjusted in response to economic and credit market
cycles. The fixed-income asset class will always comprise at
least 50%, but never more than 90%, of the Fund's total assets.
The equity class will always comprise at least 10%, but never
more than 50%, of the Fund's total assets. For temporary
defensive purposes, the Fund may invest without limit in money
market instruments.
The Fund also may:
- -- invest without limit in foreign securities, although it
generally will not invest more than 15% of its total assets
in such securities;
- -- invest in non-publicly traded securities;
- -- invest in mortgage-backed securities, including
collateralized mortgage obligations, or CMOs and in asset-
backed securities;
- -- invest in adjustable rate securities;
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- -- invest in convertible securities and zero-coupon and payment-
in-kind bonds;
- -- buy and sell stock index futures and related options;
- -- make secured loans of portfolio securities; and
- -- enter into repurchase agreements and forward commitments.
Alliance Growth Investors Fund
The investment objective of the Growth Investors Fund is to
achieve the highest total return consistent with Alliance's
determination of reasonable risk. The Fund attempts to achieve
its investment objective by allocating varying portions of its
assets among a number of asset classes. Equity investments will
include common stocks and securities convertible into common
stocks issued by companies with a favorable outlook for earnings
and whose rate of growth Alliance expects to exceed that of the
U.S. economy over time and may also include equity securities
issued by intermediate- and small-sized companies with favorable
growth prospects, companies in cyclical industries, companies
whose securities are, in the opinion of Alliance, temporarily
undervalued, companies in special situations and less widely
known companies. Fixed-income investments will include investment
grade fixed-income securities (including cash and money market
instruments) and may include securities that are rated in the
lower rating categories by recognized ratings agencies (i.e., BB
or lower by S&P, Duff & Phelps or Fitch or Ba or lower by
Moody's) or that are unrated but determined by Alliance to be of
comparable quality. Lower rated fixed-income securities generally
provide greater current income than higher rated fixed-income
securities, but are subject to greater credit and market risk.
The Fund will not invest more than 25% of its total assets in
securities rated at the time of purchase below investment grade,
that is, securities rated BB or lower by S&P or Ba or lower by
Moody's, or in unrated securities deemed to be of comparable
quality at the time of purchase by Alliance. For a description of
the ratings referred to above, see Appendix A. For more
information about the risks associated with investment in lower
rated securities, see "High-Yield Securities" below.
The Growth Investors Fund will at all times hold at least 40% of
its total assets in publicly traded common stocks and other
equity securities of the type purchased by the Conservative
Investors Fund (the "Equity Core"). The Growth Investors Fund is
generally expected to hold approximately 70% of its total assets
in equity securities (including the Equity Core) and 30% in
fixed-income securities (including cash and money market
instruments). Actual asset mixes will be adjusted in response to
economic and credit market cycles. The fixed-income asset class
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will always comprise at least 10%, but never more than 60%, of
the Fund's total assets. The equity class will always comprise at
least 40%, but never more than 90%, of the Fund's total assets.
For temporary defensive purposes, the Fund may invest without
limit in money market instruments.
The Fund also may:
- -- invest without limit in foreign securities, although it
generally will not invest more than 15% of its total assets
in such securities;
- -- invest in non-publicly traded securities;
- -- invest in mortgage-backed securities, including
collateralized mortgage obligations, or CMOs and in asset-
backed securities;
- -- invest in adjustable rate securities;
- -- invest in convertible securities and zero-coupon and payment-
in-kind bonds;
- -- buy and sell stock index futures and related options;
- -- make secured loans of portfolio securities;
- -- enter into repurchase agreements and forward commitments; and
- -- invest in high yield securities.
DESCRIPTION OF INVESTMENT PRACTICES
Foreign Securities
Each Fund may invest without limit in securities of foreign
issuers and securities which are not publicly traded in the
United States, although the Conservative Investors Fund generally
will not invest more than 15% of its total assets, and the Growth
Investors Fund generally will not invest more than 30% of its
total assets, in such securities. Such securities may involve
certain special risks due to foreign economic, political,
diplomatic and legal developments, including favorable or
unfavorable changes in currency exchange rates, exchange control
regulations (including currency blockage and costs),
expropriation or nationalization of assets, confiscatory
taxation, imposition of withholding taxes on dividend or interest
payments, and possible difficulty in obtaining and enforcing
judgments against foreign entities. Furthermore, issuers of
foreign securities are subject to different, often less
comprehensive, accounting, reporting and disclosure requirements
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than domestic issuers. The securities of some foreign companies
and foreign securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S.
securities markets, and foreign securities markets may be subject
to less regulation than U.S. securities markets. The laws of some
foreign countries may limit the Funds' ability to invest in
certain issuers located in those countries. Foreign brokerage
commissions and other fees are also generally higher than in the
United States. There are also special tax considerations that
apply to securities of foreign issuers and securities principally
traded overseas. Foreign settlement procedures and trade
regulations may involve certain risks (such as delay in payment
or delivery of securities or in the recovery of the Funds' assets
held abroad) and expenses not present in the settlement of
domestic investments.
The Growth Investors Fund may invest a portion of its assets in
developing countries or in countries with new or developing
capital markets. The risks noted above are generally increased
with respect to these investments. These countries may have
relatively unstable governments, economies based on only a few
industries or securities markets that trade a small number of
securities. Securities of issuers located in these countries tend
to have volatile prices and may offer significant potential for
loss.
The value of foreign investments measured in U.S. dollars will
rise or fall because of decreases or increases in the value of
the U.S. dollar in comparison to the value of the currency in
which the foreign investment is denominated. The Funds may buy or
sell foreign currencies, options on foreign currencies, foreign
currency futures contracts (and related options) and deal in
forward foreign currency exchange contracts in connection with
the purchase and sale of foreign investments. You can find more
information about the Funds' foreign investments in the SAI.
Non-Publicly Traded Securities
Each Fund 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 the 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 be able to sell them only at less than fair market value.
Investment in these securities is restricted to 5% of a Fund's
total assets (not including for these purposes Rule 144A
Securities, to the extent permitted by applicable law) and is
also subject to the Funds' restriction against investing more
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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 liquidity guidelines established
by the Trust's Board of Trustees. For additional information see
the SAI.
Mortgage-Backed Securities
Each Fund may invest in mortgage-backed securities, including
collateralized mortgage obligations or "CMOs." Interest and
principal payments (including prepayments) on the mortgages
underlying mortgage-backed securities are passed through to the
holders of the mortgage-backed security. Prepayments occur when
the mortgagor on an individual mortgage prepays the remaining
principal before the mortgage's scheduled maturity date. As a
result of the pass-through of prepayments of principal on the
underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated
maturity would indicate. Because the prepayment characteristics
of the underlying mortgages vary, it is not possible to predict
accurately the realized yield or average life of a particular
issue of pass-through certificates. During periods of declining
interest rates, such prepayments can be expected to accelerate
and the Funds would be required to reinvest the proceeds at the
lower interest rates then available. Conversely, during periods
of rising interest rates, a reduction in prepayments may increase
the effective maturities of the securities, subjecting them to a
greater risk of decline in market value in response to rising
interest rates. In addition, prepayments of mortgages which
underlie securities purchased at a premium could result in
capital losses.
The Funds may also invest in derivative instruments, including
certificates representing rights to receive payments of the
interest only or principal only of mortgage-backed securities
("IO/PO Strips"). These securities may be more volatile than
other types of securities. IO Strips involve the additional risk
of loss of the entire remaining value of the investment if the
underlying mortgages are prepaid.
Adjustable Rate Securities
Each Fund may invest in adjustable rate securities. Adjustable
rate securities are securities that have interest rates that are
reset at periodic intervals, usually by reference to some
interest rate index or market interest rate. Some adjustable rate
securities are backed by pools of mortgage loans. Although the
rate adjustment feature may act as a buffer to reduce sharp
changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes
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in market interest rates or changes in the issuer's
creditworthiness. Because the interest rate is reset only
periodically, changes in the interest rate on adjustable rate
securities may lag behind changes in prevailing market interest
rates. Also, some adjustable rate securities (or the underlying
mortgages) are subject to caps or floors that limit the maximum
change in the interest rate during a specified period or over the
life of the security.
Asset-Backed Securities
Each Fund may invest in asset-backed securities, which represent
fractional interests in pools of leases, retail installment loans
or revolving credit receivables, both secured and unsecured.
These assets are generally held by a trust. Payments of principal
and interest or interest only are passed through to certificate
holders and may be guaranteed up to certain amounts by letters of
credit issued by a financial institution affiliated or
unaffiliated with the trustee or originator of the trust.
Underlying automobile sales contracts or credit card receivables
are subject to prepayment, which may reduce the overall return to
certificate holders. Certificate holders may also experience
delays in payment on the certificates if the full amounts due on
underlying sales contracts or receivables are not realized by the
trust because of unanticipated legal or administrative costs of
enforcing the contracts or because of depreciation or damage to
the collateral (usually automobiles) securing certain contracts,
or other factors. If consistent with its investment objective and
policies, each Fund may invest in other asset-backed securities
that may be developed in the future.
High-Yield Securities
The Growth Investors Fund may invest in high-yield, high-risk,
fixed-income and convertible securities rated at the time of
purchase Ba or lower by Moody's or BB or lower by S&P, Duff &
Phelps or Fitch, or, if unrated, judged by Alliance to be of
comparable quality ("High-Yield Securities"). The Growth
Investors Fund will generally invest in securities rated at the
time of purchase at least Caa- by Moody's or CCC- by S&P, Duff &
Phelps or Fitch, or in unrated securities judged by Alliance to
be of comparable quality at the time of purchase. However, from
time to time, the Fund may invest in securities rated in the
lowest grades of Moody's, S&P, Duff & Phelps or Fitch, or in
unrated securities judged by Alliance to be of comparable
quality, if Alliance determines that there are prospects for an
upgrade or a favorable conversion into equity securities (in the
case of convertible securities). Securities rated Ba or BB or
lower (and comparable unrated securities) are commonly referred
to as "junk bonds." Securities rated D by S&P are in default.
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As with other fixed-income securities, High-Yield Securities are
subject to credit risk and market risk and their yields may
fluctuate. High-Yield Securities are subject to greater credit
risk (and potentially greater incidence of default) than
comparable higher-rated securities because issuers are more
vulnerable to economic downturns, higher interest rates or
adverse issuer-specific developments. In addition, the prices of
High-Yield Securities are generally subject to greater market
risk, and therefore react more sharply to changes in interest
rates. The value and liquidity of High-Yield Securities may be
diminished by adverse publicity or investor perceptions. Because
High-Yield Securities are frequently traded only in markets where
the number of potential purchasers and sellers, if any, is
limited, the ability of the Growth Investors Fund to sell High-
Yield Securities at their fair value either to meet redemption
requests or to respond to changes in the financial markets may be
limited. Thinly traded High-Yield Securities may be more
difficult to value accurately for the purpose of determining the
Fund's net asset value. In addition, the values of such
securities may be more volatile.
Some High-Yield Securities in which the Growth Investors Fund may
invest may be subject to redemption or call provisions that may
limit increases in market value that might otherwise result from
lower interest rates while increasing the risk that the Fund may
be required to reinvest redemption or call proceeds during a
period of relatively low interest rates. The credit ratings
issued by Moody's, S&P, Duff & Phelps and Fitch, a description of
which is included as Appendix A, are subject to various
limitations. For example, while such ratings evaluate credit
risk, they ordinarily do not evaluate the market risk of High-
Yield Securities. In certain circumstances, the ratings may not
reflect in a timely fashion adverse developments affecting an
issuer. For these reasons, Alliance conducts its own independent
credit analysis of High-Yield Securities.
When the Growth Investors Fund invests in securities in the lower
rating categories, the achievement of the Fund's goals is more
dependent on Alliance's ability than would be the case if the
Fund were investing in higher-rated securities. In the event that
the credit rating of a High-Yield Security held by the Growth
Investors Fund falls below its rating at the time of purchase
(or, in the case of unrated securities, Alliance determines that
the quality of such security has deteriorated since purchased by
the Fund), the Fund will not be obligated to dispose of such
security and may continue to hold the obligation if, in the
opinion of Alliance, such investment is appropriate under the
circumstances. Securities rated Baa by Moody's or BBB by S&P,
Duff & Phelps or Fitch or judged by the Advisor to be of
comparable quality share some of the speculative characteristics
of the High-Yield Securities described above.
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Convertible Securities
Each Fund may invest in convertible securities. These securities
normally provide a yield that is higher than that of the
underlying stock but lower than that of a fixed-income security
without the conversion feature. Also, the price of the
convertible security will normally vary to some degree with
changes in the price of the underlying stock. In addition, the
price of the convertible security will also generally vary to
some degree inversely with interest rates. Convertible debt
securities that are rated below BBB (S&P) or Baa (Moody's) or
comparable unrated securities as determined by Alliance may share
some or all of the risks of High-Yield Securities. For a
description of these risks, see "High-Yield Securities"
above.
Equity-Linked Debt Securities
Equity-linked debt securities are securities with respect to
which the amount of interest and/or principal that the issuer
thereof is obligated to pay is linked to the performance of a
specified index of equity securities. Such amount may be
significantly greater or less than payment obligations in respect
of other types of debt securities. Adverse changes in equity
securities indices and other adverse changes in the securities
markets may reduce payments made under, and/or the principal of,
equity-linked debt securities held by a Fund. Furthermore, as
with any debt securities, the values of equity-linked debt
securities will generally vary inversely with changes in interest
rates. A Fund's ability to dispose of equity-linked debt
securities will depend on the availability of liquid markets for
such securities. Investment in equity-linked debt securities may
be considered to be speculative. As with other securities, a Fund
could lose its entire investment in equity-linked debt
securities.
Zero-Coupon and Payment-in-Kind Bonds
The Funds may at times invest in so-called "zero-coupon" bonds
and "payment-in-kind" bonds. Zero-coupon bonds are issued at a
significant discount from their principal amount in lieu of
paying interest periodically. Payment-in-kind bonds allow the
issuer, at its option, to make current interest payments on the
bonds either in cash or in additional bonds. Because zero-coupon
and payment-in-kind bonds do not pay current interest in cash,
their value is generally subject to greater fluctuation in
response to changes in market interest rates than bonds that pay
interest currently in cash. Both zero-coupon and payment-in-kind
bonds allow an issuer to avoid the need to generate cash to meet
current interest payments. Accordingly, such bonds may involve
greater credit risks than bonds paying interest currently in
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cash. Even though such bonds do not pay current interest in cash,
a Fund is nonetheless required to accrue interest income on such
investments and to distribute such amounts at least annually to
shareholders. Thus, a Fund could be required to liquidate other
investments in order to satisfy its dividend requirements at
times when Alliance would not otherwise deem it advisable to do
so.
Futures and Related Options.
Each Fund may buy and sell stock index futures contracts ("index
futures") and may buy options on index futures for hedging
purposes and may buy and sell options on stock indices for
hedging purposes or to earn additional income. The Funds may
also, for hedging purposes, purchase and sell futures contracts,
options thereon and options with respect to U.S. Treasury
securities, including U.S. Treasury bills, notes and bonds.
The use of futures and options involves certain special risks.
Futures and options transactions involve costs and may result in
losses. Certain risks arise because of the possibility of
imperfect correlations between movements in the prices of futures
and options and movements in the prices of the underlying stock
index or security or of the securities in a Fund's portfolio that
are the subject of a hedge. The successful use of the strategies
described above further depends on Alliance's ability to forecast
market movements correctly. Other risks arise from a Fund's
potential inability to close out its futures or options
positions. In addition there can be no assurance that a liquid
secondary market will exist for any future or option at any
particular time. Certain regulatory requirements may limit the
Funds' ability to engage in futures and options transactions. A
more detailed explanation of futures and options transactions,
including the risks associated with them, is included in the
Statement of Additional Information.
- -- Options.
An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a
premium payment or fee, gives the option holder (the buyer) the
right but not the obligation to buy or sell the underlying asset
(or settle for cash in an amount based on an underlying asset,
rate or index) at a specified price (the exercise price) during a
period of time or on a specified date. A call option entitles
the holder to purchase, and a put option entitles the holder to
sell, the underlying asset. Likewise, when an option is
exercised the writer of the option is obligated to sell (in the
case of a call option) or to purchase (in the case of a put
option) the underlying asset.
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A Fund may seek to increase current return by writing covered
call and put options on securities it owns or in which it may
invest. The Fund receives a premium from writing a call or put
option, which increases the Fund's return if the option expires
unexercised or is closed out at a net profit. When the Fund
writes a call option, it gives up the opportunity to profit from
any increase in the price of a security above the exercise price
of the option; when it writes a put option, the Fund takes the
risk that it will be required to purchase a security from the
option holder at a price above the current market price of the
security. The Fund may terminate an option that it has written
prior to its expiration by entering into a closing purchase
transaction in which it purchases an option having the same terms
as the option written. A Fund may also buy and sell put and call
options for hedging purposes. A Fund may also from time to time
buy and sell combinations of put and call options on the same
underlying security to earn additional income. A Fund's use of
these strategies may be limited by applicable law.
Securities Loans, Repurchase Agreements and Forward Commitments
Each Fund may lend portfolio securities amounting to not more
than 25% of its total assets and may enter into repurchase
agreements on up to 25% of its total assets. These transactions
must be fully collateralized at all times, but involve some risk
to a Fund if the other party should default on its obligation and
the Fund is delayed or prevented from recovering the collateral.
Each Fund may also purchase securities for future delivery, which
may increase its overall investment exposure and involves a risk
of loss if the value of the securities declines prior to the
settlement date.
Portfolio Management
Alliance manages each Fund's portfolio by buying and selling
securities to help attain its investment objective. The portfolio
turnover rate for each Fund is included under "Financial
Highlights." A high portfolio turnover rate will involve greater
costs to a Fund (including brokerage commissions and transaction
costs) and may also result in the realization of taxable capital
gains, including short-term capital gains taxable at ordinary
income rates. See "Dividends, Distributions and Taxes" below and
"Portfolio Transactions" in the SAI.
ADDITIONAL RISK CONSIDERATIONS
Investment in the Funds involves the special risk considerations
described below.
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Currency Considerations
Because the Funds invest some portion of their assets in foreign
securities and receive revenues in foreign currencies, they will
be adversely affected by reductions in the value of those
currencies relative to the U.S. Dollar. These changes will
affect each Fund's net assets, distributions and income. If the
value of the foreign currencies in which a Fund receives income
falls relative to the U.S. Dollar between receipt of the income
and the making of Fund distributions, the Fund may be required to
liquidate securities in order to make distributions if the Fund
has insufficient cash in U.S. Dollars to meet the distribution
requirements that the Fund must satisfy to qualify as a regulated
investment company for federal income tax purposes. Similarly,
if an exchange rate declines between the time a Fund incurs
expenses in U.S. Dollars and the time cash expenses are paid, the
amount of the currency required to be converted into U.S. Dollars
in order to pay expenses in U.S. Dollars could be greater than
the equivalent amount of such expenses in the currency at the
time they were incurred. In light of these risks, a Fund may
engage in certain currency hedging transactions, as described
above, which involve certain special risks.
Fixed-Income Securities
The value of each Fund's shares will fluctuate with the value of
its investments. The value of each Fund's investments will
change as the general level of interest rates fluctuates. During
periods of falling interest rates, the values of a Fund's
securities will generally rise, although if falling interest
rates are viewed as a precursor to a recession, the values of a
Fund's securities may fall along with interest rates.
Conversely, during periods of rising interest rates, the values
of a Fund's securities will generally decline. Changes in
interest rates have a greater effect on fixed-income securities
with longer maturities and durations than those with shorter
maturities and durations.
In seeking to achieve a Fund's investment objective, there will
be times, such as during periods of rising interest rates, when
depreciation and realization of capital losses on securities in a
Fund's portfolio will be unavoidable. Moreover, medium- and
lower-rated securities and non-rated securities of comparable
quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market
conditions. Such fluctuations after a security is acquired do
not affect the cash income received from that security but will
be reflected in the net asset value of a Fund.
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Foreign Securities
The securities markets of many foreign countries are relatively
small, with the majority of market capitalization and trading
volume concentrated in a limited number of companies representing
a small number of industries. Consequently, a Fund whose
investment portfolio includes foreign securities may experience
greater price volatility and significantly lower liquidity than a
portfolio invested solely in securities of U.S. companies. These
markets may be subject to greater influence by adverse events
generally affecting the market, and by large investors trading
significant blocks of securities, than is usual in the United
States.
Securities registration, custody and settlements may in some
instances be subject to delays and legal and administrative
uncertainties. Furthermore, foreign investment in the securities
markets of certain foreign countries is restricted or controlled
to varying degrees. These restrictions or controls may at times
limit or preclude investment in certain securities and may
increase the cost and expenses of a Fund. In addition, the
repatriation of investment income, capital or the proceeds of
sales of securities from certain of the countries is controlled
under regulations, including in some cases the need for certain
advance government notification or authority, and if a
deterioration occurs in a country's balance of payments, the
country could impose temporary restrictions on foreign capital
remittances.
A Fund also could be adversely affected by delays in, or a
refusal to grant, any required governmental approval for
repatriation, as well as by the application to it of other
restrictions on investment. Investing in local markets may
require a Fund to adopt special procedures or seek local
governmental approvals or other actions, any of which may involve
additional costs to a Fund. These factors may affect the
liquidity of a Fund's investments in any country and Alliance
will monitor the effect of any such factor or factors on a Fund's
investments. Furthermore, transaction costs including brokerage
commissions for transactions both on and off the securities
exchanges in many foreign countries are generally higher than in
the U.S.
Issuers of securities in foreign jurisdictions are generally not
subject to the same degree of regulation as are U.S. issuers with
respect to such matters as insider trading rules, restrictions on
market manipulation, shareholder proxy requirements, and timely
disclosure of information. The reporting, accounting, and
auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects, and
less information may be available to investors in foreign
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securities than to investors in U.S. securities. Substantially
less information is publicly available about certain non-U.S.
issuers than is available about most U.S. issuers.
The economies of individual foreign countries may differ
favorably or unfavorably from the U.S. economy in such respects
as growth of gross domestic product or gross national product,
rate of inflation, capital reinvestment, resource self-
sufficiency, and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage,
political changes, government regulation, political or social
instability, or diplomatic developments could affect adversely
the economy of a foreign country. In the event of
nationalization, expropriation or other confiscation, a Fund
could lose its entire investment in securities in the country
involved. In addition, laws in foreign countries governing
business organizations, bankruptcy and insolvency may provide
less protection to securities holders such as the Fund than is
provided by U.S. laws.
Investment in Fixed-Income Securities Rated Baa and BBB
Securities rated Baa or BBB are considered to have speculative
characteristics and share some of the same characteristics as
lower-rated securities, as described below. Sustained periods of
deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to
pay interest and repay principal than in the case of higher-rated
securities.
Investment in Lower-Rated Fixed-Income Securities
Lower-rated securities are subject to grater risk of loss of
principal and interest than higher-rated securities. They are
also generally considered to be subject to greater market risk
than higher-rated securities, and the capacity of issuers of
lower-rated securities to pay interest and repay principal is
more likely to weaken than is that of issuers of higher-rated
securities in times of deteriorating economic conditions or
rising interest rates. In addition, lower-rated securities may
be more susceptible to real or perceived adverse economic
conditions than investment grade securities. Securities rated Ba
or BB are judged to have speculative elements or to be
predominantly speculative with respect to the issuer's ability to
pay interest and repay principal. Securities rated B are judged
to have highly speculative elements or to be predominantly
speculative. Such securities may have small assurance of
interest and principal payments. Securities rated Baa by Moody's
are also judged to have speculative characteristics.
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The market for lower-rated securities may be thinner and less
active than that for higher-rated securities, which can adversely
affect the prices at which these securities can be sold. To the
extent that there is no established secondary market for lower-
rated securities, a Fund may experience difficulty in valuing
such securities and, in turn, the Fund's assets.
Alliance will try to reduce the risk inherent in investment in
lower-rated securities through credit analysis, diversification,
and attention to current developments and trends in interest
rates and economic and political conditions. There can be no
assurance, however, that losses will not occur. Since the risk
of default is higher for lower-rated securities, Alliance's
research and credit analysis are a correspondingly more important
aspect of its program for managing a Fund's securities than would
be the case if a Fund did not invest in lower-rated securities.
In considering investments for the Fund, Alliance will attempt to
identify those high-yielding securities whose financial condition
is adequate to meet future obligations, has improved, or is
expected to improve in the future. Alliance's analysis focuses
on relative values based on such factors as interest or dividend
coverage, asset coverage, earnings prospects, and the experience
and managerial strength of the issuer.
Unrated Securities
Unrated securities will also be considered for investment by the
Funds when Alliance believes that the financial condition of the
issuers of such securities, or the protection afforded by the
terms of the securities themselves, limits the risk to a
particular Fund to a degree comparable to that of rated
securities which are consistent with the Fund's objective and
policies.
Year 2000
Many computer systems and applications in use today process
transactions using two-digit date fields for the year of the
transaction, rather than the full four digits. If these systems
are not modified or replaced, transactions occurring after 1999
could be processed as year "1900," which could result in
processing inaccuracies and computer system failures at or after
the Year 2000. This is commonly known as the year 200 problem.
The Funds and their major service providers, including Alliance,
utilize a number of computer systems and applications that have
been either developed internally or licensed from third party
suppliers. In addition, the Funds and their major service
providers, including Alliance, are dependent on third party
suppliers for certain systems applications and for electronic
receipt of information. Should any of computer systems employed
by the Funds or their major service providers fail to process
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year 2000 related information properly, that could have a
significant negative impact on the Funds' operations and the
services that are provided to the Funds' stockholders. To the
extent that the operations of issuers of securities held by a
Fund are impaired by the year 2000 problem, or prices of
securities held by a Fund decline as a result of real or
perceived problems relating to the Year 2000, the value of the
Fund's shares may be materially affected. In addition, for the
Funds' investments in foreign markets, it is possible that
foreign companies and markets will not be as prepared for Years
2000 as domestic companies and markets.
The Year 2000 issue is a high priority for the Funds and
Alliance. The Funds have been advised that, during 1997,
Alliance began a formal Year 2000 initiative which established a
structured and coordinated process to deal with the year 2000
issue. As part of its initiative, Alliance established a Year
2000 project office to manage the Year 2000 initiative, focusing
on both information technology and non-information technology
systems. Alliance has also retained the services of a number of
consulting firms which have expertise in advising and assisting
with regard to year 2000 issues. Alliance reports that by June
30, 1998 it had completed its inventory and assessment of its
domestic and international computer systems and applications,
identified mission critical systems and non-mission critical
systems and determined which of these systems are not Year 2000
compliant. All third party suppliers of mission critical
computer systems and applications have been contacted to verify
whether their systems and applications will be Year 2000
compliant and their responses are being evaluated. Substantially
all of those contacted have responded and approximately 90% have
informed Alliance that their systems and applications are or will
be Year 2000 compliant. Alliance will seek alternative solutions
or third party suppliers for all suppliers who do not furnish a
satisfactory response by June 30, 1999. The same process is
being performed for non-mission critical systems with estimated
completion by June 30, 1999. Alliance had remediated, replaced
or retired all of its non-compliant mission critical systems and
applications which can impact the Fund. The same process is
being performed for non-mission critical systems and is estimated
to be completed by June 30, 1999. After each system has been
remediated, it is tested with 19XX dates to determine if it still
performs its intended business function correctly. Next, each
system undergoes a simulation test using dates occurring after
December 31, 1999. Inclusive of the replacement and retirement
of some of its systems, Alliance has completed these testing
phases for approximately 98% of mission critical systems and
approximately 89% of nonmission critical systems. Integrated
systems tests will then be conducted to verify that the systems
will continue to work together. Full integration testing of all
mission critical and nonmission critical systems is estimated to
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be completed by June 30, 1999. Testing of interfaces with third-
party suppliers has begun and will continue throughout 1999.
Alliance reports that it has completed an inventory of its
facilities and related technology applications and has begun to
evaluate and test these systems. Alliance reports that it
anticipates that these systems will be fully operable in the year
2000. Alliance, with the assistance of a consulting firm, is
developing year 2000 specific contingency plans with emphasis on
mission critical functions. These plans seek to provide
alternative methods of processing in the event of a failure that
is outside Alliance's control. The estimated date for the
completion of these plans is June 30, 1999.
There are many risks associated with year 2000 issues, including
the risks that the computer systems and applications used by the
Funds and their major service providers, including Alliance, will
not operate as intended and that the systems and applications of
third party providers to the Funds and their service providers
will not be Year 2000 compliant. Likewise there can be no
assurance the compliance schedules outlined above will be met or
that the actual cost incurred and will not exceed current cost
estimates. Should the significant computer systems and
applications used by the Funds and their major service providers
or the systems of their important third party suppliers be unable
to process date-sensitive information accurately after 1999, the
Funds and Alliance or their other service providers may be unable
to conduct their normal business operations and to provide
shareholders with the required services. In addition, the Funds
and their service providers may incur unanticipated expenses,
regulatory actions and legal liabilities. The Funds and Alliance
cannot determine which risks, if any, are most reasonably likely
to occur or the effects of any particular failure to be Year 2000
compliant.
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MANAGEMENT OF THE FUNDS
Adviser
As noted above, the Fund's investment adviser is Alliance Capital
Management L.P., a leading international investment adviser
managing client accounts with assets as of March 31, 1999
totaling more than $301 billion (of which approximately $127
billion represented assets of investment companies). As of March
31, 1999, the Adviser managed retirement assets for many of the
largest public and private employee benefit plans (including 30
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 119 separate portfolios, managed by the Adviser
currently have over 4 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 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
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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
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.
Portfolio Manager
Nicholas D. P. Carn is the person principally responsible for the
day-today management of each Fund's portfolio. Mr. Carn has been
a Vice President of Alliance Capital Management Corporation since
1997. Prior thereto, he was Chief Investment Officer and
Portfolio Manager of Draycott Partners since before 1994.
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Distribution Plans
Each Fund has adopted a plan under Commission Rule 12b-1 that
allows the Fund to pay asset-based sales charges or distribution
and service fees for the distribution and sale of its shares.
The amount of these fees for each class of the Fund's shares is:
Rule 12b-1 Fee (as a percent of
aggregate average daily net assets)
Class A .30%*
Class B 1.00%
Class C 1.00%
____________________
*The Rule 12b-1 plan for Class A shares provides for payments of
up to .50% of aggregate average daily net assets, although the
Fund's Trustees currently limit such payments to .30% of such
assets.
Because these fees are paid out of the Fund's assets on an
ongoing basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of
sales fees. Class B and Class C shares are subject to higher
distribution fees than Class A shares (Class B shares are subject
to these higher fees for a period of six years, after which they
convert to Class A shares). The higher fees mean a higher
expense ratio, so Class B and Class C shares pay correspondingly
lower dividends and may have a lower net asset value than Class A
shares.
PURCHASE AND SALE OF SHARES
How the Funds Value Their Shares
The Funds' net asset value or NAV is calculated at 4:00 p.m.,
Eastern time, each day the Exchange is open for business. To
calculate NAV, a Fund's assets are valued and totaled,
liabilities are subtracted, and the balance, called net assets,
is divided by the number of shares outstanding. The Funds' value
their securities at their current market value determined on the
basis of market quotations or, if such quotations are not readily
available, such other methods as the Funds' Directors or Trustees
believe accurately reflect fair market value.
Your order for purchase, sale, or exchange of shares is priced at
the next NAV calculated after your order is accepted by the Fund.
Your purchase of Fund shares may be subject to an initial sales
charge. Sales of Fund shares may be subject to a contingent
deferred sales charge or CDSC. See the Distribution Arrangements
section of this Prospectus for details.
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How to Buy Shares
You may purchase a Fund's shares through broker-dealers, banks,
or other financial intermediaries. You also may purchase shares
directly from the Funds' principal underwriter, Alliance Fund
Distributors, Inc., or AFD.
Minimum investment amounts are:
-- Initial $250
-- Subsequent $50
-- Automatic Investment Program $25
If you are an existing Fund shareholder, you may purchase shares
by electronic funds transfer in amounts not exceeding $500,000 if
you have completed the appropriate section of the Subscription
Application or the Shareholder Options form obtained from AFS.
Call 800-221-5672 to arrange a transfer from your bank account.
A Fund is required to withhold 31% of taxable dividends, capital
gains distributions, and redemptions paid to shareholders who
have not provided the Fund with their certified taxpayer
identification number. To avoid this, you must provide your
correct Tax Identification Number (Social Security Number for
most investors) on your account application.
The Funds may refuse any order to purchase shares. In this
regard, the Funds reserve the right to restrict purchases of Fund
shares (including through exchanges) when they appear to evidence
a pattern of frequent purchases and sales made in response to
short-term considerations.
How to Exchange Shares
You may exchange your Fund shares for shares of the same class of
other Alliance Mutual Funds (including AFD Exchange Reserves, a
money market fund managed by Alliance). Exchanges of shares are
made at next-determined NAV, without sales or service charges.
You may request an exchange by mail or telephone. You must call
by 4:00 p.m., Eastern time, to receive that day's NAV. The Funds
may change, suspend, or terminate the exchange service on 60
days' written notice.
How to Sell Shares
You may "redeem" your shares (i.e., sell your shares to the Fund)
on any day the Exchange is open, either directly or through your
financial intermediary. Your sales price will be the next-
determined NAV, less any applicable CDSC, after the Fund receives
your request in proper form. Normally, proceeds will be sent to
you within seven days. If you recently purchased your shares by
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check or electronic funds transfer, your redemption payment may
be delayed until the Fund is reasonably satisfied that the check
or electronic funds transfer has been collected (which may take
up to 15 days).
- -- Selling Shares Through Your Broker
Your broker must receive your request by 4:00 p.m., Eastern time,
and submit it to the Fund by 5:00 p.m., Eastern time, for you to
receive that day's NAV, less any applicable CDSC. Your broker is
responsible for furnishing all necessary documentation to Fund
and may charge you for this service.
- -- Selling Shares Directly to a Fund
By Mail
- - Send a signed letter of instruction or stock power form to
AFS, along with certificates, to:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
- - For your protection, a bank, a member firm of a national
stock exchange or other eligible guarantor institution must
guarantee signatures. Stock power forms are available from
your financial intermediary, AFS, and many commercial banks.
Additional documentation is required for the sale of shares
by corporations, intermediaries, fiduciaries, and surviving
joint owners.
By Telephone
- - You may redeem your shares for which no stock certificates
have been issued by telephone request. Call AFS at 800-221-
5672 with instructions on how you wish to receive your sale
proceeds.
- - A telephone redemption request must be made by 4:00 p.m.,
Eastern time, for you to receive that day's NAV, less any
applicable CDSC and, except for certain omnibus accounts, may
be made only once per day.
- - If you have selected electronic funds transfer in your
Subscription Application, the redemption proceeds may be sent
directly to your bank. Otherwise, the proceeds will be
mailed to you.
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- - Redemption requests by electronic funds transfer may not
exceed $100,000 per day and redemption requests by check
cannot exceed $50,000 per day.
- - Telephone redemption is not available for shares held in
nominees or "street name" accounts or retirement plan
accounts or shares held by a shareholder who has changed his
or her address of record within the previous 30 calendar
days.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Funds declare dividends on their shares each Fund business
day. For Saturdays, Sundays, and holidays dividends will be as
of the previous business day. Each Fund pays dividends on its
shares after the close of business on the twentieth day of each
month or on the first day after that day if the day is not a
business day.
Each Fund's income dividend and capital gains distribution, if
any, declared by a Fund on its outstanding shares will, at the
election of each shareholder, be paid in cash or in additional
shares of the same class of shares of that Fund. If paid in
additional shares, the shares will have an aggregate net asset
value as of the close of business on the day following the
declaration date of the dividend or distribution equal to the
cash amount of the dividend or distribution. You may make an
election to receive dividends and distributions in cash or in
shares at the time you purchase shares. Your election can be
changed at any time prior to a record date for a dividend. There
is no sales or other charge in connection with the reinvestment
of dividends or capital gains distributions. Cash dividends may
be paid in check, or at your election, electronically via the ACH
network. There is no sales or other charge on the reinvestment
of Fund dividends and distributions.
If you receive an income dividend or capital gains distribution
in cash you may, within 120 days following the date of its
payment, reinvest the dividend or distribution in additional
shares of that Fund without charge by returning to Alliance, with
appropriate instructions, the check representing the dividend or
distribution. Thereafter, unless you otherwise specify, you will
be deemed to have elected to reinvest all subsequent dividends
and distributions in shares of that Fund.
While it is the intention of each Fund to distribute to its
shareholders substantially all of each fiscal year's net income
and net realized capital gains, if any, the amount and timing of
any such dividend or distribution must necessarily depend upon
the realization by such Fund of income and capital gains from
investments. There is no fixed dividend rate and there can be no
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assurance that a Fund will pay any dividends or realize any
capital gains.
Investment income received by a Fund from sources within foreign
countries may be subject to foreign income taxes withheld at the
source. To the extent that any Fund is liable for foreign income
taxes withheld at the source, each Fund intends, if possible, to
operate so as to meet the requirements of the Code to "pass
through" to the Fund's shareholders credits or deductions for
foreign income taxes paid, but there can be no assurance that any
Fund will be able to do so. Furthermore, a shareholder's ability
to claim a foreign tax credit or deduction for foreign taxes paid
by a Fund may be subject to certain limitations imposed by the
Code, as a result of which a shareholder may not be permitted to
claim a full credit or deduction for the amount of such taxes.
Under certain circumstances, if a Fund realizes losses (e.g.,
from fluctuations in currency exchange rates) after paying a
dividend, all or a portion of the dividend may subsequently be
characterized as a return of capital. Returns of capital are
generally nontaxable, but will reduce a shareholder's basis in
shares of a Fund. If that basis is reduced to zero (which could
happen if the shareholder does not reinvest distributions and
returns of capital are significant), any further returns of
capital will be taxable as a capital gain.
The Funds expect that distributions will consist either of net
income (or short-term capital gains) or long-term capital gains.
For federal income tax purposes, the Fund's dividend
distributions of net income (or short-term taxable gains) will be
taxable to you as ordinary income. Any capital gains
distributions may be taxable to you as capital gains. A Fund's
distributions also may be subject to certain state and local
taxes.
If you buy shares just before a Fund deducts a distribution from
its NAV, you will pay the full price for the shares and then
receive a portion of the price back as a taxable distribution.
The sale or exchange of Fund shares is a taxable transaction for
Federal income tax purposes.
Each year shortly after December 31, the Fund will send you tax
information stating the amount and type of all its distributions
for the year. Consult your tax adviser about the federal, state,
and local tax consequences in your particular circumstances.
DISTRIBUTION ARRANGEMENTS
The Funds offer the following classes of shares:
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Class A Shares -- Initial Sales Charge Alternative
You can purchase Class A shares at net asset value plus an
initial sales charge, as follows:
Initial Sales Charge
Commission to
as % of Net as a % of Dealer/Agent as %
Amount Purchased Amount Invested Offering Price of Offering Price
Less than $100,000 4.44% 4.25% 4.00%
$100,000 to less
than $250,000 3.36 3.25 3.00
$250,000 to less
than $500,000 2.30 2.25 2.00
$500,000 to less
than $1,000,000 1.78 1.75 1.50
On purchases of $1,000,000 or more, you pay no initial sales
charge but may pay a contingent deferred sales charge ("CDSC")
equal to 1% of the lesser of net asset value at the time of
redemption or original cost if you redeem within one year;
Alliance may pay the dealer or agent a fee of up to 1% of the
dollar amount purchased. Certain purchases of Class A shares may
qualify for reduced or eliminated sales charges in accordance
with the Funds' Combined Purchase Privilege, Cumulative Quantity
Discount, Statement of Intention, Privilege for Certain
Retirement Plans, Reinstatement Privilege and Sales at Net Asset
Value programs. Consult the Application and the SAI.
Class B Shares -- Deferred Sales Charge Alternative
You can purchase Class B shares at net asset value without an
initial sales charge. A Fund will thus receive the full amount of
your purchase. However, you may pay a CDSC if you redeem shares
within four years after purchase. The amount of the CDSC
(expressed as a percentage of the lesser of the current net asset
value or original cost) will vary according to the number of
years from the purchase of the Class B shares until the
redemption of those shares, as follow:
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Year Since Purchase CDSC
First 4%
Second 3%
Third 2%
Fourth 1%
Thereafter None
Class B shares are subject to higher distribution fees than Class
A shares for a period of eight years (at which time they convert
to Class A shares). Because of these higher fees, Class B shares
pay correspondingly lower dividends and may have a lower net
asset value than Class A shares.
Class C Shares -- Asset-Based Sales Charge Alternative
You can purchase Class C shares at net asset value without any
initial sales charge. The Fund will thus receive the full amount
of your purchase, and, if you hold your shares for one year or
more, you will receive the entire net asset value of your shares
upon redemption. Class C shares incur higher distribution fees
than Class A shares and do not convert to any other class of
shares of the Fund. Because of these higher fees, Class C shares
pay correspondingly lower dividends and may have a lower net
asset value than Class A shares.
Class C shares redeemed within one year of purchase will be
subject to a CDSC equal to 1.0% of the lesser of their original
cost or net asset value at the time of redemption.
Choosing a Class of Shares
The decision as to which class of shares is More beneficial to
you depends on the amount and intended length of your investment.
If you are making a large investment, thus qualifying for a
reduced sales charge, you might consider purchasing Class A
shares. If you are making a small investment, you might consider
purchasing Class B shares because 100% of your purchase is
invested immediately. If you are unsure of the length of your
investment, you might consider Class C shares because there is no
initial sales charge and no CDSC as long as the shares are held
for one year or more. Dealers and agents may receive differing
compensation for selling Class A, Class B, or Class C shares.
There is no size limit on purchases of Class A shares. The
maximum purchase of Class B shares is $250,000. The maximum
purchase of Class C shares is $1,000,000.
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You should consult your financial agent to assist in choosing a
class of Fund shares.
Application of the CDSC
Shares obtained from dividend or distribution reinvestment are
not subject to any CDSC. The CDSC is deducted from the amount of
the redemption and is paid to AFD. The CDSC will be waived on
redemptions of shares following the death or disability of a
shareholder, to meet the requirements of certain qualified
retirement plans or pursuant to a monthly, bimonthly or quarterly
systematic withdrawal plan. See the SAI.
Employee Benefit Plans
Certain employee benefit plans, including employer-sponsored tax-
qualified 401(k) plans and other defined contribution retirement
plans ("Employee Benefit Plans"), may establish requirements as
to the purchase, sale or exchange of shares of the Funds,
including maximum and minimum initial investment requirements,
that are different from those described in this Prospectus.
Employee Benefit Plans may also not offer all classes of shares
of the Funds. In order to enable participants investing through
Employee Benefit Plans to purchase shares of the Funds, the
maximum and minimum investment amounts may be different for
shares purchased through Employee Benefit Plans from those
described in this Prospectus. In addition, the Class A, Class B,
and Class C CDSC may be waived for investments made through
Employee Benefit Plans.
General
The decision as to which Class is most beneficial to you depends
on the amount and intended length of your investment. If you are
making a large investment, thus qualifying for a reduced sales
charge, you might consider Class A shares. If you are making a
smaller investment, you might consider Class B shares because
100% of your purchase is invested immediately. If you are unsure
of the length of your investment, you might consider Class C
shares because there is no initial or, after one year, contingent
deferred sales charge. Consult your financial agent. There is no
size limit on purchases of Class A shares. The maximum purchase
of Class B shares is $250,000. The maximum purchase of Class C
shares is $1,000,000. A Fund may refuse any order to purchase
shares. In addition to the discount or commission paid to dealers
or agents, AFD from time to time pays additional cash or other
incentives to dealers or agents, including EQ Financial
Consultants Inc., an affiliate of AFD, in connection with the
sale of shares of the Funds. Such additional amounts may be
utilized, in whole or in part, in some cases together with other
revenues of such dealers or agents, to provide additional
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compensation to registered representatives who sell shares of the
Funds. On some occasions, such cash or other incentives will be
conditioned upon the sale of a specified minimum dollar amount of
the shares of a Fund and/or other Alliance Mutual Funds during a
specific period of time. Such incentives may take the form of
payment for attendance at seminars, meals, sporting events or
theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel by persons
associated with a dealer and their immediate family members to
urban or resort locations within or outside the United States.
Such a dealer may elect to receive cash incentives of equivalent
amount in lieu of such payments.
GENERAL INFORMATION
Portfolio Transactions
Consistent with the Conduct Rules of the NASD, and subject to
seeking best price and execution, the Trust may consider sales of
shares of the Funds as a factor in the selection of dealers to
enter into portfolio transactions with the Funds.
Organization
The Trust is a Massachusetts business trust organized on March
26, 1987. Prior to August 2, 1993, the Trust was known as The
Equitable Funds, and the Growth Investors Fund and the
Conservative Investors Fund were known as The Equitable Growth
Investors Fund and The Equitable Conservative Investors Fund,
respectively.
The Trust is an open-end management investment company with an
unlimited number of authorized shares of beneficial interest,
which may, without shareholder approval, be divided into an
unlimited number of series of such shares which, in turn, may be
subdivided into an unlimited number of classes of shares. The
Trust currently consists of five series of shares, two of which
represent the Funds. Each Fund is divided into classes of shares,
three of which, designated Class A shares, Class B shares and
Class C shares, are offered by this Prospectus. The Trustees may,
subject to any required approvals by the Commission, further
divide each series into additional classes of shares which may be
sold under conditions or with charges varying from those of the
present classes of shares of each series. In addition, upon
approval by the Commission, fees and expenses other than those
described above may be allocated to any class of a series'
shares.
Shareholders are entitled to one vote for each share held and to
vote in the election of Trustees and the termination of the Trust
and on other matters submitted to meetings of shareholders.
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Shareholders of a series or a class thereof are entitled to vote
only on matters which affect that series or that class, and
shareholders of the series or a particular class of shares of the
series which are affected generally vote together as a single
class. The Trust is not required and does not presently intend to
hold annual meetings of its shareholders for election of Trustees
and ratification of the selection of auditors. Shareholders may
remove Trustees from office by votes cast in person or by proxy
at a meeting of shareholders or by written consent. The shares of
each Fund are freely transferable, are entitled to distributions
from the assets of the relevant Fund as declared by the Trustees,
and, if a Fund were liquidated, would receive the net assets of
the Fund attributable to the relevant class. The Trust may
suspend the sale of shares of any Fund or class thereof at any
time and may refuse any order to purchase shares. Shareholders
could, under certain circumstances, be held personally liable for
obligations of the Trust. However, the risk of a shareholder
incurring financial loss on account of such liability is
considered remote since it may arise only in very limited
circumstances. See "Shareholder and Trustee Liability" under
"General Information" in the Statement of Additional
Information.
Registrar, Transfer Agent and Dividend-disbursing Agent
AFS, an indirect wholly-owned subsidiary of Alliance, located at
500 Plaza Drive, Secaucus, New Jersey 07094, is the Trust's
registrar, transfer agent and dividend-disbursing agent for a fee
based upon a dollar amount (determined by reference to the total
number of shareholder accounts for all Alliance funds in the
Fund's broad investment category) charged to the Fund for each
shareholder account. The transfer agency fee with respect to the
Class B and Class C shares will be higher than the transfer
agency fee with respect to the Class A shares, reflecting the
differential costs associated with the Class B and Class C CDSC.
Principal Underwriter
AFD, an indirect wholly-owned subsidiary of Alliance, located at
1345 Avenue of the Americas, New York, New York 10105, is the
Principal Underwriter of the shares of the Trust.
Performance Information
From time to time the Funds advertise their "yield" and "total
return." Yield and total return are computed separately for Class
A, Class B and Class C shares of each Fund. A Fund's yield for
any 30-day (or one-month) period is computed by dividing the net
investment income per share earned during such period by the
maximum public offering price per share on the last day of the
period, and then annualizing such 30-day (or one-month) yield in
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accordance with a formula prescribed by the Commission which
provides for compounding on a semi-annual basis. The Funds may
also state in sales literature an "actual distribution rate" for
each class which is computed in the same manner as yield except
that actual income dividends declared per share during the period
in question are substituted for net investment income per share.
The actual distribution rate is computed separately for Class A,
Class B and Class C shares of each Fund. Advertisements of total
return disclose the average annual compounded total return for
the recent one-year period and the life of the class. Total
return for each such period is computed by finding, through the
use of a formula prescribed by the Commission, the average annual
compounded rate of return over the period that would equate an
assumed initial amount invested to the value of the investment at
the end of the period. For purposes of computing total return,
income dividends and capital gains distributions paid on shares
of the Funds are assumed to have been reinvested when paid and
the maximum sales charges applicable to purchases and redemptions
of Fund shares are assumed to have been paid. Advertisements may
quote performance rankings or ratings of the Funds as measured by
financial publications or by independent organizations such as
Lipper Analytical Services, Inc. and Morningstar, Inc. or compare
the Funds' performance to various indices.
ADDITIONAL INFORMATION
This Prospectus and the SAI, which has been incorporated by
reference herein, do not contain all the information set forth in
the Registration Statement filed by the Trust with the Commission
under the Securities Act of 1933. Copies of the Registration
Statement may be obtained at a reasonable charge from the
Commission or may be examined, without charge, at the offices of
the Commission in Washington, D.C.
This prospectus does not constitute an offering in any state in
which such offering may not lawfully be made.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand
each Fund's financial performance for the past 5 years (or, if
shorter, for the life of the Fund). Certain information reflects
financial results for a single Fund share. The total returns in
the table represent the rate that an investor would have earned
(or lost) on an investment in the Fund (assuming reinvestment of
all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with
the Funds' financial statements, is included in the SAI, which is
available upon request.
[To be updated.]
48
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[back cover]
For more information about the Funds' the following documents are
available upon request:
Annual/Semi-Annual Reports to Shareholders
The Funds' annual and semi-annual reports to shareholders contain
additional information on the Funds' investments. In the annual
report, you will find a discussion of the market conditions and
investment strategies that affected a Fund's performance during
its last fiscal year.
Statement of Additional Information (SAI)
The Funds have an SAI, which contains more detailed information
about the Funds, including their operations and investment
policies. The Funds' SAI is incorporated by reference into (and
are legally part of) this Prospectus.
You may request a free copy of the current annual/semi-annual
report or the SAI by contacting your broker or other financial
intermediary, or by contacting Alliance:
By mail: c/o Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
By phone: For information: (800) 221-5672
For literature: (800) 227-4618
Or you may view or obtain these documents from the Commission:
In person: at the Commission's Public Reference Room in
Washington, D.C.
By phone: 1-800-SEC-0330
By mail: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-6009
(duplicating fee required)
On the Internet: www.sec.gov
You also may find more information about Alliance and the Funds
on the Internet at: www.Allinacecapital.com.
Investment Company Act File No. 811-05088.
49
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Alliance Asset Prospectus
Allocation Funds September 1, 1999
The Alliance Asset Allocation Funds invest in a variety of fixed-
income securities, money market instruments and equity
securities, each pursuant to a different asset allocation
strategy.
- Alliance Conservative Investors
Fund
- Alliance Growth Investors Fund
The Securities and Exchange Commission has not approved or
disapproved of these securities or passed upon the adequacy of
this prospectus. Any representation to the contrary is a
criminal offense.
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TABLE OF CONTENTS
Page
RISK/RETURN SUMMARY......................................
The Alliance Conservative Investors Fund.................
The Alliance Growth Investors Fund.......................
FEES AND EXPENSES OF THE FUNDS...........................
GLOSSARY.................................................
DESCRIPTION OF THE FUNDS.................................
Investment Objectives and Policies.......................
Description of Investment Practices......................
Additional Risk Considerations...........................
MANAGEMENT OF THE FUNDS..................................
PURCHASE AND SALE OF SHARES..............................
How The Funds Value Their Shares.........................
How To Buy Shares........................................
How To Exchange Shares...................................
How To Sell Shares.......................................
DIVIDENDS, DISTRIBUTIONS AND TAXES.......................
DISTRIBUTION ARRANGEMENTS................................
GENERAL INFORMATION......................................
FINANCIAL HIGHLIGHTS.....................................
APPENDIX A -- BOND RATINGS...............................
APPENDIX B -- PERFORMANCE INFORMATION....................
2
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The Funds' investment adviser is Alliance Capital Management
L.P. ("Alliance" or "the Adviser"), a global investment manager
providing diversified services to institutions and individuals
through a broad line of investments including more than 100
mutual funds.
RISK/RETURN SUMMARY
The following is a summary of certain key information about the
Alliance Asset Allocation Funds. You will find additional
information about each Fund, including a detailed description of
the risks of an investment in each Fund, after this Summary.
The Risk/Return Summary describes each Fund's investment
objective, principal investment strategies, principal risks and
fees. Each Fund's summary page includes a short discussion of
some the principle risks of investing in that Fund. A further
discussion of these and other risks begins on page __.
More detailed descriptions of the Funds, including the risks
associated with investing in the Funds, can be found further back
in this Prospectus. Please be sure to read this additional
information BEFORE you invest. Each of the Funds may at times
use certain types of investment derivatives such as options,
futures, forwards and swaps. The use of these techniques
involves special risks that are discussed in this Prospectus.
The Risk/Return Summary includes a table for each Fund showing
its average annual returns and a bar chart showing its annual
returns. The table and bar chart provide an indication of the
historical risk of an investment in each Fund by showing:
- -- how the Fund's average annual returns for one, five, and 10
years (or over the life of the Fund if the Fund is less than
10 years old) compare to those of a broad based securities
market index; and
- -- changes in the Fund's performance from year to year over 10
years (or over the life of the Fund if the Fund is less than
10 years old).
A Fund's past performance, of course, does not necessarily
indicate how it will perform in the future.
Other important things for you to note:
- -- You may lose money by investing in the Funds.
- -- An investment in the Funds is not a deposit in a bank and is
not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
3
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Alliance Conservative Investors Fund
- -- Objective: The Fund seeks to achieve a high total return
without, in the opinion of Alliance, undue risk to principal.
- -- Principal Investment Strategies and Risks: The Fund invests
varying portions of its assets in debt and equity securities.
The Fund normally invests between 50% and 90% (generally
approximately 70%) of its total assets in fixed-income
securities and money market instruments, with equity
securities comprising the remainder of the Fund's holdings.
The Fund's equity investments will consist of common stocks
and securities convertible into common stocks issued by
companies with a favorable outlook for earnings and whose
rate of growth Alliance expects to exceed that of the U.S.
economy over time. All fixed-income securities held by the
Fund will be of investment grade at the time of purchase.
The Fund may invest in foreign securities and may also make
use of various other investment strategies, including
securities lending. The Fund may use derivatives.
Among the principal risks of investing in the Fund are market
risk, derivatives risk, liquidity risk and management risk.
The Fund is subject to credit risk through its investments in
debt securities and to foreign investment risk and currency
risk through its investments in foreign securities.
The table and bar chart provide an indication of the historical
risk of an investment in the Fund.
Alliance Conservative Investors Fund
The annual returns in the bar chart are for the Fund's ________
shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
BAR CHART
[To be updated.]
4
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You should consider an investment in the Fund a long-term
investment. The Fund's returns will fluctuate over long and
short periods. For example, for the quarter ended March 31, 1999
the Portfolio's return was %, and during the periods shown in
the bar chart, the Fund's:
Best quarter was up ___%, __ quarter, 19__; and
Worst quarter was down __%, __ quarter, 19__.
PERFORMANCE TABLE
Past One Year Past Five Years Since Inception
Advisor Class
70% Lehman Brothers
Government Corporate
Bond Index/ 30%
S&P 500 Index
The average annual total returns in the performance table for the
periods ended December 31, 1998 reflect the imposition of the
maximum front-end or contingent deferred sales charges.
5
<PAGE>
Alliance Growth Investors Fund
- -- Objective: This Fund seeks to achieve the highest total
return consistent with Alliance's determination of reasonable
risk.
- -- Principal Investment Strategies and Risks: The Fund invests
varying portions of its assets in equity and debt securities.
Over time, the Fund's holdings are expected on average to be
allocated 70% to equity securities and 30% to debt
securities. The Fund's equity investments will consist of
common stocks and securities convertible into common stocks
issued by companies with a favorable outlook for earnings and
whose rate of growth Alliance expects to exceed that of the
U.S. economy over time and may include securities issued by
intermediate- and small-sized companies with favorable growth
prospects. Debt investments will include investment grade
fixed-income securities and may include securities that are
below investment grade ("junk bonds"). The Fund may invest
in foreign securities and may also make use of various other
investment strategies, including securities lending. The
Fund may use derivatives.
Among the principal risks of investing in the Fund are market
risk, derivatives risk, liquidity risk and management risk.
The Fund is subject to heightened credit risk through its
investments in lower quality debt securities, to foreign
investment risk and currency risk to the extent that it
invests in securities of foreign issuers, and to smaller
company risk to the extent that it invests in securities of
companies with smaller capitalizations.
The table and bar chart provide an indication of the historical
risk of an investment in the Fund.
Alliance Growth Investors Fund
The annual returns in the bar chart are for the Fund's _______
shares and do not reflect sales loads. If sales loads were
reflected, returns would be lower than those shown.
BAR CHART
[To be updated.]
6
<PAGE>
You should consider an investment in the Fund a long-term
investment. The Fund's returns will fluctuate over long and
short periods. For example, for the quarter ended March 31, 1999
the Portfolio's return was %, and during the periods shown in
the bar chart, the Fund's:
Best quarter was up ___%, __ quarter, 19__; and
Worst quarter was down __%, __ quarter, 19__.
PERFORMANCE TABLE
Past One Year Past Five Years Since Inception
Advisor Class
70% S&P 500/30% Lehman
Brothers Government
Corporate Bond Index
The average annual total returns in the performance table for the
periods ended December 31, 1998 reflect the imposition of the
maximum front-end or contingent deferred sales charges.
7
<PAGE>
SUMMARY OF PRINCIPAL RISKS
The value of your investment in a Fund will change with the
values of the Fund's investments. Many factors can affect those
values. This summary describes the principal risks that may
affect a Fund's portfolio as a whole. Either Fund could be
subject to additional principal risks because the types of
investments made by the Funds can change over time. Investments
mentioned in this summary and described in greater detail under
"Description of the Funds" or "Investment Techniques" appear in
bold type. These sections also include more information about
the Funds, their investments and the related risks.
- -- Market and Interest Rate Risk. Each of the Funds is subject
to market risk, which is the general risk of unfavorable
changes in the market value of a Fund's securities. These
include the risks of broader market declines as well as more
company-specific risks, such as poor management performance,
inappropriate financial leverage, industry problems and
reduced demand for a particular company's products.
Interest rate risk is the risk that interest rates will rise
causing a Fund's investments to decline in value. Because
the Funds invest in debt securities such as bonds, notes and
asset-backed securities, they are subject to this type of
market risk. Debt securities are obligations of an issuer to
make fixed payments of principal and/or interest on future
dates. If the interest rate paid by an issuer on a
particular debt security is high relative to market interest
rates, that security is attractive to investors and valuable.
Accordingly, if market interest rates rise, your investment
in a Fund that holds debt securities is likely to become less
valuable because its debt securities are likely to drop in
value.
Even the Alliance Conservative Investors Fund is subject to
interest rate risk despite the fact that it invests
substantial portions of its assets in high quality debt
securities. Interest rate risk is generally greater,
however, for the Alliance Growth Investors Fund because it
invests significantly in lower-rated securities and
comparable unrated securities.
Interest rate risk is generally greater when a Fund invests
in debt securities with longer maturities. Market risk
generally is greater for Funds that invest to a material
extent in mortgage-related or other asset-backed securities
that may be prepaid. These securities bear greater market
risk because they have variable maturities that tend to
lengthen when least desirable - when interest rates are
rising. Increased market risk is also likely for Funds that
8
<PAGE>
invest to a material extent in debt securities paying no
interest, such as zero coupon, principal-only and interest-
only securities, or paying non-cash interest in the form of
other debt securities (pay-in-kind securities).
- -- Credit Risk. Credit risk is the risk that the issuer or the
guarantor of a debt security or the counterparty to a
transaction will be unable or unwilling to make timely
principal and/or interest payments, or otherwise to honor its
obligations. Each of the Funds may be subject to credit risk
to the extent that it invests in debt securities or engages
in transactions, such as securities loans, which involve a
promise by a third party to honor an obligation to the Fund.
Varying degrees of credit risk, often reflected in credit
ratings, apply to different third parties and related
transactions.
Credit risk is particularly significant for the Alliance
Growth Investors Fund because it invests a material portion
of its assets in lower-rated securities. These debt
securities and similar unrated securities (commonly known as
"junk bonds") have speculative elements or are predominantly
speculative credit risks. Even debt securities that are
"investment grade" may have some speculative characteristics.
As a result of their investments in foreign securities, the
Funds are also subject to increased credit risk because of
the difficulties of requiring foreign entities, including
issuers of sovereign debt, to honor their contractual
commitments, and because a number of foreign governments and
other issuers are already in default.
- -- Currency Risk. The Funds will be subject to currency risk
because they may invest in securities denominated in, and/or
receiving revenues in, foreign currencies. This is the risk
that those currencies will decline in value relative to the
U.S. Dollar, or, in the case of hedging positions, that the
U.S. Dollar will decline in value relative to the currency
hedged. In either event, the dollar value of such
investments would be the adversely affected.
- -- Foreign Investment Risk. To the extent that they invest in
foreign securities, the Funds may experience more rapid and
extreme changes in value than Funds with investments solely
in securities of U.S. companies. This is because the
securities markets of many foreign countries are relatively
small, with a limited number of companies representing a
small number of industries.
Additionally, foreign securities issuers are usually not
subject to the same degree of regulation as U.S. issuers.
Reporting, accounting and auditing standards of foreign
9
<PAGE>
countries differ, in some cases significantly, from U.S.
standards. Also, nationalization, expropriation or
confiscatory taxation, currency blockage, political changes
or diplomatic developments could adversely affect a Fund's
investments in a foreign country. In the event of
nationalization, expropriation or other confiscation, a Fund
could lose its entire investment.
- -- Leveraging Risk. When a Fund is borrowing money or otherwise
leveraging its portfolio, the value of an investment in that
Fund will be more volatile and all other risks will tend to
be compounded. Each of the Funds may take on leveraging risk
by investing collateral from securities loans and by
borrowing money to meet redemption requests.
- -- Derivatives Risk. Each of the Funds may use derivatives,
which are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference
rate or index. Alliance will sometimes use derivatives as
part of a strategy designed to reduce other risks and
sometimes will use derivatives for leverage, which increases
opportunities for gain but also involves greater risk. In
addition to other risks such as the credit risk of the
counterparty, derivatives involve the risk of mispricing or
improper valuation and the risk that changes in the value of
the derivative may not correlate perfectly with relevant
assets, rates and indices.
- -- Liquidity Risk. Liquidity risk exists when particular
investments are difficult to purchase or sell, possibly
preventing a Fund from selling out of these illiquid
securities at an advantageous price. Each Fund is subject to
liquidity risk because foreign investments and securities
involving substantial market and/or credit risk tend to
involve greater liquidity risk because they can be hard to
sell.
- -- Smaller Company Risk. Market risk and liquidity risk are
particularly pronounced for the Alliance Growth Investors
Fund to the extent that it invests in the stocks of companies
with relatively small market capitalizations. These
investments often involve greater risk because smaller
companies may have limited product lines, markets or
financial resources or may depend on a few key employees.
- -- Management Risk. Each Fund is subject to management risk
because it is an actively managed investment Fund. Alliance
will apply its investment techniques and risk analyses in
making investment decisions for the Funds, but there can be
no guarantee that they will produce the desired results. In
some cases, certain investments may be unavailable or
10
<PAGE>
Alliance may choose not to use them under market conditions
when, in retrospect, their use would have been beneficial to
the Funds.
11
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Funds.
Shareholder Transaction Expenses (paid directly from your
investment)
Advisor Class
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of offering
price)
Maximum Deferred Sales
Charge (Load) (as a
percentage of original
purchase price or
redemption proceeds,
whichever is lower)
Exchange Fee
_________________________________________________________________
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets) and Examples
The Examples are to help you compare the cost of investing in a
Fund with the cost of investing in other mutual funds. They
assume that you invest $10,000 in a Fund for the time periods
indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment earns a
5% return each year, that the Fund's operating expenses remain
the same, and that all dividends and distributions are
reinvested. Your actual costs may be higher or lower.
12
<PAGE>
Operating Expenses Examples
Alliance
Conservative
Investors Fund [To be updated]
Advisor Class Advisor Class
Management Fees After 1 Year
Distribution and After 3 Years
Shareholder Service
(12b-1) Fees
Interest Expense After 5 Years
Other Expenses After 10 Years
Total Fund Operating
Expenses
Waiver and/or
Expense
Reimbursement
Net Expenses
Alliance Growth
Investors Fund
Advisor Class Advisor Class
Management Fees After 1 Year
Distribution and After 3 Years
Shareholder Service
(12b-1) Fees
Interest Expense After 5 Years
Other Expenses After 10 Years
Total Fund Operating
Expenses
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<PAGE>
GLOSSARY
This Prospectus uses the following terms.
Types of Securities
Bonds are fixed, floating, and variable rate debt obligations.
Convertible securities are fixed-income securities that are
convertible into common and preferred stock.
Debt securities are bonds, debentures, notes, and bills.
Depositary receipts include American Depositary Receipts
("ADRs"), Global Depositary Receipts ("GDRs") and other types of
depositary receipts.
Equity securities include (i) common stocks, partnership
interests, business trust shares and other equity or ownership
interests in business enterprises, and (ii) securities
convertible into, and rights and warrants to subscribe for the
purchase of, such stocks, shares and interests.
Fixed-income securities are debt securities and preferred stocks,
including floating rate and variable rate instruments.
Foreign government securities are securities issued or
guaranteed, as to payment of principal and interest, by foreign
governments, quasi-governmental entities, or governmental
agencies or other entities.
Interest-only or IO securities are debt securities that receive
only the interest payments on an underlying debt that has been
structured to have two classes, one of which is the IO class and
the other of which is the principal-only or PO class, that
receives only the principal payments on the underlying debt
obligation. POs are similar to, and are sometimes referred to as,
zero coupon securities, which are debt securities issued without
interest coupons.
Mortgage-related securities are pools of mortgage loans that are
assembled for sale to investors (such as mutual funds) by various
governmental, government-related, and private organizations.
These securities include:
- -- ARMS, which are adjustable-rate mortgage securities;
- -- SMRS, which are stripped mortgage-related securities;
- -- CMOs, which are collateralized mortgage obligations;
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<PAGE>
- -- GNMA certificates, which are securities issued by the
Government National Mortgage Association or GNMA;
- -- FNMA certificates, which are securities issued by the Federal
National Mortgage Association or FNMA; and
- -- FHLMC certificates, which are securities issued by the
Federal Home Loan Mortgage Corporation or FHLMC
Rule 144A securities are securities that may be resold pursuant
to Rule 144A under the Securities Act.
Sovereign debt obligations are foreign government debt
securities, loan participations between foreign governments and
financial institutions, and interests in entities organized and
operated for the purpose of restructuring the investment
characteristics of foreign government securities.
U.S. Government securities are securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
Rating Agencies, Rated Securities and Indexes
Duff & Phelps is Duff & Phelps Credit Rating Company.
Fitch is Fitch IBCA, Inc.
Investment grade securities are fixed-income securities rated Baa
and above by Moody's or B and above by S&P, Duff & Phelps or
Fitch, or determined by Alliance to be of equivalent quality.
Lower-rated securities are fixed-income securities rated Ba or
below by Moody's or BB or below by S&P, Duff & Phelps or Fitch,
or determined by Alliance to be of equivalent quality, and are
commonly referred to as "junk bonds."
Moody's is Moody's Investors Service, Inc.
S&P is Standard & Poor's Ratings Services.
S&P 500 Index is S&P's 500 Composite Stock Price Index, a widely
recognized unmanaged index of market activity.
Other
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
Commission is the Securities and Exchange Commission.
15
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Duration is a measure that relates the price volatility of a
security to changes in interest rates. The duration of a debt
security is the weighted average term to maturity, expressed in
years, of the present value of all future cash flows, including
coupon payments and principal repayments. Thus, by definition,
duration is always less than or equal to full maturity.
Exchange is the New York Stock Exchange.
Non-U.S. Company is an entity that (i) is organized under the
laws of a foreign country and conducts business in a foreign
country, (ii) derives 50% or more of its total revenues from
business in foreign countries, or (iii) issues equity or debt
securities that are traded principally on a stock exchange in a
foreign country.
Securities Act is the Securities Act of 1933, as amended.
World Bank is the commonly used name for the International Bank
for Reconstruction and Development.
16
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DESCRIPTION OF THE FUNDS
This section of the Prospectus provides a more complete
description of each Fund's investment objectives and principal
strategies and risks. Of course, there can be no assurance that
any Fund will achieve its investment objective.
Please note that:
- -- Additional discussion of the Funds' investments, including
the risks of the investments, can be found in the discussion
under Description of Investment Practices following this
section.
- -- The description of the principal risks for a Fund may include
risks described in the Summary of Principal Risks above.
Additional information about the risks of investing in a Fund
can be found in the discussion under Additional Risk
Considerations.
- -- Additional descriptions of each Fund's strategies,
investments, and risks can be found in the Statement of
Additional Information or SAI.
- -- Except for certain investment restrictions designated as
fundamental in this Prospectus and the Statement of
Additional Information, the investment objectives and
policies of the Funds are not fundamental policies and may be
changed by the Trustees without shareholder approval. The
Trust will give shareholders contemporaneous notice of any
change in a Fund's investment objective.
INVESTMENT OBJECTIVES AND POLICIES
Asset Allocation Funds Generally
The Conservative Investors and Growth Investors Funds invest in a
variety of fixed-income securities, money market instruments and
equity securities, each pursuant to a different asset allocation
strategy, as described below. The term "asset allocation" is used
to describe the process of shifting assets among discrete
categories of investments in an effort to adjust risk while
producing desired return objectives. Portfolio management,
therefore, will consist not only of selecting specific securities
but also of setting, monitoring and changing, when necessary, the
asset mix.
Each Fund has been designed with a view toward a particular
"investor profile." The "conservative investor" has a relatively
short-term investment bias, either because of a limited tolerance
for market volatility or a short investment horizon. This
17
<PAGE>
investor is averse to taking risks that may result in principal
loss, even though such aversion may reduce the potential for
higher long-term gains and result in lower performance during
periods of equity market strength. Consequently, the asset mix
for the Conservative Investors Fund attempts to reduce volatility
while providing modest upside potential. The "growth investor"
has a longer-term investment horizon and therefore is willing to
take more risks in an attempt to achieve long-term growth of
principal. This investor wishes, in effect, to be risk conscious
without being risk averse. The asset mix for the Growth Investors
Fund is therefore intended to provide for upside potential
without excessive volatility.
Alliance has established an asset allocation committee (the
"Committee"), which is responsible for setting and continually
reviewing the asset mix ranges of each Fund. Under normal market
conditions, the Committee is expected to change allocation ranges
approximately three to five times per year. However, the
Committee has broad latitude to establish the frequency, as well
as the magnitude, of allocation changes within the guidelines
established for each Fund. During periods of severe market
disruption, allocation ranges may change frequently. It is also
possible that in periods of stable and consistent outlook no
change will be made. The Committee's decisions are based on and
may be limited by a variety of factors, including liquidity,
portfolio size, tax consequences and general market conditions,
always within the context of the appropriate investor profile for
each Fund. Consequently, asset mix decisions for the Conservative
Investors Fund principally emphasize risk assessment of each
asset class viewed over the shorter term, while decisions for the
Growth Investors Fund are principally based on an assessment of
the longer term total return potential for each asset class.
The Funds are permitted to use a variety of hedging techniques to
attempt to reduce market, interest rate and currency risks.
Alliance Conservative Investors Fund
Alliance Conservative Investors Fund seeks a high total return
without, in the view of Alliance, undue risk to principal. The
Fund attempts to achieve its investment objective by allocating
varying portions of its assets among investment grade, publicly
traded fixed-income securities, money market instruments and
publicly traded common stocks and other equity securities of U.S.
and non-U.S. issuers.
All fixed-income securities owned by the Fund will be of
investment grade at the time of purchase. This means that they
will be in one of the top four rating categories assigned by S&P,
Moody's, Duff & Phelps or Fitch, or will be unrated securities of
comparable quality as determined by Alliance. Securities in the
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fourth such rating category (rated BBB by S&P, Duff & Phelps or
Fitch, or Baa by Moody's) have speculative characteristics, and
changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity to make principal and
interest payments on such obligations than in the case of higher-
rated securities. In the event that the rating of any security
held by the Conservative Investors Fund falls below investment
grade (or, in the case of an unrated security, Alliance
determines that it is no longer of investment grade), the Fund
will not be obligated to dispose of such security and may
continue to hold the obligation if, in the opinion of Alliance,
such investment is appropriate under the circumstances. For a
description of the ratings referred to above, see Appendix A.
The equity securities the Conservative Investors Fund invests in
will consist of common stocks and securities convertible into
common stocks, such as convertible bonds, convertible preferred
stocks and warrants, issued by companies with a favorable outlook
for earnings and whose rate of growth Alliance expects to exceed
that of the U.S. economy over time.
The Conservative Investors Fund will at all times hold at least
40% of its total assets in investment grade fixed-income
securities, each having a duration less than that of a 10-year
Treasury bond (the "Fixed Income Core").
The Conservative Investors Fund is generally expected to hold
approximately 70% of its total assets in fixed-income securities
(including the Fixed Income Core, cash and money market
instruments) and 30% in equity securities. Actual asset mixes
will be adjusted in response to economic and credit market
cycles. The fixed-income asset class will always comprise at
least 50%, but never more than 90%, of the Fund's total assets.
The equity class will always comprise at least 10%, but never
more than 50%, of the Fund's total assets. For temporary
defensive purposes, the Fund may invest without limit in money
market instruments.
The Fund also may:
- -- invest without limit in foreign securities, although it
generally will not invest more than 15% of its total assets
in such securities;
- -- invest in non-publicly traded securities;
- -- invest in mortgage-backed securities, including
collateralized mortgage obligations, or CMOs and in asset-
backed securities;
- -- invest in adjustable rate securities;
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- -- invest in convertible securities and zero-coupon and payment-
in-kind bonds;
- -- buy and sell stock index futures and related options;
- -- make secured loans of portfolio securities; and
- -- enter into repurchase agreements and forward commitments.
Alliance Growth Investors Fund
The investment objective of the Growth Investors Fund is to
achieve the highest total return consistent with Alliance's
determination of reasonable risk. The Fund attempts to achieve
its investment objective by allocating varying portions of its
assets among a number of asset classes. Equity investments will
include common stocks and securities convertible into common
stocks issued by companies with a favorable outlook for earnings
and whose rate of growth Alliance expects to exceed that of the
U.S. economy over time and may also include equity securities
issued by intermediate- and small-sized companies with favorable
growth prospects, companies in cyclical industries, companies
whose securities are, in the opinion of Alliance, temporarily
undervalued, companies in special situations and less widely
known companies. Fixed-income investments will include investment
grade fixed-income securities (including cash and money market
instruments) and may include securities that are rated in the
lower rating categories by recognized ratings agencies (i.e., BB
or lower by S&P, Duff & Phelps or Fitch or Ba or lower by
Moody's) or that are unrated but determined by Alliance to be of
comparable quality. Lower rated fixed-income securities generally
provide greater current income than higher rated fixed-income
securities, but are subject to greater credit and market risk.
The Fund will not invest more than 25% of its total assets in
securities rated at the time of purchase below investment grade,
that is, securities rated BB or lower by S&P or Ba or lower by
Moody's, or in unrated securities deemed to be of comparable
quality at the time of purchase by Alliance. For a description of
the ratings referred to above, see Appendix A. For more
information about the risks associated with investment in lower
rated securities, see "High-Yield Securities" below.
The Growth Investors Fund will at all times hold at least 40% of
its total assets in publicly traded common stocks and other
equity securities of the type purchased by the Conservative
Investors Fund (the "Equity Core"). The Growth Investors Fund is
generally expected to hold approximately 70% of its total assets
in equity securities (including the Equity Core) and 30% in
fixed-income securities (including cash and money market
instruments). Actual asset mixes will be adjusted in response to
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economic and credit market cycles. The fixed-income asset class
will always comprise at least 10%, but never more than 60%, of
the Fund's total assets. The equity class will always comprise at
least 40%, but never more than 90%, of the Fund's total assets.
For temporary defensive purposes, the Fund may invest without
limit in money market instruments.
The Fund also may:
- -- invest without limit in foreign securities, although it
generally will not invest more than 15% of its total assets
in such securities;
- -- invest in non-publicly traded securities;
- -- invest in mortgage-backed securities, including
collateralized mortgage obligations, or CMOs and in asset-
backed securities;
- -- invest in adjustable rate securities;
- -- invest in convertible securities and zero-coupon and payment-
in-kind bonds;
- -- buy and sell stock index futures and related options;
- -- make secured loans of portfolio securities;
- -- enter into repurchase agreements and forward commitments; and
- -- invest in high yield securities.
DESCRIPTION OF INVESTMENT PRACTICES
Foreign Securities
Each Fund may invest without limit in securities of foreign
issuers and securities which are not publicly traded in the
United States, although the Conservative Investors Fund generally
will not invest more than 15% of its total assets, and the Growth
Investors Fund generally will not invest more than 30% of its
total assets, in such securities. Such securities may involve
certain special risks due to foreign economic, political,
diplomatic and legal developments, including favorable or
unfavorable changes in currency exchange rates, exchange control
regulations (including currency blockage and costs),
expropriation or nationalization of assets, confiscatory
taxation, imposition of withholding taxes on dividend or interest
payments, and possible difficulty in obtaining and enforcing
judgments against foreign entities. Furthermore, issuers of
foreign securities are subject to different, often less
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comprehensive, accounting, reporting and disclosure requirements
than domestic issuers. The securities of some foreign companies
and foreign securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S.
securities markets, and foreign securities markets may be subject
to less regulation than U.S. securities markets. The laws of some
foreign countries may limit the Funds' ability to invest in
certain issuers located in those countries. Foreign brokerage
commissions and other fees are also generally higher than in the
United States. There are also special tax considerations that
apply to securities of foreign issuers and securities principally
traded overseas. Foreign settlement procedures and trade
regulations may involve certain risks (such as delay in payment
or delivery of securities or in the recovery of the Funds' assets
held abroad) and expenses not present in the settlement of
domestic investments.
The Growth Investors Fund may invest a portion of its assets in
developing countries or in countries with new or developing
capital markets. The risks noted above are generally increased
with respect to these investments. These countries may have
relatively unstable governments, economies based on only a few
industries or securities markets that trade a small number of
securities. Securities of issuers located in these countries tend
to have volatile prices and may offer significant potential for
loss.
The value of foreign investments measured in U.S. dollars will
rise or fall because of decreases or increases in the value of
the U.S. dollar in comparison to the value of the currency in
which the foreign investment is denominated. The Funds may buy or
sell foreign currencies, options on foreign currencies, foreign
currency futures contracts (and related options) and deal in
forward foreign currency exchange contracts in connection with
the purchase and sale of foreign investments. You can find more
information about the Funds' foreign investments in the SAI.
Non-Publicly Traded Securities
Each Fund 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 the 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 be able to sell them only at less than fair market value.
Investment in these securities is restricted to 5% of a Fund's
total assets (not including for these purposes Rule 144A
Securities, to the extent permitted by applicable law) and is
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also subject to the Funds' 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 liquidity guidelines established
by the Trust's Board of Trustees. For additional information see
the SAI.
Mortgage-Backed Securities
Each Fund may invest in mortgage-backed securities, including
collateralized mortgage obligations or "CMOs." Interest and
principal payments (including prepayments) on the mortgages
underlying mortgage-backed securities are passed through to the
holders of the mortgage-backed security. Prepayments occur when
the mortgagor on an individual mortgage prepays the remaining
principal before the mortgage's scheduled maturity date. As a
result of the pass-through of prepayments of principal on the
underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated
maturity would indicate. Because the prepayment characteristics
of the underlying mortgages vary, it is not possible to predict
accurately the realized yield or average life of a particular
issue of pass-through certificates. During periods of declining
interest rates, such prepayments can be expected to accelerate
and the Funds would be required to reinvest the proceeds at the
lower interest rates then available. Conversely, during periods
of rising interest rates, a reduction in prepayments may increase
the effective maturities of the securities, subjecting them to a
greater risk of decline in market value in response to rising
interest rates. In addition, prepayments of mortgages which
underlie securities purchased at a premium could result in
capital losses.
The Funds may also invest in derivative instruments, including
certificates representing rights to receive payments of the
interest only or principal only of mortgage-backed securities
("IO/PO Strips"). These securities may be more volatile than
other types of securities. IO Strips involve the additional risk
of loss of the entire remaining value of the investment if the
underlying mortgages are prepaid.
Adjustable Rate Securities
Each Fund may invest in adjustable rate securities. Adjustable
rate securities are securities that have interest rates that are
reset at periodic intervals, usually by reference to some
interest rate index or market interest rate. Some adjustable rate
securities are backed by pools of mortgage loans. Although the
rate adjustment feature may act as a buffer to reduce sharp
changes in the value of adjustable rate securities, these
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securities are still subject to changes in value based on changes
in market interest rates or changes in the issuer's
creditworthiness. Because the interest rate is reset only
periodically, changes in the interest rate on adjustable rate
securities may lag behind changes in prevailing market interest
rates. Also, some adjustable rate securities (or the underlying
mortgages) are subject to caps or floors that limit the maximum
change in the interest rate during a specified period or over the
life of the security.
Asset-Backed Securities
Each Fund may invest in asset-backed securities, which represent
fractional interests in pools of leases, retail installment loans
or revolving credit receivables, both secured and unsecured.
These assets are generally held by a trust. Payments of principal
and interest or interest only are passed through to certificate
holders and may be guaranteed up to certain amounts by letters of
credit issued by a financial institution affiliated or
unaffiliated with the trustee or originator of the trust.
Underlying automobile sales contracts or credit card receivables
are subject to prepayment, which may reduce the overall return to
certificate holders. Certificate holders may also experience
delays in payment on the certificates if the full amounts due on
underlying sales contracts or receivables are not realized by the
trust because of unanticipated legal or administrative costs of
enforcing the contracts or because of depreciation or damage to
the collateral (usually automobiles) securing certain contracts,
or other factors. If consistent with its investment objective and
policies, each Fund may invest in other asset-backed securities
that may be developed in the future.
High-Yield Securities
The Growth Investors Fund may invest in high-yield, high-risk,
fixed-income and convertible securities rated at the time of
purchase Ba or lower by Moody's or BB or lower by S&P, Duff &
Phelps or Fitch, or, if unrated, judged by Alliance to be of
comparable quality ("High-Yield Securities"). The Growth
Investors Fund will generally invest in securities rated at the
time of purchase at least Caa- by Moody's or CCC- by S&P, Duff &
Phelps or Fitch, or in unrated securities judged by Alliance to
be of comparable quality at the time of purchase. However, from
time to time, the Fund may invest in securities rated in the
lowest grades of Moody's, S&P, Duff & Phelps or Fitch, or in
unrated securities judged by Alliance to be of comparable
quality, if Alliance determines that there are prospects for an
upgrade or a favorable conversion into equity securities (in the
case of convertible securities). Securities rated Ba or BB or
lower (and comparable unrated securities) are commonly referred
to as "junk bonds." Securities rated D by S&P are in default.
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As with other fixed-income securities, High-Yield Securities are
subject to credit risk and market risk and their yields may
fluctuate. High-Yield Securities are subject to greater credit
risk (and potentially greater incidence of default) than
comparable higher-rated securities because issuers are more
vulnerable to economic downturns, higher interest rates or
adverse issuer-specific developments. In addition, the prices of
High-Yield Securities are generally subject to greater market
risk, and therefore react more sharply to changes in interest
rates. The value and liquidity of High-Yield Securities may be
diminished by adverse publicity or investor perceptions. Because
High-Yield Securities are frequently traded only in markets where
the number of potential purchasers and sellers, if any, is
limited, the ability of the Growth Investors Fund to sell High-
Yield Securities at their fair value either to meet redemption
requests or to respond to changes in the financial markets may be
limited. Thinly traded High-Yield Securities may be more
difficult to value accurately for the purpose of determining the
Fund's net asset value. In addition, the values of such
securities may be more volatile.
Some High-Yield Securities in which the Growth Investors Fund may
invest may be subject to redemption or call provisions that may
limit increases in market value that might otherwise result from
lower interest rates while increasing the risk that the Fund may
be required to reinvest redemption or call proceeds during a
period of relatively low interest rates. The credit ratings
issued by Moody's, S&P, Duff & Phelps and Fitch, a description of
which is included as Appendix A, are subject to various
limitations. For example, while such ratings evaluate credit
risk, they ordinarily do not evaluate the market risk of High-
Yield Securities. In certain circumstances, the ratings may not
reflect in a timely fashion adverse developments affecting an
issuer. For these reasons, Alliance conducts its own independent
credit analysis of High-Yield Securities.
When the Growth Investors Fund invests in securities in the lower
rating categories, the achievement of the Fund's goals is more
dependent on Alliance's ability than would be the case if the
Fund were investing in higher-rated securities. In the event that
the credit rating of a High-Yield Security held by the Growth
Investors Fund falls below its rating at the time of purchase
(or, in the case of unrated securities, Alliance determines that
the quality of such security has deteriorated since purchased by
the Fund), the Fund will not be obligated to dispose of such
security and may continue to hold the obligation if, in the
opinion of Alliance, such investment is appropriate under the
circumstances. Securities rated Baa by Moody's or BBB by S&P,
Duff & Phelps or Fitch or judged by the Advisor to be of
comparable quality share some of the speculative characteristics
of the High-Yield Securities described above.
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Convertible Securities
Each Fund may invest in convertible securities. These securities
normally provide a yield that is higher than that of the
underlying stock but lower than that of a fixed-income security
without the conversion feature. Also, the price of the
convertible security will normally vary to some degree with
changes in the price of the underlying stock. In addition, the
price of the convertible security will also generally vary to
some degree inversely with interest rates. Convertible debt
securities that are rated below BBB (S&P) or Baa (Moody's) or
comparable unrated securities as determined by Alliance may share
some or all of the risks of High-Yield Securities. For a
description of these risks, see "High-Yield Securities" above.
Equity-Linked Debt Securities
Equity-linked debt securities are securities with respect to
which the amount of interest and/or principal that the issuer
thereof is obligated to pay is linked to the performance of a
specified index of equity securities. Such amount may be
significantly greater or less than payment obligations in respect
of other types of debt securities. Adverse changes in equity
securities indices and other adverse changes in the securities
markets may reduce payments made under, and/or the principal of,
equity-linked debt securities held by a Fund. Furthermore, as
with any debt securities, the values of equity-linked debt
securities will generally vary inversely with changes in interest
rates. A Fund's ability to dispose of equity-linked debt
securities will depend on the availability of liquid markets for
such securities. Investment in equity-linked debt securities may
be considered to be speculative. As with other securities, a Fund
could lose its entire investment in equity-linked debt
securities.
Zero-Coupon and Payment-in-Kind Bonds
The Funds may at times invest in so-called "zero-coupon" bonds
and "payment-in-kind" bonds. Zero-coupon bonds are issued at a
significant discount from their principal amount in lieu of
paying interest periodically. Payment-in-kind bonds allow the
issuer, at its option, to make current interest payments on the
bonds either in cash or in additional bonds. Because zero-coupon
and payment-in-kind bonds do not pay current interest in cash,
their value is generally subject to greater fluctuation in
response to changes in market interest rates than bonds that pay
interest currently in cash. Both zero-coupon and payment-in-kind
bonds allow an issuer to avoid the need to generate cash to meet
current interest payments. Accordingly, such bonds may involve
greater credit risks than bonds paying interest currently in
cash. Even though such bonds do not pay current interest in cash,
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a Fund is nonetheless required to accrue interest income on such
investments and to distribute such amounts at least annually to
shareholders. Thus, a Fund could be required to liquidate other
investments in order to satisfy its dividend requirements at
times when Alliance would not otherwise deem it advisable to do
so.
Futures and Related Options.
Each Fund may buy and sell stock index futures contracts ("index
futures") and may buy options on index futures for hedging
purposes and may buy and sell options on stock indices for
hedging purposes or to earn additional income. The Funds may
also, for hedging purposes, purchase and sell futures contracts,
options thereon and options with respect to U.S. Treasury
securities, including U.S. Treasury bills, notes and bonds.
The use of futures and options involves certain special risks.
Futures and options transactions involve costs and may result in
losses. Certain risks arise because of the possibility of
imperfect correlations between movements in the prices of futures
and options and movements in the prices of the underlying stock
index or security or of the securities in a Fund's portfolio that
are the subject of a hedge. The successful use of the strategies
described above further depends on Alliance's ability to forecast
market movements correctly. Other risks arise from a Fund's
potential inability to close out its futures or options
positions. In addition there can be no assurance that a liquid
secondary market will exist for any future or option at any
particular time. Certain regulatory requirements may limit the
Funds' ability to engage in futures and options transactions. A
more detailed explanation of futures and options transactions,
including the risks associated with them, is included in the
Statement of Additional Information.
- -- Options.
An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a
premium payment or fee, gives the option holder (the buyer) the
right but not the obligation to buy or sell the underlying asset
(or settle for cash in an amount based on an underlying asset,
rate or index) at a specified price (the exercise price) during a
period of time or on a specified date. A call option entitles
the holder to purchase, and a put option entitles the holder to
sell, the underlying asset. Likewise, when an option is
exercised the writer of the option is obligated to sell (in the
case of a call option) or to purchase (in the case of a put
option) the underlying asset.
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A Fund may seek to increase current return by writing covered
call and put options on securities it owns or in which it may
invest. The Fund receives a premium from writing a call or put
option, which increases the Fund's return if the option expires
unexercised or is closed out at a net profit. When the Fund
writes a call option, it gives up the opportunity to profit from
any increase in the price of a security above the exercise price
of the option; when it writes a put option, the Fund takes the
risk that it will be required to purchase a security from the
option holder at a price above the current market price of the
security. The Fund may terminate an option that it has written
prior to its expiration by entering into a closing purchase
transaction in which it purchases an option having the same terms
as the option written. A Fund may also buy and sell put and call
options for hedging purposes. A Fund may also from time to time
buy and sell combinations of put and call options on the same
underlying security to earn additional income. A Fund's use of
these strategies may be limited by applicable law.
Securities Loans, Repurchase Agreements and Forward Commitments
Each Fund may lend portfolio securities amounting to not more
than 25% of its total assets and may enter into repurchase
agreements on up to 25% of its total assets. These transactions
must be fully collateralized at all times, but involve some risk
to a Fund if the other party should default on its obligation and
the Fund is delayed or prevented from recovering the collateral.
Each Fund may also purchase securities for future delivery, which
may increase its overall investment exposure and involves a risk
of loss if the value of the securities declines prior to the
settlement date.
Portfolio Management
Alliance manages each Fund's portfolio by buying and selling
securities to help attain its investment objective. The portfolio
turnover rate for each Fund is included under "Financial
Highlights." A high portfolio turnover rate will involve greater
costs to a Fund (including brokerage commissions and transaction
costs) and may also result in the realization of taxable capital
gains, including short-term capital gains taxable at ordinary
income rates. See "Dividends, Distributions and Taxes" below and
"Portfolio Transactions" in the SAI.
ADDITIONAL RISK CONSIDERATIONS
Investment in the Funds involves the special risk considerations
described below.
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Currency Considerations
Because the Funds invest some portion of their assets in foreign
securities and receive revenues in foreign currencies, they will
be adversely affected by reductions in the value of those
currencies relative to the U.S. Dollar. These changes will
affect each Fund's net assets, distributions and income. If the
value of the foreign currencies in which a Fund receives income
falls relative to the U.S. Dollar between receipt of the income
and the making of Fund distributions, the Fund may be required to
liquidate securities in order to make distributions if the Fund
has insufficient cash in U.S. Dollars to meet the distribution
requirements that the Fund must satisfy to qualify as a regulated
investment company for federal income tax purposes. Similarly,
if an exchange rate declines between the time a Fund incurs
expenses in U.S. Dollars and the time cash expenses are paid, the
amount of the currency required to be converted into U.S. Dollars
in order to pay expenses in U.S. Dollars could be greater than
the equivalent amount of such expenses in the currency at the
time they were incurred. In light of these risks, a Fund may
engage in certain currency hedging transactions, as described
above, which involve certain special risks.
Fixed-Income Securities
The value of each Fund's shares will fluctuate with the value of
its investments. The value of each Fund's investments will
change as the general level of interest rates fluctuates. During
periods of falling interest rates, the values of a Fund's
securities will generally rise, although if falling interest
rates are viewed as a precursor to a recession, the values of a
Fund's securities may fall along with interest rates.
Conversely, during periods of rising interest rates, the values
of a Fund's securities will generally decline. Changes in
interest rates have a greater effect on fixed-income securities
with longer maturities and durations than those with shorter
maturities and durations.
In seeking to achieve a Fund's investment objective, there will
be times, such as during periods of rising interest rates, when
depreciation and realization of capital losses on securities in a
Fund's portfolio will be unavoidable. Moreover, medium- and
lower-rated securities and non-rated securities of comparable
quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market
conditions. Such fluctuations after a security is acquired do
not affect the cash income received from that security but will
be reflected in the net asset value of a Fund.
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Foreign Securities
The securities markets of many foreign countries are relatively
small, with the majority of market capitalization and trading
volume concentrated in a limited number of companies representing
a small number of industries. Consequently, a Fund whose
investment portfolio includes foreign securities may experience
greater price volatility and significantly lower liquidity than a
portfolio invested solely in securities of U.S. companies. These
markets may be subject to greater influence by adverse events
generally affecting the market, and by large investors trading
significant blocks of securities, than is usual in the United
States.
Securities registration, custody and settlements may in some
instances be subject to delays and legal and administrative
uncertainties. Furthermore, foreign investment in the securities
markets of certain foreign countries is restricted or controlled
to varying degrees. These restrictions or controls may at times
limit or preclude investment in certain securities and may
increase the cost and expenses of a Fund. In addition, the
repatriation of investment income, capital or the proceeds of
sales of securities from certain of the countries is controlled
under regulations, including in some cases the need for certain
advance government notification or authority, and if a
deterioration occurs in a country's balance of payments, the
country could impose temporary restrictions on foreign capital
remittances.
A Fund also could be adversely affected by delays in, or a
refusal to grant, any required governmental approval for
repatriation, as well as by the application to it of other
restrictions on investment. Investing in local markets may
require a Fund to adopt special procedures or seek local
governmental approvals or other actions, any of which may involve
additional costs to a Fund. These factors may affect the
liquidity of a Fund's investments in any country and Alliance
will monitor the effect of any such factor or factors on a Fund's
investments. Furthermore, transaction costs including brokerage
commissions for transactions both on and off the securities
exchanges in many foreign countries are generally higher than in
the U.S.
Issuers of securities in foreign jurisdictions are generally not
subject to the same degree of regulation as are U.S. issuers with
respect to such matters as insider trading rules, restrictions on
market manipulation, shareholder proxy requirements, and timely
disclosure of information. The reporting, accounting, and
auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects, and
less information may be available to investors in foreign
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securities than to investors in U.S. securities. Substantially
less information is publicly available about certain non-U.S.
issuers than is available about most U.S. issuers.
The economies of individual foreign countries may differ
favorably or unfavorably from the U.S. economy in such respects
as growth of gross domestic product or gross national product,
rate of inflation, capital reinvestment, resource self-
sufficiency, and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage,
political changes, government regulation, political or social
instability, or diplomatic developments could affect adversely
the economy of a foreign country. In the event of
nationalization, expropriation or other confiscation, a Fund
could lose its entire investment in securities in the country
involved. In addition, laws in foreign countries governing
business organizations, bankruptcy and insolvency may provide
less protection to securities holders such as the Fund than is
provided by U.S. laws.
Investment in Fixed-Income Securities Rated Baa and BBB
Securities rated Baa or BBB are considered to have speculative
characteristics and share some of the same characteristics as
lower-rated securities, as described below. Sustained periods of
deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to
pay interest and repay principal than in the case of higher-rated
securities.
Investment in Lower-Rated Fixed-Income Securities
Lower-rated securities are subject to grater risk of loss of
principal and interest than higher-rated securities. They are
also generally considered to be subject to greater market risk
than higher-rated securities, and the capacity of issuers of
lower-rated securities to pay interest and repay principal is
more likely to weaken than is that of issuers of higher-rated
securities in times of deteriorating economic conditions or
rising interest rates. In addition, lower-rated securities may
be more susceptible to real or perceived adverse economic
conditions than investment grade securities. Securities rated Ba
or BB are judged to have speculative elements or to be
predominantly speculative with respect to the issuer's ability to
pay interest and repay principal. Securities rated B are judged
to have highly speculative elements or to be predominantly
speculative. Such securities may have small assurance of
interest and principal payments. Securities rated Baa by Moody's
are also judged to have speculative characteristics.
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The market for lower-rated securities may be thinner and less
active than that for higher-rated securities, which can adversely
affect the prices at which these securities can be sold. To the
extent that there is no established secondary market for lower-
rated securities, a Fund may experience difficulty in valuing
such securities and, in turn, the Fund's assets.
Alliance will try to reduce the risk inherent in investment in
lower-rated securities through credit analysis, diversification,
and attention to current developments and trends in interest
rates and economic and political conditions. There can be no
assurance, however, that losses will not occur. Since the risk
of default is higher for lower-rated securities, Alliance's
research and credit analysis are a correspondingly more important
aspect of its program for managing a Fund's securities than would
be the case if a Fund did not invest in lower-rated securities.
In considering investments for the Fund, Alliance will attempt to
identify those high-yielding securities whose financial condition
is adequate to meet future obligations, has improved, or is
expected to improve in the future. Alliance's analysis focuses
on relative values based on such factors as interest or dividend
coverage, asset coverage, earnings prospects, and the experience
and managerial strength of the issuer.
Unrated Securities
Unrated securities will also be considered for investment by the
Funds when Alliance believes that the financial condition of the
issuers of such securities, or the protection afforded by the
terms of the securities themselves, limits the risk to a
particular Fund to a degree comparable to that of rated
securities which are consistent with the Fund's objective and
policies.
Year 2000
Many computer systems and applications in use today process
transactions using two-digit date fields for the year of the
transaction, rather than the full four digits. If these systems
are not modified or replaced, transactions occurring after 1999
could be processed as year "1900," which could result in
processing inaccuracies and computer system failures at or after
the Year 2000. This is commonly known as the year 200 problem.
The Funds and their major service providers, including Alliance,
utilize a number of computer systems and applications that have
been either developed internally or licensed from third party
suppliers. In addition, the Funds and their major service
providers, including Alliance, are dependent on third party
suppliers for certain systems applications and for electronic
receipt of information. Should any of computer systems employed
by the Funds or their major service providers fail to process
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year 2000 related information properly, that could have a
significant negative impact on the Funds' operations and the
services that are provided to the Funds' stockholders. To the
extent that the operations of issuers of securities held by a
Fund are impaired by the year 2000 problem, or prices of
securities held by a Fund decline as a result of real or
perceived problems relating to the Year 2000, the value of the
Fund's shares may be materially affected. In addition, for the
Funds' investments in foreign markets, it is possible that
foreign companies and markets will not be as prepared for Years
2000 as domestic companies and markets.
The Year 2000 issue is a high priority for the Funds and
Alliance. The Funds have been advised that, during 1997,
Alliance began a formal Year 2000 initiative which established a
structured and coordinated process to deal with the year 2000
issue. As part of its initiative, Alliance established a Year
2000 project office to manage the Year 2000 initiative, focusing
on both information technology and non-information technology
systems. Alliance has also retained the services of a number of
consulting firms which have expertise in advising and assisting
with regard to year 2000 issues. Alliance reports that by June
30, 1998 it had completed its inventory and assessment of its
domestic and international computer systems and applications,
identified mission critical systems and non-mission critical
systems and determined which of these systems are not Year 2000
compliant. All third party suppliers of mission critical
computer systems and applications have been contacted to verify
whether their systems and applications will be Year 2000
compliant and their responses are being evaluated. Substantially
all of those contacted have responded and approximately 90% have
informed Alliance that their systems and applications are or will
be Year 2000 compliant. Alliance will seek alternative solutions
or third party suppliers for all suppliers who do not furnish a
satisfactory response by June 30, 1999. The same process is
being performed for non-mission critical systems with estimated
completion by June 30, 1999. Alliance had remediated, replaced
or retired all of its non-compliant mission critical systems and
applications which can impact the Fund. The same process is
being performed for non-mission critical systems and is estimated
to be completed by June 30, 1999. After each system has been
remediated, it is tested with 19XX dates to determine if it still
performs its intended business function correctly. Next, each
system undergoes a simulation test using dates occurring after
December 31, 1999. Inclusive of the replacement and retirement
of some of its systems, Alliance has completed these testing
phases for approximately 98% of mission critical systems and
approximately 89% of nonmission critical systems. Integrated
systems tests will then be conducted to verify that the systems
will continue to work together. Full integration testing of all
mission critical and nonmission critical systems is estimated to
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be completed by June 30, 1999. Testing of interfaces with third-
party suppliers has begun and will continue throughout 1999.
Alliance reports that it has completed an inventory of its
facilities and related technology applications and has begun to
evaluate and test these systems. Alliance reports that it
anticipates that these systems will be fully operable in the year
2000. Alliance, with the assistance of a consulting firm, is
developing year 2000 specific contingency plans with emphasis on
mission critical functions. These plans seek to provide
alternative methods of processing in the event of a failure that
is outside Alliance's control. The estimated date for the
completion of these plans is June 30, 1999.
There are many risks associated with year 2000 issues, including
the risks that the computer systems and applications used by the
Funds and their major service providers, including Alliance, will
not operate as intended and that the systems and applications of
third party providers to the Funds and their service providers
will not be Year 2000 compliant. Likewise there can be no
assurance the compliance schedules outlined above will be met or
that the actual cost incurred and will not exceed current cost
estimates. Should the significant computer systems and
applications used by the Funds and their major service providers
or the systems of their important third party suppliers be unable
to process date-sensitive information accurately after 1999, the
Funds and Alliance or their other service providers may be unable
to conduct their normal business operations and to provide
shareholders with the required services. In addition, the Funds
and their service providers may incur unanticipated expenses,
regulatory actions and legal liabilities. The Funds and Alliance
cannot determine which risks, if any, are most reasonably likely
to occur or the effects of any particular failure to be Year 2000
compliant.
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MANAGEMENT OF THE FUNDS
Adviser
As noted above, the Fund's investment adviser is Alliance Capital
Management L.P., a leading international investment adviser
managing client accounts with assets as of March 31, 1999
totaling more than $301 billion (of which approximately $127
billion represented assets of investment companies). As of March
31, 1999, the Adviser managed retirement assets for many of the
largest public and private employee benefit plans (including 30
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 119 separate portfolios, managed by the Adviser
currently have over 4 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 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
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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
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.
Portfolio Manager
Nicholas D. P. Carn is the person principally responsible for the
day-today management of each Fund's portfolio. Mr. Carn has been
a Vice President of Alliance Capital Management Corporation since
1997. Prior thereto, he was Chief Investment Officer and
Portfolio Manager of Draycott Partners since before 1994.
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PURCHASE AND SALE OF SHARES
How the Funds Value Their Shares
The Funds' net asset value or NAV is calculated at 4:00 p.m.,
Eastern time, each day the Exchange is open for business. To
calculate NAV, a Fund's assets are valued and totaled,
liabilities are subtracted, and the balance, called net assets,
is divided by the number of shares outstanding. The Funds' value
their securities at their current market value determined on the
basis of market quotations or, if such quotations are not readily
available, such other methods as the Funds' Directors or Trustees
believe accurately reflect fair market value.
Your order for purchase, sale, or exchange of shares is priced at
the next NAV calculated after your order is accepted by the Fund.
Your purchase of Fund shares may be subject to an initial sales
charge. Sales of Fund shares may be subject to a contingent
deferred sales charge or CDSC. See the Distribution Arrangements
section of this Prospectus for details.
How to Buy Shares
You may purchase a Fund's shares through broker-dealers, banks,
or other financial intermediaries. You also may purchase shares
directly from the Funds' principal underwriter, Alliance Fund
Distributors, Inc., or AFD.
Minimum investment amounts are:
-- Initial $250
-- Subsequent $50
-- Automatic Investment Program $25
If you are an existing Fund shareholder, you may purchase shares
by electronic funds transfer in amounts not exceeding $500,000 if
you have completed the appropriate section of the Subscription
Application or the Shareholder Options form obtained from AFS.
Call 800-221-5672 to arrange a transfer from your bank account.
A Fund is required to withhold 31% of taxable dividends, capital
gains distributions, and redemptions paid to shareholders who
have not provided the Fund with their certified taxpayer
identification number. To avoid this, you must provide your
correct Tax Identification Number (Social Security Number for
most investors) on your account application.
The Funds may refuse any order to purchase shares. In this
regard, the Funds reserve the right to restrict purchases of Fund
shares (including through exchanges) when they appear to evidence
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a pattern of frequent purchases and sales made in response to
short-term considerations.
How to Exchange Shares
You may exchange your Fund shares for shares of the same class of
other Alliance Mutual Funds (including AFD Exchange Reserves, a
money market fund managed by Alliance). Exchanges of shares are
made at next-determined NAV, without sales or service charges.
You may request an exchange by mail or telephone. You must call
by 4:00 p.m., Eastern time, to receive that day's NAV. The Funds
may change, suspend, or terminate the exchange service on 60
days' written notice.
How to Sell Shares
You may "redeem" your shares (i.e., sell your shares to the Fund)
on any day the Exchange is open, either directly or through your
financial intermediary. Your sales price will be the next-
determined NAV, less any applicable CDSC, after the Fund receives
your request in proper form. Normally, proceeds will be sent to
you within seven days. If you recently purchased your shares by
check or electronic funds transfer, your redemption payment may
be delayed until the Fund is reasonably satisfied that the check
or electronic funds transfer has been collected (which may take
up to 15 days).
- -- Selling Shares Through Your Broker
Your broker must receive your request by 4:00 p.m., Eastern time,
and submit it to the Fund by 5:00 p.m., Eastern time, for you to
receive that day's NAV, less any applicable CDSC. Your broker is
responsible for furnishing all necessary documentation to Fund
and may charge you for this service.
- -- Selling Shares Directly to a Fund
By Mail
- -- Send a signed letter of instruction or stock power form to
AFS, along with certificates, to:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
- -- For your protection, a bank, a member firm of a national
stock exchange or other eligible guarantor institution must
guarantee signatures. Stock power forms are available from
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<PAGE>
your financial intermediary, AFS, and many commercial banks.
Additional documentation is required for the sale of shares
by corporations, intermediaries, fiduciaries, and surviving
joint owners.
By Telephone
- -- You may redeem your shares for which no stock certificates
have been issued by telephone request. Call AFS at 800-221-
5672 with instructions on how you wish to receive your sale
proceeds.
- -- A telephone redemption request must be made by 4:00 p.m.,
Eastern time, for you to receive that day's NAV, less any
applicable CDSC and, except for certain omnibus accounts, may
be made only once per day.
- -- If you have selected electronic funds transfer in your
Subscription Application, the redemption proceeds may be sent
directly to your bank. Otherwise, the proceeds will be
mailed to you.
- -- Redemption requests by electronic funds transfer may not
exceed $100,000 per day and redemption requests by check
cannot exceed $50,000 per day.
- -- Telephone redemption is not available for shares held in
nominees or "street name" accounts or retirement plan
accounts or shares held by a shareholder who has changed his
or her address of record within the previous 30 calendar
days.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Funds declare dividends on their shares each Fund business
day. For Saturdays, Sundays, and holidays dividends will be as
of the previous business day. Each Fund pays dividends on its
shares after the close of business on the twentieth day of each
month or on the first day after that day if the day is not a
business day.
Each Fund's income dividend and capital gains distribution, if
any, declared by a Fund on its outstanding shares will, at the
election of each shareholder, be paid in cash or in additional
shares of the same class of shares of that Fund. If paid in
additional shares, the shares will have an aggregate net asset
value as of the close of business on the day following the
declaration date of the dividend or distribution equal to the
cash amount of the dividend or distribution. You may make an
election to receive dividends and distributions in cash or in
shares at the time you purchase shares. Your election can be
39
<PAGE>
changed at any time prior to a record date for a dividend. There
is no sales or other charge in connection with the reinvestment
of dividends or capital gains distributions. Cash dividends may
be paid in check, or at your election, electronically via the ACH
network. There is no sales or other charge on the reinvestment
of Fund dividends and distributions.
If you receive an income dividend or capital gains distribution
in cash you may, within 120 days following the date of its
payment, reinvest the dividend or distribution in additional
shares of that Fund without charge by returning to Alliance, with
appropriate instructions, the check representing the dividend or
distribution. Thereafter, unless you otherwise specify, you will
be deemed to have elected to reinvest all subsequent dividends
and distributions in shares of that Fund.
While it is the intention of each Fund to distribute to its
shareholders substantially all of each fiscal year's net income
and net realized capital gains, if any, the amount and timing of
any such dividend or distribution must necessarily depend upon
the realization by such Fund of income and capital gains from
investments. There is no fixed dividend rate and there can be no
assurance that a Fund will pay any dividends or realize any
capital gains.
Investment income received by a Fund from sources within foreign
countries may be subject to foreign income taxes withheld at the
source. To the extent that any Fund is liable for foreign income
taxes withheld at the source, each Fund intends, if possible, to
operate so as to meet the requirements of the Code to "pass
through" to the Fund's shareholders credits or deductions for
foreign income taxes paid, but there can be no assurance that any
Fund will be able to do so. Furthermore, a shareholder's ability
to claim a foreign tax credit or deduction for foreign taxes paid
by a Fund may be subject to certain limitations imposed by the
Code, as a result of which a shareholder may not be permitted to
claim a full credit or deduction for the amount of such taxes.
Under certain circumstances, if a Fund realizes losses (e.g.,
from fluctuations in currency exchange rates) after paying a
dividend, all or a portion of the dividend may subsequently be
characterized as a return of capital. Returns of capital are
generally nontaxable, but will reduce a shareholder's basis in
shares of a Fund. If that basis is reduced to zero (which could
happen if the shareholder does not reinvest distributions and
returns of capital are significant), any further returns of
capital will be taxable as a capital gain.
The Funds expect that distributions will consist either of net
income (or short-term capital gains) or long-term capital gains.
For federal income tax purposes, the Fund's dividend
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<PAGE>
distributions of net income (or short-term taxable gains) will be
taxable to you as ordinary income. Any capital gains
distributions may be taxable to you as capital gains. A Fund's
distributions also may be subject to certain state and local
taxes.
If you buy shares just before a Fund deducts a distribution from
its NAV, you will pay the full price for the shares and then
receive a portion of the price back as a taxable distribution.
The sale or exchange of Fund shares is a taxable transaction for
Federal income tax purposes.
Each year shortly after December 31, the Fund will send you tax
information stating the amount and type of all its distributions
for the year. Consult your tax adviser about the federal, state,
and local tax consequences in your particular circumstances.
CONVERSION FEATURE
Conversion
As described above, Advisor Class shares may be held solely
through certain fee-based program accounts, employee benefit
plans and registered investment advisory or other financial
intermediary relationships, and by investment advisory clients
of, and certain persons associated with, Alliance and its
affiliates or the Funds. If a holder of Advisor Class shares
(i) ceases to participate in the fee-based program or plan, or to
be associated with an eligible investment advisor or financial
intermediary or (ii) is otherwise no longer eligible to purchase
Advisor Class shares (each a "Conversion Event"), then all
Advisor Class shares held by the shareholder will convert
automatically and without notice to Class A shares of the same
Fund during the calendar month following the month in which the
Fund is informed of the occurrence of the Conversion Event. The
failure of a shareholder or a fee-based program to satisfy the
minimum investment requirements to purchase Advisor Class shares
will not constitute a Conversion Event. The conversion would
occur on the basis of the relative NAV of the two classes and
without the imposition of any sales load, fee or other charge.
Description of Class A Shares
The Class A shares of each Fund have a distribution fee of .30%
under the Fund's Rule 12b-1 plan that allows the Fund to pay
distribution and service fees for the distribution and sale of
its shares. Because this fee is paid out of the Fund's assets,
Class A shares have a higher expense ratio and may pay lower
dividends and may have a lower NAV than Advisor Class shares.
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GENERAL INFORMATION
Under unusual circumstances, a Fund may suspend redemptions or
postpone payment for up to seven days or longer, as permitted by
federal securities law. The Funds reserve the right to close an
account that through redemption has remained below $200 for 90
days. Shareholders will receive 60 days' written notice to
increase the account value before the account is closed.
During drastic economic or market developments, you might have
difficulty reaching AFS by telephone, in which event you should
issue written instructions to AFS. AFS is not responsible for
the authenticity of telephonic requests to purchase, sell, or
exchange shares. AFS will employ reasonable procedures to verify
that telephone requests are genuine, and could be liable for
losses resulting from unauthorized transactions if it fails to do
so. Dealers and agents may charge a commission for handling
telephonic requests. The telephone service may be suspended or
terminated at any time without notice.
Shareholder Services. AFS offers a variety of shareholder
services. For more information about these services or your
account, call AFS's toll-free number, 800-221-5672. Some
services are described in the attached Subscription Application.
A shareholder manual explaining all available services will be
provided upon request. To request a shareholder manual, call
800-227-4618.
Employee Benefit Plans. Certain employee benefit plans,
including employer-sponsored tax-qualified 401(k) plans and other
defined contribution retirement plans ("Employee Benefit Plans"),
may establish requirements as to the purchase, sale or exchange
of shares of the Funds, including maximum and minimum initial
investment requirements, that are different from those described
in this Prospectus. Employee Benefit Plans also may not offer
all classes of shares of the Funds. In order to enable
participants investing through Employee Benefit Plans to purchase
shares of the Funds, the maximum and minimum investment amounts
may be different for shares purchased through Employee Benefit
Plans from those described in this Prospectus. In addition, the
Class A, Class B and Class C CDSC may be waived for investments
made through Employee Benefit Plans.
PENDING LEGAL PROCEEDINGS INVOLVING NORTH AMERICAN GOVERNMENT
INCOME
On July 25, 1995, a Consolidated and Supplemental Class Action
Complaint ("Complaint") styled In re Alliance North American
Government Income Trust, Inc. Securities Litigation was filed in
the U.S. District Court for the Southern District of New York
("District Court") against the Fund, Alliance, ACMC, AFD, The
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<PAGE>
Equitable Companies Incorporated ("ECI"), a parent of the
Adviser, and certain current and former officers and directors of
the Fund and ACMC, alleging violations of the federal securities
laws, fraud and breach of fiduciary duty in connection with the
Fund's investments in Mexican and Argentine securities. The
Complaint sought certification of a plaintiff class of all
persons who purchased or owned Class A, Class B or Class C shares
of the Fund from March 27, 1992 through December 23, 1994.
Plaintiffs alleged that during 1995 the Fund's losses exceeded
$750,000,000 and sought as relief unspecified damages, costs and
attorney's fees.
On September 26, 1996, the District Court granted defendants'
motion to dismiss all counts of the Complaint ("First Decision").
On October 11, 1996, plaintiffs filed a motion for
reconsideration of the First Decision. On November 25, 1996, the
District Court denied plaintiffs' motion for reconsideration of
the First Decision. On October 29, 1997, the United States Court
of Appeals for the Second Circuit ("Court of Appeals") issued an
order granting defendants' motion to strike and dismissing
plaintiffs' appeal of the First Decision.
On October 29, 1996, plaintiffs filed a motion for leave to file
an amended complaint ("Amended Complaint"). In the Amended
Complaint, plaintiffs asserted claims against the Fund, Alliance,
ACMC, AFD, ECI, and certain current and former officers of the
Fund and ACMC alleging violations of the federal securities laws,
fraud and breach of fiduciary duty. The principal allegations of
the Amended Complaint related to the Fund's hedging practices,
the Fund's investments in certain mortgage-backed securities, and
the risk and objectives of the Fund as described in the Fund's
marketing materials. The Amended Complaint made similar requests
for class certification and damages as made in the Complaint. On
July 15, 1997, the District Court denied plaintiffs' motion for
leave to the Amended Complaint and dismissed the case ("Second
Decision").
On November 17, 1997, plaintiffs filed a notice of appeal of the
Second Decision to the Court of Appeals. On October 15, 1998,
the Court of Appeals affirmed in part and reversed in part the
Second Decision. The Court of Appeals affirmed the District
Court's denial of plaintiffs' option for leave to file the
Amended Complaint insofar as the Amended Complaint alleged that
defendants had made misrepresentations and omissions relating to
the Funds' investments in certain mortgage-backed securities and
in the Fund's marketing materials. The Court of Appeals reversed
the District Court's decision to deny plaintiffs' motions for
leave to file the Amended Complaint insofar as the Amended
Complaint alleged that defendants had made actionable
misrepresentations and omissions relating to the Fund's hedging
practices. The Fund and Alliance believe that the allegations in
43
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the Complaint and the Amended Complaint are without merit and
intend to defend vigorously against those claims.
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FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand
each Fund's financial performance for the past 5 years (or, if
shorter, for the life of the Fund). Certain information reflects
financial results for a single Fund share. The total returns in
the table represent the rate that an investor would have earned
(or lost) on an investment in the Fund (assuming reinvestment of
all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with
the Funds' financial statements, is included in the SAI, which is
available upon request.
[To be updated.]
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[back cover]
For more information about the Funds' the following documents are
available upon request:
Annual/Semi-Annual Reports to Shareholders
The Funds' annual and semi-annual reports to shareholders contain
additional information on the Funds' investments. In the annual
report, you will find a discussion of the market conditions and
investment strategies that affected a Fund's performance during
its last fiscal year.
Statement of Additional Information (SAI)
The Funds have an SAI, which contains more detailed information
about the Funds, including their operations and investment
policies. The Funds' SAI is incorporated by reference into (and
are legally part of) this Prospectus.
You may request a free copy of the current annual/semi-annual
report or the SAI by contacting your broker or other financial
intermediary, or by contacting Alliance:
By mail: c/o Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
By phone: For information: (800) 221-5672
For literature: (800) 227-4618
Or you may view or obtain these documents from the Commission:
In person: at the Commission's Public Reference Room in
Washington, D.C.
By phone: 1-800-SEC-0330
By mail: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-6009
(duplicating fee required)
On the Internet: www.sec.gov
You also may find more information about Alliance and the Funds
on the Internet at: www.Allinacecapital.com.
Investment Company Act File No. 811-05088
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THE ALLIANCE PORTFOLIOS:
ALLIANCE CONSERVATIVE INVESTORS FUND
ALLIANCE GROWTH INVESTORS FUND(R)
_________________________________________________________________
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature Toll Free (800) 227-4618
_________________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
September 1, 1999
_________________________________________________________________
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Funds' current Prospectus
that offers Class A, Class B and Class C shares and the Funds'
current Prospectus that offers the Advisor Class shares (the
"Advisor Class Prospectus" and, together with the Funds'
Prospectus that offers the Class A, Class B and Class C shares,
the "Prospectus"). A copy of the Funds' Prospectus may be
obtained by contacting Alliance Fund Services, Inc. at the
address or 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...............................
_______________________
(R) This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
GENERAL INFORMATION..............................................
FINANCIAL STATEMENTS.............................................
REPORT OF INDEPENDENT ACCOUNTANTS................................
APPENDIX.........................................................
<PAGE>
______________________________________________________________
INVESTMENT POLICIES AND RESTRICTIONS
______________________________________________________________
The following investment policies and restrictions supplement
and should be read in conjunction with the information set forth
in the Prospectus of Alliance 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.
_______________________________________________________________
ADDITIONAL INVESTMENT TECHNIQUES OF THE FUNDS
_______________________________________________________________
Repurchase Agreements
The repurchase agreements referred to in the Funds'
Prospectus are agreements by which a Fund purchases a security
and obtains a simultaneous commitment from the seller to
repurchase the security at an agreed upon price and date. The
resale price is in excess of the purchase price and reflects an
agreed upon market rate unrelated to the coupon rate on the
purchased security. The purchased security serves as collateral
for the obligation of the seller to repurchase the security 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
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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
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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
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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
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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
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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
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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
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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
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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.
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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.
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<PAGE>
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
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<PAGE>
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.
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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
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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
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<PAGE>
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
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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
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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
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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
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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
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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.)
It is also a fundamental policy of each Fund that it may
purchase and sell futures contracts and related options.
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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.
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(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.
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(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 March 31, 1999
totaling more than $301 billion (of which approximately $127
billion represented assets of investment companies). As of March
29
<PAGE>
31, 1999, the Adviser managed retirement assets for many of the
largest public and private employee benefit plans (including 30
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 119 separate portfolios, managed by the Adviser
currently have over 4 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 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
<PAGE>
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
<PAGE>
The Investment Advisory Contract became effective on July 23,
1993. The Investment Advisory Contract replaced an earlier
agreement (the "First Investment Advisory Contract") between the
Trust and Equitable Capital with respect to the Funds. The First
Investment Advisory Contract terminated because of its technical
assignment in connection with the transfer of substantially all
of the assets comprising Equitable Capital's business to the
Adviser and certain of its subsidiaries in exchange for newly
issued limited partnership interests in the Adviser and the
assumption by the Adviser and such subsidiaries of certain
liabilities of Equitable Capital. Equitable Capital was
compensated for its services as investment manager of the Funds
at the same rates as are currently paid by the Funds to the
Adviser.
In anticipation of the assignment of the First Investment
Advisory Contract, the Investment Advisory Contract was approved
by the vote of the Trust's Trustees, including the Trustees who
are not parties to the Investment Advisory Contract or interested
persons of any such party, at meetings called for the purpose and
held on February 16, 1993 and March 31, 1993. At a meeting held
on April 8, 1993, a majority of the outstanding voting securities
of the Funds approved the Investment Advisory Contract. Most
recently, the continuance of the Investment Advisory Contract
until [July 31, 1999] was approved by a vote, cast in person, of
the Board of Trustees, including a majority of the Trustees who
are not parties to the Investment Advisory Contract or interested
persons of any such party, at their Regular Meeting held on
[July 16, 1998].
During the period May 1, 1998 through April 30, 1999, the
Adviser earned $_______ in management fees from the Conservative
Investors Fund (an additional $________ in fees were waived) and
$_______ from the Growth Investors Fund (an additional $_______
in fees were waived). During the period May 1, 1997 through April
30, 1998, the Adviser earned $332,496 in management fees from the
Conservative Investors Fund (an additional $219,865 in fees were
waived) and $788,159 from the Growth Investors Fund. During the
period May 1, 1996 through April 30, 1997, the Adviser earned
$363,977 in management fees from the Conservative Investors Fund
(an additional $245,071 in fees were waived) and $723,109 from
the Growth Investors Fund (an additional $167,543 in fees were
waived).
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
<PAGE>
called for the purpose of voting on such approval. Any amendment
to the Investment Advisory Contract must be approved by vote of a
majority of the outstanding voting securities of the relevant
Fund and by vote of a majority of the Trustees who are not such
interested persons, cast in person at a meeting called for the
purpose of voting on such approval. The Investment Advisory
Contract may be terminated without penalty by the Adviser, by
vote of the Trustees or by vote of a majority of the outstanding
voting securities of the relevant Fund upon sixty days' written
notice, and it terminates automatically in the event of its
assignment. The Adviser controls the word "Alliance" in the
names of the Trust and each Fund, and if Alliance should cease to
be the investment manager of any Fund, the Trust and such Fund
may be required to change their names to delete the word
"Alliance" from their names.
The Investment Advisory Contract provides that the Adviser
shall not be subject to any liability in connection with the
performance of its services thereunder in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
its obligations and duties.
Trustees and Officers
The Trustees and principal officers of the Trust, their ages
as of the date of this Statement of Additional Information and
their primary occupations during the past five years are set
forth below.
Trustees
John D. Carifa,1 54, Chairman of the Board and President, is
the President, Chief Operating Officer, and a Director of ACMC,
the general partner of the Adviser. His address is 1345 Avenue
of the Americas, New York, New York 10105.
Ruth Block, 68, was formerly an Executive Vice President and
Chief Insurance Officer of The Equitable Life Assurance Society
of the United States. She is a Director of Ecolab Incorporated
(specialty chemicals) and Amoco Corporation (oil and gas). Her
address is Box 4653, Stamford, Connecticut 06903.
William H. Foulk, Jr., 66, is an investment adviser and an
independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1993. His address is
2 Hekma Road, Greenwich, Connecticut 06831.
_________________________
1An "interested person" of the Trust, as defined by the 1940
Act.
33
<PAGE>
Brenton W. Harries, 71, is a Director of Enhance Reinsurance
Co. and was formerly the President and Chief Executive of Global
Electronic Markets Company. His address is 14 Point Road, Wilson
Point, South Norwalk, Connecticut 06854.
Donald J. Robinson, 65, is Senior Counsel of the law firm of
Orrick, Herrington & Sutcliffe and was formerly a senior partner,
and was a member of the Executive Committee of that firm. His
address is 666 Fifth Avenue, 19th Floor, New York, New York
10103.
Officers
* John D. Carifa, President, see biography above.
Edmund P. Bergan, Jr., 49, Clerk, is a Senior Vice President
and General Counsel of Alliance Fund Distributors, Inc. His
address is 1345 Avenue of the Americas, New York, New York 10105.
Mark D. Gersten, 48, Treasurer and Chief Financial Officer,
is a Senior Vice President of Alliance Fund Services, Inc. His
address is 500 Plaza Drive, Secaucus, New Jersey 07094.
Vincent S. Noto, 34, Controller and Chief Accounting Officer,
is a Vice President of Alliance Fund Services, Inc. His address
is 500 Plaza Drive, Secaucus, New Jersey 07094.
Bruce W. Calvert, 52, Senior Vice President, is the Vice
Chairman and Chief Investment Officer of ACMC. His address is
1345 Avenue of the Americas, New York, New York 10105.
Kathleen A. Corbet, 39, Senior Vice President, is an
Executive Vice President of ACMC since 1993. Prior thereto, she
was employed by Equitable Capital Her address is 1345 Avenue of
the Americas, New York, New York 10105.
Wayne D. Lyski, 57, Senior Vice President, is Executive Vice
President of ACMC. His address is 1345 Avenue of the Americas,
New York, New York 10105.
Nicholas D.P. Carn, 41, Vice President, is a Vice President
of ACMC since 1997. Prior thereto, he was Chief Investment
Officer and Portfolio Manager at Draycott Partners.
The aggregate compensation paid to each of the Trustees by
the Conservative Investors Fund and by the Growth Investors Fund
for the fiscal year ended April 30, 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
<PAGE>
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.
Total Number
of Funds
in the
Alliance
Total Fund Complex,
Aggregate Aggregate Compensation Including
Compensation Compensation from the the Trust,
from the from the Alliance as to which
Name Conservative Growth Fund Complex the Trustee
of Trustee Investors Investors Including is a Director
of the Fund Fund Fund the Trust* or Trustee
Ruth Block $ $ $ 82
John D. Carifa $ -- $ -- $ -- 120
William H. Foulk, Jr. $ $ $ 115
Brenton W. Harries $ $ $ 19
Donald J. Robinson $ $ $ 96
* As of June 30, 1998 there were 123 investment companies or
portfolios thereof in the Alliance Fund Complex.
** Includes deferred compensation. As of December 31, 1997, the
total amounts of deferred compensation (including interest)
payable to Mr. Robinson by the Conservative Investors Fund
and the Growth Investors Fund were $13,249 and $13,586,
respectively.
</R
As of ________, 1999, the Trustees and officers of the Trust
as a group owned less than 1% of the outstanding shares of the
Funds.
The Trust undertakes to provide assistance to shareholders in
communications concerning the removal of any Trustee of the Trust
in accordance with Section 16 of the 1940 Act.
35
<PAGE>
________________________________________________________________
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
<PAGE>
the Conservative Investors Fund, $_________ and, in connection
therewith, brokerage commissions of $______ (___%) were allocated
to persons or firms supplying research information; and with
respect to the Growth Investors Fund, $_________ and, in
connection therewith, brokerage commission of $_______ (___%)
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 $______ in brokerage
commissions; and the Growth Investors Fund paid an aggregate of
$______ 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
<PAGE>
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
% of Fund's Aggregate
Amount Aggregate Dollar
Fiscal Year Brokerage Brokerage Amount of
Ended April 30, Fund Commissions Commissions Transactions
1999 Growth Investors $ % %
Conservative Investors
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
___%, 138% and 174% for Conservative Investors and ___%, 137% and
133% for Growth Investors, respectively.
38
<PAGE>
________________________________________________________________
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
<PAGE>
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 $______ and $______ 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
<PAGE>
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 $______ and $______ 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 $_____ and $_____ 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:
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<PAGE>
CONSERVATIVE INVESTORS FUND
Amount of Expense and Allocated Cost
Category
of Expense Class A Shares Class B Shares Class C Shares
Advertising/
Marketing $ $ $
Printing and
Mailing of
Prospectuses
and Semi-Annual
and Annual
Reports to Other
than Current
Shareholders $ $ $
Compensation to
Underwriters $ $ $
Compensation to
Dealers $ $ $
Compensation to
Sales
Personnel $ $ $
Interest, Carrying or
Other
Financing Charges $ $ $
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) $ $ $
Total $ $ $
42
<PAGE>
Growth Investors Fund
Amount of Expense and Allocated Cost
Category
of Expense Class A Shares Class B Shares Class C Shares
Advertising/
Marketing $ $ $
Printing and
Mailing of
Prospectuses
and Semi-Annual
and Annual
Reports to Other
than Current
Shareholders $ $ $
Compensation to
Underwriters $ $ $
Compensation to
Dealers $ $ $
Compensation to
Sales
Personnel $ $ $
Interest, Carrying or
Other
Financing Charges $ $ $
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) $ $ $
Total $ $ $
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
<PAGE>
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, Class C and
Advisor Class shares of the Trust, plus reimbursement for out-of-
pocket expenses. The transfer agency fee with respect to the
Class B and Class C shares is higher than the transfer agency fee
with respect to the Class A 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, without any contingent deferred sales charge (the "Class C
shares"), or, to investors eligible to purchase Advisor Class
shares, without any initial, contingent deferred or asset-based
sales charge ("Advisor Class Shares"), in each case as described
below. Shares of the Funds that are offered subject to a sales
charge are offered 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.
Advisor Class shares of the Funds may be purchased and held
solely (i) through accounts established under fee-based programs,
sponsored and maintained by registered broker-dealers or other
financial intermediaries and approved by the Principal
Underwriter, (ii) through self-directed defined contribution
employee benefit plans (e.g. 401(k) plans) that have at least
44
<PAGE>
1,000 participants or $25 million in assets, or (iii) by the
categories of investors described in clauses (i) through (iv)
below under "-- Sales at Net Asset Value" (other than officers,
directors and present and full-time employees of selected dealers
or agents, or relatives of such persons, or any trust, individual
retirement account or retirement plan account for the benefit of
such relative, none of whom is eligible on the basis solely of
such status to purchase and hold Advisor Class shares), or
(iv) by directors and present or retired full-time employees of
CB Richard Ellis, Inc. Generally, a fee-based program must
charge an asset-based or similar fee and must invest at least
$250,000 in Advisor Class shares of the Fund in order to be
approved by the Principal Underwriter for investment in Advisor
Class shares.
Investors may purchase shares of the Funds either through
selected broker-dealers, agents, financial intermediaries or
other financial representatives, or directly through the
Principal Underwriter. A transaction, service, administrative or
other similar fee may be charged by your broker-dealer, agent,
financial intermediary or other financial representative with
respect to the purchase, sale or exchange of Class A, Class B,
Class C or Advisor Class shares made through such financial
representative. Such financial representative may also impose
requirements with respect to the purchase, sale or exchange of
shares that are different from, or in addition to, those imposed
by the 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, Class C or
Advisor Class 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
<PAGE>
liabilities, by the total number of its shares then outstanding.
A Fund business day is any day on which the Exchange is open for
trading.
The respective per share net asset values of the Class A,
Class B, Class C and Advisor Class shares are expected to be
substantially the same. Under certain circumstances, however, the
per share net asset values of the Class B and Class C shares may
be lower than the per share net asset value of the Class A and
Advisor Class shares, as a result of the differential daily
expense accruals of the distribution and transfer agency fees
applicable with respect to those classes of shares. Even under
those circumstances, the per share net asset values of the four
classes eventually will tend to converge immediately after the
payment of dividends, which will differ by approximately the
amount of the expense accrual differential among the classes.
The Funds will accept unconditional orders for their shares
to be executed at the public offering price equal to their net
asset value next determined (plus, 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. 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
<PAGE>
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, Class C and Advisor Class 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
<PAGE>
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 and Advisor Class shares, (iii) Class B and
Class C shares bear higher transfer agency costs than those borne
by Class A and Advisor Class 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, the Class B
shareholders and the Advisor Class shareholders will vote
separately by Class, and (v) Class B and Advisor Class shares are
subject to a conversion feature. Each class has different
exchange privileges and certain different shareholder service
options available.
The Trustees of the Trust have determined that currently no
conflict of interest exists between or among the Class A,
Class B, Class C and Advisor Class shares. On an ongoing basis,
the Trustees of the Trust, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
Alternative Retail Purchase Arrangements -- Class A, Class B and
Class C Shares
The alternative purchase arrangements available with respect
to Class A 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
<PAGE>
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
<PAGE>
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
<PAGE>
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, 1998:
Conservative Investors Fund
Net Asset Value per Class A Share at April 30, 1999: $
Per Share Sales Charge - 4.25% of offering price (4.42% of net
asset value per share) $____
Class A Per Share Offering Price to the
Public $======
Growth Investors Fund
Net Asset Value per Class A Share at
April 30, 1999 $
Per Share Sales Charge - 4.25% of offering
51
<PAGE>
price (4.42% of net asset value per share) $____
Class A Per Share Offering Price to
the Public $=====
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
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
52
<PAGE>
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance/Regent Sector Opportunity Fund, Inc.
Alliance Select Investors Series, Inc.
-Premier Portfolio
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
-Alliance Conservative Investors Fund
-Alliance Growth Fund
-Alliance Growth Investors Fund
-Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be obtained
without charge by contacting AFS at the address or the "For
Literature" telephone number shown on the front cover of this
Statement of Additional Information.
Cumulative Quantity Discount (Right of Accumulation). An
investor's purchase of additional Class A shares of a Fund may
qualify for a Cumulative Quantity Discount. The applicable sales
charge will be based on the total of:
53
<PAGE>
(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
<PAGE>
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
<PAGE>
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;
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(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.
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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
Purchase Subject to 1993 but Before After November 19,
Change 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
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applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of
purchase of shares originally purchased by the shareholder.
The contingent deferred sales charge is waived on redemptions
of shares (i) following the death or disability, as defined in
the Internal Revenue Code of 1986, as amended (the "Code"), of a
shareholder, (ii) to the extent that the redemption represents a
minimum required distribution from an individual retirement
account or other retirement plan to a shareholder who has
attained the age of 70-1/2, (iii) that had been purchased by
present or former Trustees of the Trust, by the relative of any
such person, by any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative, or by the estate of any such person or relative, or
(iv) pursuant to a systematic withdrawal plan (see "Shareholder
Services--Systematic Withdrawal Plan" below).
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.
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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 and Advisor Class shares.
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Conversion of Advisor Class Shares to Class A Shares
Advisor Class shares may be held solely through the fee-based
program accounts and employee benefit plans and registered
investment advisory or other financial intermediary relationships
described above under "Purchase of Shares--General," and by
investment advisory clients of, and certain other persons
associated with, the Adviser and its affiliates or the Trust. If
(i) a holder of Advisor Class shares ceases to participate in the
fee-based program or plan, or to be associated with the
investment adviser or financial intermediary that satisfies the
requirements to purchase shares set forth under "Purchase of
Shares--General" or (ii) the holder is otherwise no longer
eligible to purchase Advisor Class shares as described in the
Advisor Class Prospectus and this Statement of Additional
Information (each, a "Conversion Event"), then all Advisor Class
shares held by the shareholder will convert automatically and
without notice to the shareholder, other than the notice
contained in the Advisor Class Prospectus and this Statement of
Additional Information, to Class A shares of the same Funds
during the calendar month following the month in which the Fund
is informed of the occurrence of the Conversion Event. The
failure of a shareholder or a fee-based program to satisfy the
minimum investment requirements to purchase Advisor Class shares
will not constitute a Conversion Event. The conversion would
occur on the basis of the relative net asset values of the two
classes and without the imposition of any sales load, fee or
other charge. Class A shares currently bear a 0.30% distribution
services fee and have a higher expense ratio than Advisor Class
shares. As a result, Class A shares may pay correspondingly
lower dividends and have a lower net asset value than Advisor
Class shares.
The conversion of Advisor Class shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Advisor Class shares to
Class A shares does not constitute a taxable event under federal
income tax law. The conversion of Advisor Class shares to
Class A shares may be suspended if such an opinion is no longer
available at the time such conversion is to occur. In that
event, the Advisor Class shareholder would be required to redeem
his or her Advisor Class shares, which would constitute a taxable
event under federal income tax law.
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_________________________________________________________________
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.
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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
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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
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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. If you are an Advisor Class shareholder
through an account established under a fee-based program, your
fee-based program may impose requirements with respect to the
purchase, sale or exchange of Advisor Class shares of the Fund
that are different from those described herein. A transaction
fee may be charged by your financial representative with respect
to the purchase, sale or exchange of Advisor Class shares made
through such financial representative.
Automatic Investment Program
Investors may purchase shares of the 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
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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
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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
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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
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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, Class C or Advisor Class Fund accounts, a
Class A, Class B, Class C or Advisor Class account with one or
more other Alliance Mutual Funds may direct that income dividends
and/or capital gains paid on his or her Class A, Class B, Class C
or Advisor Class Fund shares be automatically reinvested, in any
amount, without the payment of any sales or service charges, in
shares of the same class of such other Alliance Mutual Fund(s).
Further information can be obtained by contacting AFS at the
address or the "For Literature" telephone number shown on the
cover of this Statement of Additional Information. Investors
wishing to establish a dividend direction plan in connection with
their initial investment should complete the appropriate section
of the Subscription Application found in the Prospectus. Current
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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
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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
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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
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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, Class C and
Advisor Class shares will be invested together in a single
portfolio. The net asset value of each class will be determined
separately by subtracting the 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, Class C and Advisor Class 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
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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. Some 1998 distributions of gain realized in
1997 may be subject to tax at a 28 percent rate.
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Capital gains distributions are not eligible for the
dividends-received deduction referred to above. Any dividend or
distribution received by a shareholder on shares of the Fund
(even if received shortly after the purchase of such shares by
him or her) will have the effect of reducing the net asset value
of such shares by the amount of such dividend or distribution. A
loss on the sale of shares held for less than six months will be
treated as a long-term capital loss for federal income tax
purposes to the extent of any capital gain distribution made with
respect to such shares.
Dividends and distributions are taxable in the manner
described above regardless of whether they are paid to the
shareholder in cash or are reinvested in additional shares of a
Fund.
For federal income tax purposes, when equity call options
which a Fund has written expire unexercised, the premiums
received by the Fund give rise to short-term capital gains at the
time of expiration. When a call written by a Fund is exercised,
the selling price or purchase price of stock is increased by the
amount of the premium, and the nature of the gain or loss on the
sale of stock depends upon the holding period of the stock.
There may be short-term gains or losses associated with closing
purchase transactions.
Each Fund is required to withhold and remit to the U.S.
Treasury 31% of all dividend income paid to any shareholder
account for which an incorrect or no taxpayer identification
number has been provided or where the Fund is notified that the
shareholder has under-reported income in the past (or the
shareholder fails to certify that he or she is not subject to
such withholding). In addition, the Fund will be required to
withhold and remit to the U.S. Treasury 31% of the amount of the
proceeds of any redemption of shares of a shareholder account for
which an incorrect or no taxpayer identification number has been
provided, or if the Fund is notified that you have under-reported
income in the past.
The foregoing discussion relates only to U.S. federal income
tax law as it affects U.S. shareholders. The effects of federal
income tax law on non-U.S. shareholders may be substantially
different. Foreign investors should consult their counsel for
further information as to the U.S. tax consequences of investing
in a Fund.
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_________________________________________________________________
GENERAL INFORMATION
_________________________________________________________________
Description of the Trust
The Trust is organized as a Massachusetts business trust
under the laws of The Commonwealth of Massachusetts by an
Agreement and Declaration of Trust ("Declaration of Trust") dated
March 26, 1987, a copy of which is on file with the Secretary of
State of The Commonwealth of Massachusetts. The Trust is a
"series" company as described in Rule 18f-2 under the 1940 Act,
having five separate portfolios, each of which is represented by
a separate series of shares. In addition to the Funds, the other
portfolios of the Trust are the Alliance Short-Term U.S.
Government Fund 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, Class C and Advisor Class shares of each Fund
and all income, earnings, profits, losses and proceeds therefrom,
subject only to the rights of creditors, are allocated to, and
constitute the underlying assets of, the appropriate class of
that Fund. The underlying assets of each Fund and each class of
shares thereof are segregated and are charged with the expenses
with respect to that Fund and that class and with a share of the
general expenses of the Trust. While the expenses of the Trust
are allocated to the separate books of account of each Series and
each class of shares thereof, certain expenses may be legally
chargeable against the assets of all Series or a particular class
of shares thereof.
The Declaration of Trust provides for the perpetual existence
of the Trust. The Trust or any Fund, however, may be terminated
at any time by vote of at least a majority of the outstanding
shares of each Fund affected. The Declaration of Trust further
provides that the Trustees may also terminate the Trust upon
written notice to the shareholders.
It is anticipated that annual shareholder meetings will not
be held; shareholder meetings will be held only when required by
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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, B, C and Advisor
Class shares have identical voting, dividend, liquidation and
other rights, except that each class bears its own transfer
agency expenses, each of Class A, Class B and Class C shares of
the Fund bears its own distribution expenses and Class B shares
and Advisor Class shares convert to Class A shares under certain
circumstances. Each class of shares of 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 14, 1998:
Names and Addresses % of Class
Conservative Investors Fund - Class B
[Merrill Lynch Pierce Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration (97B86)
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484] %
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Growth Investors Fund - Class C
[Alliance Plans Div/FTC
C/F Howard E. Seufer IRA
Rollover Account
115 Par Metta Extension
Waverly, WV 26184-9738] %
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
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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
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which he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office.
Counsel
Legal matters in connection with the issuance of the shares
of the Funds offered hereby are passed upon by Ropes & Gray, One
International Place, Boston, Massachusetts 02110.
Independent Accountants
The financial statements of the Conservative Investors Fund
and Growth Investors Fund for the fiscal year ended April 30,
1998, which are included in this Statement of Additional
Information, have been audited by PricewaterhouseCoopers LLP,
1177 Avenue of the Americas, New York, New York 10036, the
Trust's independent accountants for such period, as stated in
their report appearing herein, and have been so included in
reliance upon such report given upon the authority of that firm
as experts in accounting and auditing.
Total Return Quotations
From time to time, a Fund may advertise its "total return."
Total return is computed separately for Class A, Class B, Class C
and Advisor Class 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
_____% and _____%, 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 _____% and _____%, 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 _____% and _____%, 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
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Growth Investors Funds was ____8% and _____%, 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 _____% and _____% 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 _____% and _____%,
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.
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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
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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,
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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
<PAGE>
PART C -- OTHER INFORMATION
Item 23. Exhibits
(a) Declaration of Trust (previously filed with
Post-Effective Amendment No. 28 to the Registrant's
Registration Statement on January 30, 1998).
(1) Agreement and Declaration of Trust (previously
filed with Post-Effective Amendment No. 28 to the
Registrant's Registration Statement on January 30,
1998).
(2) Amendment No. 1 to Agreement and Declaration of
Trust (previously filed with Post-Effective
Amendment No. 28 to the Registrant's Registration
Statement on January 30, 1998).
(3) Amendment No. 2 to Agreement and Declaration of
Trust (previously filed with Post-Effective
Amendment No. 28 to the Registrant's Registration
Statement on January 30, 1998).
(b) (1) By-Laws (previously filed with Post-Effective
Amendment No. 26 to the Registrant's
Registration Statement on August 28, 1997)
(2) Amendment to By-Laws dated October 16, 1991
(previously filed with Post-Effective Amendment No.
26 to the Registrant's Registration Statement on
August 28, 1997).
(c) Portions of the Registrant's Agreement and Declaration
of Trust and By-Laws pertaining to shareholders' rights
(previously filed with Post-Effective Amendment No. 11
to the Registrant's Registration Statement on June 28,
1993).
(d) Investment Advisory Agreement between the Registrant and
Alliance Capital Management L.P. (previously filed with
Post-Effective Amendment No.26 to the Registrant's
Registration Statement on August 28, 1997).
(e) (1) Distribution Services Agreement between the
Registrant and Alliance Fund Distributors, Inc.,
dated August 2, 1993, as amended through July 17,
1996 (previously filed with Post-Effective
Amendment No. 25 to the Registrant's Registration
Statement on February 3, 1997).
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(2) Form of Selected Dealers Agreement between Alliance
Fund Distributors, Inc. and dealers offering shares
of the Registrant (previously filed with Post
Effective Amendment No. 26 to the Registrant's
Registration Statement on August 28, 1997).
(3) Form of Selected Agents Agreement between Alliance
Fund Distributors, Inc. and selected agents making
available shares of the Registrant (previously
filed with Post-Effective Amendment No. 26 to the
Registrant's Registration Statement on August 28,
1997).
(f) Not applicable.
(g) Custodian Agreement between the Registrant and State
Street Bank and Trust Company dated July 25, 1988, as
amended through July 17, 1996 (previously filed with
Post Effective Amendment No. 21 to the Registrant's
Registration Statement on September 1, 1996).
(h) (1) Transfer Agent Agreement between the Registrant and
State Street Bank and Trust Company (previously
filed with Post-Effective Amendment No. 17 to the
Registrant's Registration Statement on August 30,
1995).
(2) Accounting Agreement between Equitable Capital
Management Corporation and State Street Bank and
Trust Company (previously filed with Post-Effective
Amendment No. 28 to the Registrant's Registration
Statement on October 31, 1997).
(i) Opinion and Consent of Ropes & Gray (previously filed
with Post-Effective Amendment No. 28 to the Registrant's
Registration Statement on January 30, 1998).
(j) Consent of Independent Accountants (to be filed by
amendment).
(k) Not applicable.
(l) Investment Letter of The Equitable Life Assurance
Society of the United States dated October 19, 1987
(previously filed with Post-Effective Amendment No. 26
to the Registrant's Registration Statement on August 28,
1997).
(m) (1) Amended and Restated Distribution and Servicing
Plan for Class A Shares adopted by the Trust on
August 2, 1993 (filed herewith).
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(2) Amended and Restated Distribution and Servicing
Plan for Class B Shares adopted by the Trust on
August 2, 1993 (filed herewith).
(3) Distribution and Servicing Plan for Class C Shares
adopted by the Trust on August 2, 1993 (filed
herewith).
(n) Not applicable.
(o) Rule 18f-3 Plan (previously filed with Post-Effective
Amendment No. 19 to the Registrant's Registration
Statement on January 31, 1996).
(p) Other exhibits - Powers of Attorney of John D. Carifa,
Ruth Block, William H. Foulk, Jr., Brenton W. Harries
and Donald J. Robinson (previously filed with
Post-Effective Amendment No. 28 to the Registrant's
Registration Statement on January 30, 1998).
Item 24. Persons Controlled by or Under Common Control with
Registrant
As of April 30, 1999, the Registrant, The Alliance
Portfolios, believes that no person is directly or indirectly
controlled by or under common control with the Registrant.
Item 25. Indemnification
Paragraph (n) of Section 3, Article IV of the Registrant's
Agreement and Declaration of Trust provides in relevant part that
the Trustees of the Trust have the power:
"(n) To purchase and pay for entirely out of Trust property
such insurance as they may deem necessary or appropriate for the
conduct of the business, including without limitation, insurance
policies insuring the assets of the Trust and payment of
distributions and principal on its portfolio investments, and
insurance policies insuring the Shareholders, Trustees, officers,
employees, agents, investment advisers or managers, principal
underwriters, or independent contractors of the Trust
individually against all claims liabilities of every nature
arising by reason of holding, being or having held any such
office or position, or by reason of any action alleged to have
been taken or omitted by any such person as Shareholder, Trustee,
officer, employee, agent, investment adviser or manager,
principal underwriter, or independent contractor, including any
action taken or omitted that may be determined to constitute
negligence, whether or not the Trust would have the power to
indemnify such person against such liability;"
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Section 2 of Article VII of the Registrant's Agreement and
Declaration of Trust provides in relevant part:
"Limitation of Liability - Section 2. The Trustees shall not
be responsible or liable in any event for any neglect or
wrongdoing of any officer, agent, employee, manager or principal
underwriter of the Trust, nor shall any Trustee be responsible
for the act or omission of any other Trustee, but nothing herein
contained shall protect any Trustee against any liability to
which he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office."
Article VIII of the Registrant's Agreement and Declaration of
Trust provides in relevant part:
ARTICLE VIII -- Indemnification
"Section 1. The Trust shall indemnify each of its Trustees
and officers (including persons who serve at the Trust's request
as directors, officers or trustees of another organization in
which the Trust has any interest as a shareholder, creditor or
otherwise) (hereinafter referred to as a "Covered Person")
against all liabilities and expenses, including but not limited
to amounts paid in satisfaction of judgments, in compromise or as
fines and penalties, and counsel fees reasonably incurred by any
Covered Person in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal,
before any court or administrative or legislative body, in which
such Covered Person may be or may have been involved as a party
or otherwise or with which such Covered Person may be or may have
been threatened, while in office or thereafter, by reason of
being or having been such a Covered Person except with respect to
any matter as to which such Covered Person shall have been
finally adjudicated in any such action, suit or other proceeding
to be liable to the Trust or its Shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered
Person's office. Expenses, including counsel fees so incurred by
any such Covered Person (but excluding amounts paid in
satisfaction of judgments, in compromise or as fines or
penalties), shall be paid from time to time by the Trust in
advance of the final disposition of any such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such
Covered Person to repay amounts so paid to the Trust if it is
ultimately determined that indemnification of such expenses is
not authorized under this Article, provided, however, that either
(a) such Covered Person shall have provided appropriate security
for such undertaking, (b) the Trust shall be insured against
losses arising from any such advance payments or (c) either a
majority of the disinterested Trustees acting on the matter
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(provided that a majority of the disinterested Trustees then in
office act on the matter), or independent legal counsel in a
written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a full trial type inquiry)
that there is reason to believe that such Covered Person will be
found entitled to indemnification under this Article.
"Section 2. As to any matter disposed of (whether by a
compromise payment, pursuant to a consent decree or otherwise)
without an adjudication by a court, or by any other body before
which the proceeding was brought, that such Covered Person is
liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office,
indemnification shall be provided if (a) approved as in the best
interests of the Trust, after notice that it involves such
indemnification, by at least a majority of the disinterested
Trustees acting on the matter (provided that a majority of the
disinterested Trustees then in office act on the matter) upon a
determination, based upon a review of readily available facts (as
opposed to a full trial type inquiry) that such Covered Person is
not liable to the Trust or its Shareholders by reason or willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office, or (b)
there has been obtained an opinion in writing of independent
legal counsel, based upon a review of readily available facts (as
opposed to a full trial type inquiry) to the effect that such
indemnification would not protect such Person against any
liability to the Trust to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his
office. Any approval pursuant to this Section shall not prevent
the recovery from any Covered Person in accordance with this
Section as indemnification if such Covered Person is subsequently
adjudicated by a Court of competent jurisdiction to have been
liable to the Trust or its Shareholders by reason or willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's
office.
Section 3. The right of indemnification hereby provided
shall not be exclusive of or affect any other rights to which
such Covered Person may be entitled. As used in this Article
VIII, the term "Covered Person" shall include such person's
heirs, executors and administrators and a "disinterested Trustee"
is a Trustee who is not an "interested person" of the Trust as
defined in Section 2(a)(19) of the Investment Company Act of
1940, as amended, (or who has been exempted from being an
"interested person" by any rule, regulation or order of the
Commission) and against whom none of such actions, suits or other
proceedings or another action, suit or proceeding on the same or
C-8
<PAGE>
similar grounds is then or has been pending. Nothing contained
in this Article shall affect any rights to indemnification to
which personnel of the Trust, other than Trustees or officers,
and other persons may be entitled by contract or otherwise under
law, nor the power of the Trust to purchase and maintain
liability insurance on behalf of any such person.
Section 2 of Article IX of the Registrant's Agreement and
Declaration of Trust provides in relevant part:
"Trustee's Good Faith Action, Expert Advice, No Bond or
Surety
Section 2. The exercise by the Trustees of their powers and
discretions hereunder shall be binding upon everyone interested.
A Trustee shall be liable for his or her own willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee, and for nothing
else, and shall not be liable for errors of judgment or mistakes
of fact or law. The Trustees may take advice of counsel or other
experts with respect to the meaning and operation of this
Declaration of Trust, and shall be under no liability for any act
or omission in accordance with such advice or for failing to
follow such advice. The Trustees shall not be required to give
any bond as such, nor any surety if a bond is required." The
Investment Advisory Agreement between the Registrant and Alliance
Capital Management L.P. provides that Alliance Capital Management
L.P. will not be liable under such agreement for any mistake of
judgment or in any event whatsoever except for lack of good faith
and that nothing therein shall be deemed to protect, or purport
to protect, Alliance Capital Management L.P. against any
liability to the Registrant or its shareholders to which it would
otherwise be subject by reason or willful misfeasance, bad faith
or gross negligence in the performance of its duties thereunder,
or by reason or reckless disregard of its obligations or duties
thereunder.
The Distribution Services Agreement between the Registrant
and Alliance Fund Distributors, Inc. provides that the Registrant
will indemnify, defend and hold Alliance Fund Distributors, Inc.,
and any person who controls it within the meaning of Section 15
of the Investment Company Act of 1940, free and harmless from and
against any and all claims, demands, liabilities and expenses
which Alliance Fund Distributors, Inc. or any controlling person
may incur arising out of or based upon any alleged untrue
statement of a material fact contained in Registrant's
Registration Statement, Prospectus or Statement of Additional
Information or arising out of, or based upon, any alleged
omission to state a material fact required to be stated in any
one of the foregoing or necessary to make the statements in any
one of the foregoing not misleading, provided that nothing
C-9
<PAGE>
therein shall be so construed as to protect Alliance Fund
Distributors, Inc. against any liability to Registrant or its
security holders to which it would otherwise be subject by reason
or willful misfeasance, bad faith or gross negligence in the
performance of its duties thereunder, or by reason of reckless
disregard of its obligations or duties thereunder.
The foregoing summaries are qualified by the entire text of
Registrant's Agreement and Declaration of Trust, the Advisory
Agreement between the Registrant and Alliance Capital Management
L.P. and the Distribution Services Agreement between the
Registrant and Alliance Fund Distributors, Inc.
The Registrant participates in a joint directors and officers
liability policy for the benefit of its Trustees and officers.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to Trustees,
Officers and controlling persons of the Trust pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as
expressed in the Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Trust of expenses incurred or paid
by a Trustee, Officer or controlling person of the Trust in the
successful defense of any action, suit or proceeding) is asserted
by such Trustee, Officer or controlling person in connection with
the securities being registered, the Trust will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue."
Item 28. Business and Other Connections of Adviser
The descriptions of Alliance Capital Management L.P. under
the captions "Management of the Fund" in the Prospectuses and in
the Statements of Additional Information constituting Parts A and
B, respectively, of this Registration Statement are incorporated
by reference herein.
The information as to the directors and executive officers of
Alliance Capital Management Corporation, the general partner of
Alliance Capital Management L.P., set forth in Alliance Capital
Management L.P.'s Form ADV filed with the Securities and Exchange
Commission on April 21, 1988 (File No. 801-32361) and amended
through the date hereof, is incorporated by reference herein.
C-10
<PAGE>
Item 29. Principal Underwriters
(a) Alliance Fund Distributors, Inc., the Registrant's
Principal Underwriter in connection with the sale of shares of
the Registrant, also acts as principal Underwriter or Distributor
for the following investment companies:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
Alliance Capital Reserves
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
Alliance Greater China ''97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance Institutional Funds, Inc.
Alliance Institutional Reserves, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Money Market Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund II
Alliance Municipal Income Fund, Inc.
Alliance Municipal Trust
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance/Regent Sector Opportunity Fund, Inc.
Alliance Select Investor Series Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Variable Products Series Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
(b) The following are the Directors and Officers of Alliance
Fund Distributors, Inc., the principal place of business of which
is 1345 Avenue of the Americas, New York, New York, 10105.
C-11
<PAGE>
POSITIONS AND POSITIONS AND
OFFICES OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
Michael J. Laughlin Chairman
Robert L. Errico President
David Conine Executive Vice President
Richard K. Saccullo Executive Vice President
Edmund P. Bergan, Jr. Senior Vice President,
General Counsel and
Secretary Clerk
Karen J. Bullot Senior Vice President
James S. Comforti Senior Vice President
James L. Cronin Senior Vice President
Daniel J. Dart Senior Vice President
Richard A. Davies Senior Vice President Managing
Director
Byron M. Davis Senior Vice President
Anne S. Drennan Senior Vice President
& Treasurer
Mark J. Dunbar Senior Vice President
Donald N. Fritts Senior Vice President
Bradley F. Hanson Senior Vice President
Geoffrey L. Hyde Senior Vice President
Robert H. Joseph, Jr. Senior Vice President
and Chief Financial Officer
Richard E. Khaleel Senior Vice President
Stephen R. Laut Senior Vice President
Susan L. Matteson-King Senior Vice President
Daniel D. McGinley Senior Vice President
C-12
<PAGE>
Ryne A. Nishimi Senior Vice President
Antonios G. Poleondakis Senior Vice President
Robert E. Powers Senior Vice President
Raymond S. Sclafani Senior Vice President
Gregory K. Shannahan Senior Vice President
Joseph F. Sumanski Senior Vice President
Peter J. Szabo Senior Vice President
Nicholas K. Willett Senior Vice President
Richard A. Winge Senior Vice President
Jamie A. Atkinson Vice President
Benji A. Baer Vice President
Kenneth F. Barkoff Vice President
Casimir F. Bolanowski Vice President
Michael E. Brannan Vice President
Timothy W. Call Vice President
Kevin T. Cannon Vice President
John R. Carl Vice President
William W. Collins, Jr. Vice President
Leo H. Cook Vice President
Richard W. Dabney Vice President
John F. Dolan Vice President
Stephen J. Demetrovits Vice President
John C. Endahl Vice President
Sohaila S. Farsheed Vice President
C-13
<PAGE>
Gerard J. Friscia Vice President
& Controller
Shawn C. Gage Vice President
Andrew L. Gangolf Vice President and Assistant Clerk
Assistant General Counsel
Mark D. Gersten Vice President, Treasurer
and Chief Financial Officer
Joseph W. Gibson Vice President
John Grambone Vice President
George C. Grant Vice President
Charles M. Greenberg Vice President
Alan Halfenger Vice President
William B. Hanigan Vice President
Scott F. Heyer Vice President
George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
Scott Hutton Vice President
Richard D. Keppler Vice President
Gwenn M. Kessler Vice President
Donna M. Lamback Vice President
Henry Michael Lesmeister Vice President
James M. Liptrot Vice President
James P. Luisi Vice President
Jerry W. Lynn Vice President
Christopher J. MacDonald Vice President
Michael F. Mahoney Vice President
Shawn P. McClain Vice President
C-14
<PAGE>
Jeffrey P. Mellas Vice President
Thomas F. Monnerat Vice President
Christopher W. Moore Vice President
Timothy S. Mulloy Vice President
Joanna D. Murray Vice President
Nicole Nolan-Koester Vice President
John C. O'Connell Vice President
John J. O'Connor Vice President
James J. Posch Vice President
Domenick Pugliese Vice President and Assistant Clerk
Assistant General Counsel
Bruce W. Reitz Vice President
Karen C. Satterberg Vice President
John P. Schmidt Vice President
Robert C. Schultz Vice President
Richard J. Sidell Vice President
Teris A. Sinclair Vice President
Scott C. Sipple Vice President
Martine H.
Stansbery, Jr. Vice President
Andrew D. Strauss Vice President
Michael J. Tobin Vice President
Joseph T. Tocyloski Vice President
Thomas J. Vaughn Vice President
Martha D. Volcker Vice President
Patrick E. Walsh Vice President
Mark E. Westmoreland Vice President
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<PAGE>
William C. White Vice President
David E. Willis Vice President
Emilie D. Wrapp Vice President and Assistant Clerk
Assistant General Counsel
Michael W. Alexander Assistant Vice President
Richard J. Appaluccio Assistant Vice President
Charles M. Barrett Assistant Vice President
Robert F. Brendli Assistant Vice President
Maria L. Carreras Assistant Vice President
John P. Chase Assistant Vice President
Russell R. Corby Assistant Vice President
Jean A. Cronin Assistant Vice President
John W. Cronin Assistant Vice President
Terri J. Daly Assistant Vice President
Ralph A. DiMeglio Assistant Vice President
Faith C. Dunn Assistant Vice President
John E. English Assistant Vice President
Duff C. Ferguson Assistant Vice President
Brian S. Hanigan Assistant Vice President
James J. Hill Assistant Vice President
Theresa Iosca Assistant Vice President
Erik A. Jorgensen Assistant Vice President
Eric G. Kalender Assistant Vice President
Robin L. Kraebel Assistant Vice President
Edward W. Kelly Assistant Vice President
Michael Laino Assistant Vice President
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<PAGE>
Nicholas J. Lapi Assistant Vice President
Kristine J. Luisi Assistant Vice President
Patrick Look Assistant Vice President
& Assistant Treasurer
Kathryn Austin Masters Assistant Vice President
Richard F. Meier Assistant Vice President
Mary K. Moore Assistant Vice President
Richard J. Olszewski Assistant Vice President
Catherine N. Peterson Assistant Vice President
Rizwan A. Raja Assistant Vice President
Carol H. Rappa Assistant Vice President
Clara Sierra Assistant Vice President
Eileen Stauber Assistant Vice President
Gayle S. Stamer Assistant Vice President
Vincent T. Strangio Assistant Vice President
Marie R. Vogel Assistant Vice President
Wesley S. Williams Assistant Vice President
Matthew Witschel Assistant Vice President
Christopher J. Zingaro Assistant Vice President
Mark R. Manley Assistant Secretary
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940
and the Rules thereunder are maintained as follows: journals,
ledgers, securities records and other original records are
maintained principally at the offices of Alliance Fund Services,
Inc., 500 Plaza Drive, Secaucus, New Jersey 07094 and at the
offices of State Street Bank and Trust Company, the Registrant's
Custodian, 225 Franklin Street, Boston, Massachusetts 02110. All
other records so required to be maintained are maintained at the
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offices of Alliance Capital Management L.P., 1345 Avenue of the
Americas, New York, New York 10105.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
The Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
********************
NOTICE
A copy of the Agreement and Declaration of Trust of The
Alliance Portfolios (the "Trust") is on file with the Secretary
of State of The Commonwealth of Massachusetts and notice is
hereby given that this Registration Statement has been executed
on behalf of the Trust by an officer of the Trust as an officer
and by its Trustees as trustees and not individually and the
obligations of or arising out of this Registration Statement are
not binding upon any of the Trustees, officers or shareholders
individually but are binding only upon the assets and property of
the Trust.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly
caused this Post-Effective Amendment No. 35 to its Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and the State
of New York on the 30th day of June 1999.
THE ALLIANCE PORTFOLIOS
By: /s/WAYNE D. LYSKI
____________________
Title: Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date
indicated.
PRINCIPAL EXECUTIVE OFFICER:
John D. Carifa,
President and Chief Executive Officer
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
Mark D. Gersten,
Treasurer and Chief Financial Officer
TRUSTEES:
Ruth Block
John D. Carifa
William H. Foulk, Jr.
Donald J. Robinson
Brenton W. Harries
By: /s/ EDMUND P. BERGAN, JR.
___________________________
Edmund P. Bergan, Jr.
As Attorney-in-Fact
June 30, 1999
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EXHIBIT INDEX
23(m)(1) Amended and Restated Distribution and Servicing Plan for
Class A Shares adopted by the Trust on August 2, 1993.
23(m)(2) Amended and Restated Distribution and Servicing Plan for
Class B Shares adopted by the Trust on August 2, 1993.
23(m)(3) Distribution and Servicing Plan for Class C Shares
adopted by the Trust on August 2, 1993.
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00250184.BJ1
<PAGE>
Exhibit 23(m)(1)
"CLASS A"
DISTRIBUTION AND SERVICING PLAN
WHEREAS, THE EQUITABLE FUNDS, a Massachusetts business trust
(the "Trust"), adopted a plan dated September 4, 1990 concerning
the distribution of the Trust's Class A shares (the "Plan"); and
WHEREAS, the Trust's Board of Trustees believes that it is
appropriate to amend and restate the Plan in light of recent
changes to the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. (the "NASD Rules");
NOW THEREFORE, in consideration of the foregoing, the Plan is
hereby amended and restated as of August 2, 1993 as follows:
Section 1. The Trust will pay to the entity serving as
principal underwriter of the Trust's shares (the "Distributor") a
fee (the "Distribution Services Fee") for services rendered and
expenses borne by the Distributor in connection with the
distribution of the Class A shares of the Trust and another fee
(the "Service Fee") in connection with personal services rendered
to Class A shareholders of the Trust and/or maintenance of Class
A shareholder accounts. The Distribution Services Fee shall be
paid at an annual rate with respect to each portfolio of the
Trust represented by a separate series of shares (a "Fund") not
to exceed 0.50 of 1.00% of the average daily net assets
attributable to the Fund's Class A shares, and the Service Fee
shall be paid at an annual rate not to exceed 0.25 of 1.00% of
the Fund's average daily net assets attributable to Class A
shares; provided, however, that the Distribution Services Fee
shall at no time exceed the limits imposed by the NASD Rules or
other applicable regulations; and provided further, however, that
the Distribution Services Fee and the Service Fee shall not, in
the aggregate, exceed an annual rate of .50 of 1.00% of the
Fund's average daily net assets attributable to Class A shares.
Subject to such limits and subject to the provisions of Section 9
hereof, the Distribution Services Fee and Service Fee shall be as
approved from time to time by (a) the Trustees of the Trust and
(b) the Independent Trustees of the Trust and may be paid in
respect of services rendered and expenses borne in the past in
connection with the Fund's Class A shares as to which, due to
such limitations, no Distribution Services Fee or Service Fee was
paid. If at any time this Plan shall not be in effect with
respect to the Class A shares of all Funds of the Trust, the
Distribution Services Fee and Service Fee shall be computed on
the basis of the net assets of the Class A shares of those Funds
for which the Plan is in effect. The Distribution Services Fee
and Service Fee shall be accrued daily and paid monthly or at
such other intervals as the Trustees shall determine.
<PAGE>
Section 2. The Distribution Services Fee may be spent by the
Distributor on any activities or expenses primarily intended to
result in the sale of Class A shares of the Trust, including, but
not limited to, compensation of employees of the Distributor,
expenses (including overhead and telephone expenses) of employees
of the Distributor who engage in the distribution of Class A
shares, printing of prospectuses and reports for other than
existing Class A shareholders, advertising and preparation,
printing and distribution of sales literature.
The Service Fee may be used by the Distributor for personal
service and/or the maintenance of shareholder accounts within the
meaning of the NASD Rules.
Section 3. This Plan shall not take effect with respect to
the Class A shares of any Fund of the Trust until it has been
approved by a vote of at least a majority of the outstanding
voting securities representing the Class A shares of that Fund.
This Plan shall be deemed to have been effectively approved with
respect to the Class A shares of any Fund if a majority of the
outstanding voting securities representing the Class A shares of
that Fund votes for the approval of this Plan, notwithstanding
that this Plan has not been approved by a majority of the
outstanding voting securities representing the Class A shares of
any other Fund or that this Plan has not been approved by a
majority of the outstanding voting securities representing the
Class A shares of the Trust.
Section 4. This Plan shall not take effect until it has been
approved, together with any related agreements, by votes of the
majority (or whatever greater percentage may, from time to time,
be required by Section 12(b) of the Investment Company Act of
1940 (the "Act") or the rules and regulations thereunder) of both
(a) the Trustees of the Trust, and (b) the Independent Trustees
of the Trust cast in person at a meeting called for the purpose
of voting on this Plan or such agreement.
Section 5. This Plan shall continue in effect for a period
of more than one year after it takes effect only so long as such
continuance is specifically approved at least annually in the
manner provided for approval of this Plan in Section 4.
Section 6. Any person authorized to direct the disposition
of monies paid or payable by the Class A shares of the Trust
pursuant to this Plan or any related agreement shall provide to
the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and
the purposes for which such expenditures were made.
Section 7. This Plan may be terminated at any time with
respect to the Class A shares of any Fund by vote of a majority
2
<PAGE>
of the Independent Trustees, or by vote of a majority of the
outstanding voting securities representing the Class A shares of
that Fund.
Section 8. All agreements with any person relating to
implementation of this Plan with respect to the Class A shares of
any Fund shall be in writing, and any agreement related to this
Plan with respect to the Class A shares of any Fund shall
provide:
A. That such agreement may be terminated at any time,
without payment of any penalty, by vote of a majority of
the Independent Trustees or by vote of a majority of the
outstanding voting securities representing the Class A
shares of such Fund, on not more than 60 days' written
notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the
event of its assignment.
Section 9. This Plan may not be amended to increase
materially the amount of the aggregate fee permitted pursuant to
Section 1 hereof without approval in the manner provided in
Section 3 hereof, and all material amendments to this Plan shall
be approved in the manner provided for approval of this Plan in
Section 4.
Section 10. As used in this Plan, (a) the term "Independent
Trustees" shall mean those Trustees of the Trust who are not
interested persons of the Trust, and have no direct or indirect
financial interest in the operation of this Plan or any
agreements related to it, and (b) the terms "assignment",
"interested person" and "majority of the outstanding voting
securities" shall have the respective meanings specified in the
Act and the rules and regulations thereunder, subject to such
exemptions as may be granted by the Securities and Exchange
Commission.
3
00250184.BJ3
<PAGE>
Exhibit 23(m)(2)
"CLASS B"
DISTRIBUTION AND SERVICING PLAN
WHEREAS, THE EQUITABLE FUNDS, a Massachusetts business trust
(the "Trust"), adopted a plan dated November 1, 1988 concerning
the distribution of its existing shares (the "Plan"); and
WHEREAS, the Trust's Board of Trustees believes that it is
appropriate to amend and restate the Plan in light of recent
changes to the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. (the "NASD Rules");
NOW THEREFORE, in consideration of the foregoing, the Plan is
hereby amended and restated as of August 2, 1993 as follows:
Section 1. The Trust will pay to the entity serving as
principal underwriter of the Trust's shares (the "Distributor") a
fee (the "Distribution Fee") for services rendered and expenses
borne by the Distributor in connection with the distribution of
the Class B shares of the Trust and another fee (the "Servicing
Fee") in connection with personal services rendered to Class B
shareholders of the Trust and/or maintenance of Class B
shareholder accounts. The Distribution Fee shall be paid at an
annual rate with respect to each portfolio of the Trust
represented by a separate series of shares (a "Fund") not to
exceed 1.00% of the average daily net assets attributable to the
Fund's Class B shares, and the Servicing Fee shall be paid at an
annual rate not to exceed 0.25 of 1.00% of the Fund's average
daily net assets attributable to Class B shares; provided,
however, that the Distribution Fee shall at no time exceed the
limits imposed by the NASD Rules or other relevant regulations;
and provided further, however, that the Distribution Fee and the
Servicing Fee shall not, in the aggregate, exceed an annual rate
of 1% of the Fund's average daily net assets attributable to
Class B shares. Subject to such limits and subject to the
provisions of Section 9 hereof, the Distribution Fee and
Servicing Fee shall be as approved from time to time by (a) the
Trustees of the Trust and (b) the Independent Trustees of the
Trust and may be paid in respect of services rendered and
expenses borne in the past in connection with the Fund's Class B
shares as to which no Distribution Fee or Servicing Fee was paid
on account of such limitations. If at any time this Plan shall
not be in effect with respect to the Class B shares of all Funds
of the Trust, the Distribution Fee and Servicing Fee shall be
computed on the basis of the net assets of the Class B shares of
those Funds for which the Plan is in effect. The Distribution
Fee and Servicing Fee shall be accrued daily and paid monthly or
at such other intervals as the Trustees shall determine.
<PAGE>
Section 2. The Distribution Fee may be spent by the
Distributor on any activities or expenses primarily intended to
result in the sale of Class B shares of the Trust, including, but
not limited to, compensation of employees of the Distributor,
expenses (including overhead and telephone expenses) of employees
of the Distributor who engage in the distribution of Class B
shares, printing of prospectuses and reports for other than
existing Class B shareholders, advertising and preparation,
printing and distribution of sales literature.
The Servicing Fee may be spent by the Distributor on personal
services rendered to Class B shareholders of the Trust and/or
maintenance of Class B shareholder accounts (but may not be spent
on recordkeeping charges, accounting expenses, transfer costs, or
custodian fees) within the meaning of the NASD Rules. Consistent
with the foregoing, the Distributor's expenditures in respect of
the Servicing Fee may include, but shall not be limited to,
compensation to, and expenses (including telephone and overhead
expenses) of, financial consultants or other employees of the
Distributor or of participating or introducing brokers who render
ongoing advice concerning the suitability of particular
investment opportunities offered by the Trust in light of the
shareholder's needs, who respond to inquiries from Class B
shareholders relating to their investment in Class B shares, or
who train personnel in the provision of such services.
Section 3. This Plan shall not take effect with respect to
the Class B shares of any Fund of the Trust until it has been
approved by a vote of at least a majority of the outstanding
voting securities representing the Class B shares of that Fund.
This Plan shall be deemed to have been effectively approved with
respect to the Class B shares of any Fund if a majority of the
outstanding voting securities representing the Class B shares of
that Fund votes for the approval of this Plan, notwithstanding
that this Plan has not been approved by a majority of the
outstanding voting securities representing the Class B shares of
any other Fund or that this Plan has not been approved by a
majority of the outstanding voting securities representing the
Class B shares of the Trust.
Section 4. This Plan shall not take effect until it has been
approved, together with any related agreements, by votes of the
majority (or whatever greater percentage may, from time to time,
be required by Section 12(b) of the Investment Company Act of
1940 (the "Act") or the rules and regulations thereunder) of both
(a) the Trustees of the Trust, and (b) the Independent Trustees
of the Trust cast in person at a meeting called for the purpose
of voting on this Plan or such agreement.
Section 5. This Plan shall continue in effect for a period
of more than one year after it takes effect only so long as such
2
<PAGE>
continuance is specifically approved at least annually in the
manner provided for approval of this Plan in Section 4.
Section 6. Any person authorized to direct the disposition
of monies paid or payable by the Class B shares of the Trust
pursuant to this Plan or any related agreement shall provide to
the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and
the purposes for which such expenditures were made.
Section 7. This Plan may be terminated at any time with
respect to the Class B shares of any Fund by vote of a majority
of the Independent Trustees, or by vote of a majority of the
outstanding voting securities representing the Class B shares of
that Fund.
Section 8. All agreements with any person relating to
implementation of this Plan with respect to the Class B shares of
any Fund shall be in writing, and any agreement related to this
Plan with respect to the Class B shares of any Fund shall
provide:
A. That such agreement may be terminated at any time,
without payment of any penalty, by vote of a majority of
the Independent Trustees or by vote of a majority of the
outstanding voting securities representing the Class B
shares of such Fund, on not more than 60 days' written
notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the
event of its assignment.
Section 9. This Plan may not be amended to increase
materially the amount of the aggregate fee permitted pursuant to
Section 1 hereof without approval in the manner provided in
Section 3 hereof, and all material amendments to this Plan shall
be approved in the manner provided for approval of this Plan in
Section 4.
Section 10. As used in this Plan, (a) the term "Independent
Trustees" shall mean those Trustees of the Trust who are not
interested persons of the Trust, and have no direct or indirect
financial interest in the operation of this Plan or any
agreements related to it, and (b) the terms "assignment",
"interested person" and "majority of the outstanding voting
securities" shall have the respective meanings specified in the
Act and the rules and regulations thereunder, subject to such
exemptions as may be granted by the Securities and Exchange
Commission.
3
00250184.BJ4
<PAGE>
Exhibit 23(m)(3)
"CLASS C"
DISTRIBUTION AND SERVICING PLAN
This Distribution and Servicing Plan (the "Plan") dated as of
August 2, 1993 constitutes the Distribution and Servicing Plan of
THE EQUITABLE FUNDS, a Massachusetts business trust (the
"Trust"), with respect to its Class C shares.
Section 1. The Trust will pay to the entity serving as
principal underwriter of the Trust's shares (the "Distributor") a
fee (the "Distribution Services Fee") for services rendered and
expenses borne by the Distributor in connection with the
distribution of the Class C shares of the Trust and another fee
(the "Service Fee") in connection with personal services rendered
to Class C shareholders of the Trust and/or maintenance of Class
C shareholder accounts. The Distribution Services Fee shall be
paid at an annual rate with respect to each portfolio of the
Trust represented by a separate series of shares (a "Fund") not
to exceed 1.00% of the average daily net assets attributable to
the Fund's Class C shares, and the Service Fee shall be paid at
an annual rate not to exceed 0.25 of 1.00% of the Fund's average
daily net assets attributable to Class C shares; provided,
however, that the Distribution Services Fee shall at no time
exceed the limits imposed by the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. ("NASD Rules")
or other applicable regulations; and provided further, however,
that the Distribution Services Fee and the Service Fee shall not,
in the aggregate, exceed an annual rate of 1.00% of the Fund's
average daily net assets attributable to Class C shares. Subject
to such limits and subject to the provisions of Section 9 hereof,
the Distribution Services Fee and Service Fee shall be as
approved from time to time by (a) the Trustees of the Trust and
(b) the Independent Trustees of the Trust and may be paid in
respect of services rendered and expenses borne in the past in
connection with the Fund's Class C shares as to which, due to
such limitations, no Distribution Services Fee or Service Fee was
paid. If at any time this Plan shall not be in effect with
respect to the Class C shares of all Funds of the Trust, the
Distribution Services Fee and Service Fee shall be computed on
the basis of the net assets of the Class C shares of those Funds
for which the Plan is in effect. The Distribution Services Fee
and Service Fee shall be accrued daily and paid monthly or at
such other intervals as the Trustees shall determine.
Section 2. The Distribution Services Fee may be spent by the
Distributor on any activities or expenses primarily intended to
result in the sale of Class C shares of the Trust, including, but
not limited to, compensation of employees of the Distributor,
<PAGE>
expenses (including overhead and telephone expenses) of employees
of the Distributor who engage in the distribution of Class C
shares, printing of prospectuses and reports for other than
existing Class C shareholders, advertising and preparation,
printing and distribution of sales literature.
The Service Fee may be used by the Distributor for personal
service and/or the maintenance of shareholder accounts within the
meaning of the NASD Rules.
The Trust's investment adviser may make payments from time to
time from its own resources for the purposes described in this
Section 2.
Section 3. This Plan shall not take effect with respect to
the Class C shares of any Fund of the Trust until it has been
approved by a vote of at least a majority of the outstanding
voting securities representing the Class C shares of that Fund.
This Plan shall be deemed to have been effectively approved with
respect to the Class C shares of any Fund if a majority of the
outstanding voting securities representing the Class C shares of
that Fund votes for the approval of this Plan, notwithstanding
that this Plan has not been approved by a majority of the
outstanding voting securities representing the Class C shares of
any other Fund or that this Plan has not been approved by a
majority of the outstanding voting securities representing the
Class C shares of the Trust.
Section 4. This Plan shall not take effect until it has been
approved, together with any related agreements, by votes of the
majority (or whatever greater percentage may, from time to time,
be required by Section 12(b) of the Investment Company Act of
1940 (the "Act") or the rules and regulations thereunder) of both
(a) the Trustees of the Trust, and (b) the Independent Trustees
of the Trust cast in person at a meeting called for the purpose
of voting on this Plan or such agreement.
Section 5. This Plan shall continue in effect for a period
of more than one year after it takes effect only so long as such
continuance is specifically approved at least annually in the
manner provided for approval of this Plan in Section 4.
Section 6. Any person authorized to direct the disposition
of monies paid or payable by the Class C shares of the Trust
pursuant to this Plan or any related agreement shall provide to
the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and
the purposes for which such expenditures were made.
Section 7. This Plan may be terminated at any time with
respect to the Class C shares of any Fund by vote of a majority
2
<PAGE>
of the Independent Trustees, or by vote of a majority of the
outstanding voting securities representing the Class C shares of
that Fund.
Section 8. All agreements with any person relating to
implementation of this Plan with respect to the Class C shares of
any Fund shall be in writing, and any agreement related to this
Plan with respect to the Class C shares of any Fund shall
provide:
C0 That such agreement may be terminated at any time,
without payment of any penalty, by vote of a majority of
the Independent Trustees or by vote of a majority of the
outstanding voting securities representing the Class C
shares of such Fund, on not more than 60 days' written
notice to any other party to the agreement; and
D0 That such agreement shall terminate automatically in the
event of its assignment.
Section 9. This Plan may not be amended to increase
materially the amount of the aggregate fee permitted pursuant to
Section 1 hereof without approval in the manner provided in
Section 3 hereof, and all material amendments to this Plan shall
be approved in the manner provided for approval of this Plan in
Section 4.
Section 10. As used in this Plan, (a) the term "Independent
Trustees" shall mean those Trustees of the Trust who are not
interested persons of the Trust, and have no direct or indirect
financial interest in the operation of this Plan or any
agreements related to it, and (b) the terms "assignment",
"interested person" and "majority of the outstanding voting
securities" shall have the respective meanings specified in the
Act and the rules and regulations thereunder, subject to such
exemptions as may be granted by the Securities and Exchange
Commission.
3
00250184.BJ5
