Alliance Asset Allocation Funds
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.
Prospectus
September 1, 2000
o Alliance Conservative Investors Fund
o 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.
AllianceCapital [LOGO](R)
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Investment Products Offered
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o Are Not FDIC Insured
o May Lose Value
o Are Not Bank Guaranteed
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TABLE OF CONTENTS
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Page
RISK/RETURN SUMMARY ..................................................... 3
Alliance Conservative Investors Fund .................................... 4
Alliance Growth Investors Fund .......................................... 5
Summary of Principal Risks .............................................. 6
FEES AND EXPENSES OF THE FUNDS .......................................... 8
GLOSSARY ................................................................ 9
DESCRIPTION OF THE FUNDS ................................................ 10
Investment Objectives and Principal Policies ............................ 10
Description of Additional Investment Practices .......................... 11
Additional Risk Considerations .......................................... 16
MANAGEMENT OF THE FUNDS ................................................. 18
PURCHASE AND SALE OF SHARES ............................................. 18
How The Funds Value Their Shares ........................................ 18
How To Buy Shares ....................................................... 18
How To Exchange Shares .................................................. 18
How To Sell Shares ...................................................... 19
DIVIDENDS, DISTRIBUTIONS AND TAXES ...................................... 19
DISTRIBUTION ARRANGEMENTS ............................................... 20
GENERAL INFORMATION ..................................................... 21
FINANCIAL HIGHLIGHTS .................................................... 21
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 objectives, principal investment
strategies, principal risks and fees. Each Fund's Summary page includes a short
discussion of some of the principal risks of investing in that Fund. A further
discussion of these and other risks begins on page 6.
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:
o 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
o 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. As with all investments, 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
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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. Alliance's
allocation decisions are based on a variety of factors, including general market
conditions, liquidity, portfolio size and tax consequences, within the context
of Alliance's assessment of each asset class viewed over the shorter term. The
asset mix for the Fund attempts to reduce volatility while providing modest
upside potential. All fixed-income securities held by the Fund will be of
investment grade at the time of purchase and at least 40% of the Fund's total
assets will be invested in fixed-income securities each of which has a duration
less than that of a 10-year Treasury bond. 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. 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, such as
options, futures, forwards and swaps.
Among the principal risks of investing in the Fund are market risk, interest
rate risk, derivatives risk, liquidity risk and management risk. The Fund is
subject to credit risk through its investments in debt securities and over-the-
counter transactions 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.
PERFORMANCE TABLE
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Past Past Since
One Year Five Years Inception
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Class A 0.18% 10.16% 8.07%
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Class B 0.02% 10.36% 7.91%
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Class C 2.89% 10.33% 7.91%
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Lehman Brothers
Aggregate Bond
Index -0.82% 7.73% 6.92%
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70% Lehman Brothers
Aggregate Bond
Index/30% S&P
500 Index 5.73% 13.98% 11.02%
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Index returns and average annual total returns are for the periods ended
December 31, 1999. Average annual total returns reflect the imposition of the
maximum front-end or contingent deferred sales charges as well as conversion of
Class B shares to Class A shares after the applicable period. Inception date of
Class A and Class B shares is 5/4/92. Since inception index returns are from
month end prior to Class A and Class B inception date. 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 7.24%. The return for the Lehman Brothers Aggregate Bond
Index for the comparable period (which dates from month end prior to the Class C
inception date) was 5.83%.
BAR CHART
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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.
[The following table was depicted as a bar chart in the printed material.]
Calendar Year End (%)
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90 n/a
91 n/a
92 n/a
93 9.70
94 -5.06
95 18.85
96 6.95
97 11.69
98 14.07
99 4.61
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 period
from January 1, 2000, through June 30, 2000, the Fund's return was 2.05%, and
during the periods shown in the bar chart, the Fund's:
Best quarter was up 6.86%, 4th quarter, 1998; and Worst quarter was down -3.31%,
1st quarter, 1994.
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Alliance Growth Investors Fund
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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. Alliance's allocation decisions
are based on a variety of factors, including general market conditions,
liquidity, portfolio size and tax consequences, within the context of Alliance's
assessment of each asset class viewed over the longer term. The asset mix for
the Fund is intended to provide for upside potential without excessive
volatility. 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, such as options,
futures, forwards and swaps.
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 intermediate and smaller capitalizations.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
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Past Past Since
One Year Five Years Inception
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Class A 9.96% 17.05% 13.56%
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Class B 10.18% 17.26% 13.38%
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Class C 13.14% 17.24% 13.38%
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S&P 500 21.03% 28.54% 20.57%
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70% S&P 500/
30% Lehman
Brothers
Aggregate
Bond Index 14.48% 22.30% 16.48%
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Index returns and average annual total returns are for the periods ended
December 31, 1999. Average annual total returns reflect the imposition of the
maximum front-end or contingent deferred sales charges as well as conversion of
Class B shares to Class A shares after the applicable period. Inception date of
Class A and Class B shares is 5/4/92. Since inception index returns are from
month end prior to Class A and Class B inception date. 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 12.94%. The return for the S&P 500 for the comparable
period (which dates from month end prior to the Class C inception date) was
22.86%.
BAR CHART
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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.
[The following table was depicted as a bar chart in the printed material.]
Calendar Year End (%)
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90 n/a
91 n/a
92 n/a
93 11.44
94 -3.63
95 26.50
96 11.10
97 13.80
98 24.87
99 14.86
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 period
from January 1, 2000, through June 30, 2000 the Fund's return was 0.68%, and
during the periods shown in the bar chart, the Fund's:
Best quarter was up 18.92%, 4th quarter, 1998; and Worst quarter was down
-8.69%, 3rd quarter, 1998.
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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. In this Summary, we describe
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. This Prospectus has additional
descriptions of the types of investments that appear in bold type in the
discussions under "Description of Additional Investment Practices" or
"Additional Risk Considerations." These sections also include more information
about the Funds, their investments, and related risks.
o Market Risk. This is the risk that the value of a Fund's investments will
fluctuate as the stock or bond markets fluctuate and that prices overall
will decline over short- or long-term periods. Each of the Funds is
subject to market risk.
o Interest Rate Risk. This is the risk that changes in interest rates will
affect the value of a Fund's investments in income-producing, fixed-income
(i.e. debt) securities. Increases in interest rates may cause the value of
a Fund's investments to decline and this decrease in value may not be
offset by the higher interest rate income. Because they invest in debt
securities such as bonds, notes and asset-backed securities, each of the
Funds is subject to interest rate risk.
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
(commonly known as "junk bonds").
Interest rate risk is generally greater for Funds that invest to a
material extent in debt securities with longer maturities or in
mortgage-related or other asset-backed securities that may be prepaid.
These securities bear greater interest rate risk because they have
variable maturities that tend to lengthen when least desirable--when
interest rates are rising.
o Credit Risk. This is the risk that the issuer or the guarantor of a debt
security or the other party to an over-the-counter transaction will be
unable or unwilling to make timely payments of interest or principal, or
otherwise to honor its obligations. The degree of risk for a particular
security may be reflected in its credit rating. Credit risk is applicable
to the Funds because they invest in fixed-income securities, and it is
particularly significant for the Alliance Growth Investors Fund because it
invests significantly in lower-rated securities. 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.
o Currency Risk. This is the risk that fluctuations in the exchange rates
between the U.S. Dollar and foreign currencies may negatively affect the
value of a Fund's investments. Each of the Funds will be subject to this
risk because they may invest in foreign securities.
o Foreign Risk. This is the risk of investments in issuers located in
foreign countries. Funds investing in foreign securities 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 countries differ, in some cases significantly, from U.S.
standards. Also, nationalization, expropriation or confiscatory taxation,
currency blockage, or 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.
o 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.
o 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.
o 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.
o Capitalization Risk. This is the risk of investments in small- to
mid-capitalization companies. Investments in mid-cap companies may be more
volatile than investments in large-
6
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cap companies. Alliance Growth Investors Fund is particularly subject to
this risk. Investments in small-cap companies tend to be more volatile
than investments in large-cap or mid-cap companies. A Fund's investments
in smaller capitalization stocks may have additional risks because these
companies often have limited product lines, markets, or financial
resources.
o Management Risk. Each Fund is subject to management risk because it is an
actively managed investment portfolio. Alliance will apply its investment
techniques and risk analyses in making investment decisions for the Funds,
but there is no guarantee that its decisions will produce the desired
results.
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FEES AND EXPENSES OF THE FUNDS
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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)
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
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%** 1.0%***
Exchange Fee None None None
</TABLE>
* A CDSC of up to 1% may be charged on redemptions of Class A shares
purchased without an inital sales charge.
** Class B shares automatically convert to Class A shares after 8 years. The
CDSC decreases over time. For Class B shares, the CDSC decreases 1.00%
annually to 0% after the 4th year.
*** For Class C shares, the CDSC is 0% after 1 year.
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 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. They also assume that your investment has a 5% return each year,
that the Fund's operating expenses stay the same, and that all dividends and
distributions are reinvested. Your actual costs may be higher or lower.
Operating Expenses
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Alliance Conservative
Investors Fund Class A Class B Class C
------- ------- -------
Management Fees .75% .75% .75%
Distribution and
Shareholder Service
(12b-1) Fees .30% 1.00% 1.00%
Other Expenses .62% .65% .64%
---- ---- ----
Total Fund Operating Expenses 1.67% 2.40% 2.39%
==== ==== ====
Waiver and/or Expense
Reimbursement(a) (.26)% (.29)% (.28)%
---- ---- ----
Net Expenses 1.41% 2.11% 2.11%
==== ==== ====
Alliance Growth
Investors Fund Class A Class B Class C
------- ------- -------
Management Fees .75% .75% .75%
Distribution and
Shareholder Service
(12b-1) Fees .30% 1.00% 1.00%
Other Expenses .41% .43% .42%
---- ---- ----
Total Fund Operating Expenses 1.46% 2.18% 2.17%
==== ==== ====
Examples
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Class A Class B* Class B** Class C* Class C**
------- -------- --------- -------- ---------
After 1 Year $ 562 $ 614 $ 214 $ 314 $ 214
After 3 Years $ 905 $ 921 $ 721 $ 719 $ 719
After 5 Years $1,270 $1,254 $1,254 $1,250 $1,250
After 10 Years $2,296 $2,533 $2,533 $2,705 $2,705
Class A Class B* Class B** Class C* Class C**
------- -------- --------- -------- ---------
After 1 Year $ 567 $ 621 $ 221 $ 320 $ 220
After 3 Years $ 867 $ 882 $ 682 $ 679 $ 679
After 5 Years $1,189 $1,169 $1,169 $1,164 $1,164
After 10 Years $2,097 $2,331 $2,331 $2,503 $2,503
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* Assumes redemption at the end of each period.
** Assumes no redemption at the end of each period.
(a) Reflects Alliance's contractual waiver of a portion of its advisory fee
and/or reimbursement of a portion of the Fund's operating expenses. This
waiver extends through the Fund's current fiscal year and may be extended
by Alliance for additional one-year terms.
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GLOSSARY
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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 stock.
Debt securities are bonds, debentures, notes, bills, loans, other direct debt
instruments, and other fixed, floating and variable rate debt obligations, but
do not include convertible securities.
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 dividend-paying 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 governmental 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:
o ARMS, which are adjustable-rate mortgage securities;
o SMRS, which are stripped mortgage-related securities;
o CMOs, which are collateralized mortgage obligations;
o GNMA certificates, which are securities issued by the Government National
Mortgage Association or GNMA;
o FNMA certificates, which are securities issued by the Federal National
Mortgage Association or FNMA; and
o FHLMC certificates, which are securities issued by the Federal Home Loan
Mortgage Corporation or FHLMC.
Rule 144A securities are securities that may be resold under 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 BBB and above by S&P, Duff & Phelps or Fitch, or determined by
Alliance to be of equivalent quality.
Lower-rated securities are fixed-income securities rated Ba or below by Moody's
or BB or below by S&P, Duff & Phelps or Fitch, or determined by Alliance to be
of equivalent quality, and are commonly referred to as "junk bonds".
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.
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.
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
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This section of the Prospectus provides a more complete description of each
Fund's investment objectives, principal strategies and risks. Of course, there
can be no assurance that any Fund will achieve its investment objective.
Please note that:
o Additional discussion of the Funds' investments, including the risks of
the investments, can be found in the discussion under Description of
Additional Investment Practices following this section.
o 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.
o Additional descriptions of each Fund's strategies, investments, and risks
can be found in the Statement of Additional Information or SAI.
o 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 thus can be changed by the Trustees without a shareholder
vote.
INVESTMENT OBJECTIVES AND PRINCIPAL 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 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
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 in which the Conservative Investors Fund invests 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.
10
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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"). In some cases,
Alliance's calculation of duration will be based on certain assumptions
(including assumptions regarding prepayment rates, for mortgage-backed or
asset-backed securities, and foreign and domestic interest rates).
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:
o invest without limit in foreign securities, although it generally will not
invest more than 15% of its total assets in such securities;
o invest in non-publicly traded securities;
o invest in mortgage-backed securities, including collateralized mortgage
obligations, or CMOs and in asset-backed securities;
o invest in adjustable rate securities;
o invest in convertible securities and zero-coupon and payment-in-kind
bonds;
o buy and sell stock index futures and related options;
o make secured loans of portfolio securities; and
o 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 common stocks and securities and convertible into common stocks, such
as convertible bonds, convertible preferred stocks and warrants (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 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:
o invest without limit in foreign securities, although it generally will not
invest more than 15% of its total assets in such securities;
o invest in non-publicly traded securities;
o invest in mortgage-backed securities, including collateralized mortgage
obligations, or CMOs and in asset-backed securities;
o invest in adjustable rate securities;
o invest in convertible securities and zero-coupon and payment-in-kind
bonds;
o buy and sell stock index futures and related options;
o make secured loans of portfolio securities;
o enter into repurchase agreements and forward commitments; and
o invest in high yield securities.
DESCRIPTION OF ADDITIONAL INVESTMENT PRACTICES
Non-Publicly Traded Securities
Each Fund may invest in securities that are not publicly traded, including
securities sold pursuant to Rule 144A under the
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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 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 and Related Risks
Interest and principal payments (including prepayments) on the mortgages
underlying mortgage-backed securities are passed through to the holders of the
securities. As a result of the pass-through of prepayments of principal on the
underlying securities, mortgage-backed securities are often subject to more
rapid prepayment of principal than their stated maturity would indicate.
Prepayments occur when the mortgagor on a mortgage prepays the remaining
principal before the mortgage's scheduled maturity date. Because the prepayment
characteristics of the underlying mortgages vary, it is impossible to predict
accurately the realized yield or average life of a particular issue of
pass-through certificates. Prepayments are important because of their effect on
the yield and price of the mortgage-backed securities. During periods of
declining interest rates, prepayments can be expected to accelerate and a Fund
that invests in these securities would be required to reinvest the proceeds at
the lower interest rates then available. Conversely, during periods of rising
interest rates, a reduction in prepayments may increase the effective maturity
of the securities, subjecting them to a greater risk of decline in market value
in response to rising interest rates. In addition, prepayments of mortgages
underlying securities purchased at a premium could result in capital losses.
Mortgage-Backed Securities include mortgage pass-through certificates and
multiple-class pass-through securities, such as REMIC pass-through certificates,
CMOs and stripped mortgage-backed securities ("SMBS"), and other types of
Mortgage-Backed Securities that may be available in the future.
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 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
Asset-backed securities (unrelated to first mortgage loans) represent fractional
interests in pools of leases, retail installment loans, revolving credit
receivables, and other payment obligations, both secured and unsecured. These
assets are generally held by a trust and payments of principal and interest or
interest only are passed through monthly or quarterly to certificate holders and
may be guaranteed up to certain amounts by letters of credit issued by a
financial institution affiliated or unaffiliated with the trustee or originator
of the trust.
Like mortgages underlying mortgage-backed securities, underlying automobile
sales contracts or credit card receivables are subject to prepayment, which may
reduce the overall return to certificate holders. Certificate holders may also
experience delays in payment on the certificates if the full amounts due on
underlying sales contracts or receivables are not realized by the trust because
of unanticipated legal or administrative costs of enforcing the contracts or
because of depreciation or damage to the collateral (usually automobiles)
securing certain contracts, or other factors.
Currency Swaps
Currency swaps involve the individually negotiated exchange by a Fund with
another party of a series of payments in specified currencies. A currency swap
may involve the delivery at the end of the exchange period of a substantial
amount of one designated currency in exchange for the other designated currency.
Therefore, the entire principal value of a currency swap is subject to the risk
that the other party to the swap will default on its contractual delivery
obligations. A Fund will not enter into any currency swap unless the credit
quality of the unsecured senior debt or the claims-paying ability of the
counterparty is rated in the highest rating category of at least one nationally
recognized rating organization at the time of entering into the transaction. If
there is a default by the counterparty to the transaction, the Fund will have
contractual remedies under the transaction agreements.
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
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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.
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 Adviser to be of comparable quality share some of the
speculative characteristics of the High-Yield Securities described above.
Convertible Securities
Prior to conversion, convertible securities have the same general
characteristics as non-convertible debt securities, which generally provide a
stable stream of income with yields that are generally higher than those of
equity securities of the same or similar issuers. The price of a convertible
security will normally vary with changes in the price of the underlying equity
security, although the higher yield tends to make the convertible security less
volatile than the underlying equity security. As with debt securities, the
market value of convertible securities tends to decrease as interest rates rise
and increase as interest rates decline. While convertible securities generally
offer lower interest or dividend yields than non-convertible debt securities of
similar quality, they offer investors the potential to benefit from increases in
the market price of the underlying common stock. Convertible debt securities
that are rated Baa or lower by Moody's or BBB or lower by S&P, Duff & Phelps or
Fitch and comparable unrated securities as determined by Alliance may share some
or all of the risks of non-convertible debt securities with those ratings.
Equity-Linked Debt Securities
Equity-linked debt securities are securities on which the issuer is obligated to
pay interest and/or principal that is linked to the performance of a specified
index of equity securities. The interest or principal payments may be
significantly greater or less than payment obligations for 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. 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.
Zero-Coupon and Payment-in-Kind Bonds
Zero-coupon bonds are issued at a significant discount from their principal
amount in lieu of paying interest periodically. Payment-in-kind bonds allow the
issuer to make current interest payments on the bonds in additional bonds.
Because zero-coupon bonds and payment-in-kind bonds do not pay current interest
in cash, their value is generally subject to greater fluctuation in response to
changes in market interest rates than bonds that pay interest in cash currently.
Both zero-coupon and payment-in-kind bonds allow an issuer to avoid the need to
generate cash to meet current interest payments. These bonds may involve greater
credit risks than bonds paying interest currently. Although these bonds do not
pay current interest in cash, a Fund is nonetheless required to accrue interest
income on such investments and to distribute such amounts at least annually to
shareholders. Thus, a Fund could be required at times to liquidate other
investments in order to satisfy its dividend requirements.
Options on Securities
An option gives the purchaser of the option, upon payment of a premium, the
right to deliver to (in the case of a put) or receive
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from (in the case of a call) the writer a specified amount of a security on or
before a fixed date at a predetermined price. A call option written by a Fund is
"covered" if the Fund owns the underlying security, has an absolute and
immediate right to acquire that security upon conversion or exchange of another
security it holds, or holds a call option on the underlying security with an
exercise price equal to or less than that of the call option it has written. A
put option written by a Fund is covered if the Fund holds a put option on the
underlying securities with an exercise price equal to or greater than that of
the put option it has written.
A call option is for cross-hedging purposes if a Fund does not own the
underlying security, and is designed to provide a hedge against a decline in
value in another security which the Fund owns or has the right to acquire. A
Fund would write a call option for cross-hedging purposes, instead of writing a
covered call option, when the premium to be received from the cross-hedge
transaction would exceed that which would be received from writing a covered
call option, while at the same time achieving the desired hedge.
In purchasing an option, a Fund would be in a position to realize a gain if,
during the option period, the price of the underlying security increased (in the
case of a call) or decreased (in the case of a put) by an amount in excess of
the premium paid; otherwise the Fund would experience a loss equal to the
premium paid for the option.
If an option written by a Fund were exercised, the Fund would be obligated to
purchase (in the case of a put) or sell (in the case of a call) the underlying
security at the exercise price. The risk involved in writing an option is that,
if the option were exercised, the underlying security would then be purchased or
sold by the Fund at a disadvantageous price. Entering into a closing transaction
(i.e., by disposing of the option prior to its exercise) could reduce these
risks. A Fund retains the premium received from writing a put or call option
whether or not the option is exercised. The writing of covered call options
could result in increases in a Fund's portfolio turnover rate, especially during
periods when market prices of the underlying securities appreciate. Options
purchased or written by a Fund in negotiated transactions are illiquid and it
may not be possible for the Fund to effect a closing transaction at an
advantageous time.
Options on Securities Indices
An option on a securities index is similar to an option on a security except
that, rather than the right to take or make delivery of a security at a
specified price, an option on a securities index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the chosen index is greater than (in the case of a call) or less than (in the
case of a put) the exercise price of the option.
Futures Contracts and Options on Futures Contracts
A "sale" of a futures contract means the acquisition of a contractual obligation
to deliver the securities or foreign currencies or other commodity called for by
the contract at a specified price on a specified date. A "purchase" of a futures
contract means the incurring of an obligation to acquire the securities, foreign
currencies or other commodity called for by the contract at a specified price on
a specified date. The purchaser of a futures contract on an index agrees to take
or make delivery of an amount of cash equal to the difference between a
specified dollar multiple of the value of the index on the expiration date of
the contract ("current contract value") and the price at which the contract was
originally struck. No physical delivery of the securities underlying the index
is made.
A Fund may purchase options on futures contracts written or purchased by a Fund
that are traded on U.S. or foreign exchanges or over-the-counter. These
investment techniques will be used only to hedge against anticipated future
changes in market conditions and interest or exchange rates which otherwise
might either adversely affect the value of the Fund's portfolio securities or
adversely affect the prices of securities which the Fund intends to purchase at
a later date.
Loans of Portfolio Securities
Each Fund may lend portfolio securities amounting to not more than 25% of its
total assets. The risk in lending portfolio securities, as with other extensions
of credit, consists of the possible loss of rights in the collateral should the
borrower fail financially. In determining whether to lend securities to a
particular borrower, Alliance will consider all relevant facts and
circumstances, including the creditworthiness of the borrower. While securities
are on loan, the borrower will pay the Fund any income from the securities. The
Fund may invest any cash collateral in portfolio securities and earn additional
income or receive an agreed-upon amount of income from a borrower who has
delivered equivalent collateral. Each Fund will have the right to regain record
ownership of loaned securities or equivalent securities in order to exercise
ownership rights such as voting rights, subscription rights and rights to
dividends, interest, or distributions. A Fund may pay reasonable finders',
administrative, and custodial fees in connection with a loan.
Repurchase Agreements
A repurchase agreement arises when a buyer purchases a security and
simultaneously agrees to resell it to the vendor at an agreed-upon future date,
normally a day or a few days later. The resale price is greater than the
purchase price, reflecting an agreed-upon interest rate for the period the
buyer's money is invested in the security. Such agreements permit a Fund to keep
all of its assets at work while retaining "overnight" flexibility in pursuit of
investments of a longer-term nature. If a vendor defaults on its repurchase
obligation, a Fund would suffer a loss to the extent that the proceeds from the
sale of the collateral were less than the repurchase price. If a vendor goes
bankrupt, a Fund might be delayed in, or prevented from, selling the collateral
for its benefit. Alliance monitors the creditworthiness of the vendors with
which the Fund enters into repurchase agreements.
Forward Commitments
Forward commitments for the purchase or sale of securities may include purchases
on a "when-issued" basis or purchases or sales on a "delayed delivery" basis. In
some cases, a forward commitment may be conditioned upon the occurrence
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of a subsequent event, such as approval and consummation of a merger, corporate
reorganization or debt restructuring (i.e., a "when, as and if issued" trade).
When forward commitment transactions are negotiated, the price is fixed at the
time the commitment is made, but delivery and payment for the securities take
place at a later date. Normally, the settlement date occurs within two months
after the transaction, but a Fund may negotiate settlements beyond two months.
Securities purchased or sold under a forward commitment are subject to market
fluctuations and no interest or dividends accrue to the purchaser prior to the
settlement date.
The use of forward commitments enables a Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling prices.
In periods of falling interest rates and rising bond prices, a Fund might sell a
security in its portfolio and purchase the same or a similar security on a
when-issued or forward commitment basis to obtain the benefit of currently
higher cash yields. If, however, Alliance were to forecast incorrectly the
direction of interest rate movements, a Fund might be required to complete such
when-issued or forward transactions at prices inferior to the then current
market values. When-issued securities and forward commitments may be sold prior
to the settlement date, but a Fund enters into when-issued and forward
commitments only with the intention of actually receiving securities or
delivering them, as the case may be. If a Fund chooses to dispose of the right
to acquire a when-issued security prior to its acquisition or dispose of its
right to deliver or receive against a forward commitment, it may incur a gain or
loss. Any significant commitment of Fund assets to the purchase of securities on
a "when, as and if issued" basis may increase the volatility of the Fund's net
asset value.
Future Developments
A Fund may, following written notice to its shareholders, take advantage of
other investment practices that are not currently contemplated for use by the
Fund, or are not available but may yet be developed, to the extent such
investment practices are consistent with the Fund's investment objective and
legally permissible for the Fund. Such investment practices, if they arise, may
involve risks that exceed those involved in the activities described above.
General
The successful use of the investment practices described above draws upon
Alliance's special skills and experience and usually depends on Alliance's
ability to forecast price movements, interest rates, or currency exchange rate
movements correctly. Should interest rates, prices or exchange rates move
unexpectedly, a Fund may not achieve the anticipated benefits of the
transactions or may realize losses and thus be in a worse position than if such
strategies had not been used. Unlike many exchange-traded futures contracts and
options on futures contracts, there are no daily price fluctuation limits for
certain options and forward contracts, and adverse market movements could
therefore continue to an unlimited extent over a period of time. In addition,
the correlation between movements in the prices of futures contracts, options
and forward contracts and movements in the prices of the securities and
currencies hedged or used for cover will not be perfect and could produce
unanticipated losses.
A Fund's ability to dispose of its position in futures contracts, options, and
forward contracts depends on the availability of liquid markets in such
instruments. Markets in options and futures with respect to a number of types of
securities and currencies are relatively new and still developing, and there is
no public market for forward contracts. It is impossible to predict the amount
of trading interest that may exist in various types of futures contracts,
options, and forward contracts. If a secondary market does not exist for an
option purchased or written by a Fund, it might not be possible to effect a
closing transaction in the option (i.e., dispose of the option), with the result
that (i) an option purchased by the Fund would have to be exercised in order for
the Fund to realize any profit and (ii) the Fund may not be able to sell
currencies or portfolio securities covering an option written by the Fund until
the option expires or it delivers the underlying security, futures contract or
currency upon exercise. Therefore, no assurance can be given that the Funds will
be able to utilize these instruments effectively. In addition, a Fund's ability
to engage in options and futures transactions may be limited by tax
considerations and the use of certain hedging techniques may adversely impact
the characterization of income to a Fund for U.S. federal income tax purposes.
Portfolio Turnover
The portfolio turnover rate for each Fund is included in the Financial
Highlights section. The Funds are actively managed and, in some cases in
response to market conditions, a Fund's portfolio turnover may exceed 100%. A
higher rate of portfolio turnover increases brokerage and other expenses, which
must be borne by the Fund and its shareholders. High portfolio turnover also may
result in the realization of substantial net short-term capital gains, which,
when distributed, are taxable to shareholders.
Temporary Defensive Position
For temporary defensive purposes, each Fund may reduce its position in equity
securities and invest in, without limit, certain types of short-term, liquid,
high grade or high quality (depending on the Fund) debt securities. These
securities may include U.S. Government securities, qualifying bank deposits,
money market instruments, prime commercial paper and other types of short-term
debt securities including notes and bonds. For Funds that may invest in foreign
countries, such securities also may include short-term, foreign-currency
denominated securities of the type mentioned above issued by foreign
governmental entities, companies, and supranational organizations. While the
Funds are investing for temporary defensive purposes, they may not meet their
investment objectives.
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ADDITIONAL RISK CONSIDERATIONS
Investment in the Funds involves the special risk considerations described
below.
Currency Considerations
Each of the Funds may invest some portion of its assets in securities
denominated in foreign currencies. The Funds receive a corresponding portion of
their revenues in foreign currencies. Therefore, the dollar equivalent of their
net assets, distributions, and income will be adversely affected by reductions
in the value of certain foreign currencies relative to the U.S. Dollar. If the
value of the foreign currencies in which a Fund receives its income falls
relative to the U.S. Dollar between receipt of the income and the making of Fund
distributions, the Fund may be required to liquidate securities in order to make
distributions if it has insufficient cash in U.S. Dollars to meet distribution
requirements that the Fund must satisfy to qualify as a regulated investment
company for federal income tax purposes. Similarly, if an exchange rate declines
between the time a Fund incurs expenses in U.S. Dollars and the time cash
expenses are paid, the amount of the currency required to be converted into U.S.
Dollars in order to pay expenses in U.S. Dollars could be greater than the
equivalent amount of such expenses in the currency at the time they were
incurred. In light of these risks, a Fund may engage in currency hedging
transactions, as described above, which involve certain special risks.
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 equity securities of U.S. companies. These markets may be
subject to greater influence by adverse events generally affecting the market,
and by large investors trading significant blocks of securities, than is usual
in the United States. Securities settlements may in some instances be subject to
delays and related administrative uncertainties.
Certain foreign countries require governmental approval prior to investments by
foreign persons or limit investment by foreign persons to only a specified
percentage of an issuer's outstanding securities or a specific class of
securities that may have less advantageous terms (including price) than
securities of the company available for purchase by nationals. These
restrictions or controls may at times limit or preclude investment in certain
securities and may increase the costs and expenses of a Fund. In addition, the
repatriation of investment income, capital, or the proceeds of sales of
securities from certain countries is controlled under regulations, including in
some cases the need for certain advance government notification or authority. 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
of other restrictions on investment. Investing in local markets may require a
Fund to adopt special procedures that 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 United States.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements, and timely disclosure of information. The reporting, accounting
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects and less information
may be available to investors in foreign securities than to investors in U.S.
securities. Substantially less information is publicly available about certain
non-U.S. issuers than is available about U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability, or diplomatic
developments could affect adversely the economy of a foreign country and the
Fund's investments. In the event of expropriation, nationalization or other
confiscation, a Fund could lose its entire investment in the country involved.
In addition, laws in foreign countries governing business organizations,
bankruptcy and insolvency may provide less protection to security holders such
as the Fund than that provided by U.S. laws.
Fixed-Income Securities
The value of each Fund's shares will fluctuate with the value of its
investments. The value of each Fund's investments in fixed-income securities
will change as the general level of interest rates fluctuates. During periods of
falling interest rates, the values of fixed-income securities generally rise.
Conversely, during periods of rising interest rates, the values of fixed-income
securities generally decline.
In periods of increasing interest rates, each of the Funds may, to the extent it
holds mortgage-backed securities, be subject to the risk that the average
dollar-weighted maturity of the Fund's portfolio of debt or other fixed-income
securities may be extended as a result of lower than anticipated prepayment
rates.
16
<PAGE>
Inflation-Indexed Bonds
Inflation-indexed bonds are fixed income securities whose principal value is
periodically adjusted according to the rate of inflation. If the index measuring
inflation falls, the principal value of inflation-indexed bonds will be adjusted
downward, and consequently the interest payable on these securities (calculated
with respect to a smaller principal amount) will be reduced. Repayment of the
original bond principal upon maturity (as adjusted for inflation) is guaranteed
in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not
provide a similar guarantee, the adjusted principal value of the bond repaid at
maturity may be less than the original principal. The value of inflation-indexed
bonds is expected to change in response to changes in real interest rates. Real
interest rates are tied to the relationship between nominal interest rates and
the rate of inflation. If nominal interest rates increase at a faster rate than
inflation, real interest rates may rise, leading to a decrease in value of
inflation-indexed bonds. Short-term increases in inflation may lead to a decline
in value. Any increase in the principal amount of an inflation-indexed bond will
be considered taxable ordinary income, even though investors do not receive
their principal until maturity
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, i.e., those rated Ba and lower by Moody's or BB and
lower by S&P, Duff & Phelps or Fitch, are subject to greater credit risk or loss
of principal and interest than higher-rated securities. They also are generally
considered to be subject to greater market risk than higher-rated securities.
The capacity of issuers of lower-rated securities to pay interest and repay
principal is more likely to weaken than is that of issuers of higher-rated
securities in times of deteriorating economic conditions or rising interest
rates. In addition, lower-rated securities may be more susceptible to real or
perceived adverse economic conditions than investment grade securities.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, a Fund may experience difficulty in
valuing the securities for the purpose of computing a Fund's net asset value. In
addition, adverse publicity and investor perceptions about lower-rated
securities, whether or not factual, may tend to impair their market value and
liquidity.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political conditions.
However, there can be no assurance that losses will not occur. Since the risk of
default is higher for lower-rated securities, Alliance's research and credit
analysis are a correspondingly more important aspect of its program for managing
a Fund's securities than would be the case if a Fund did not invest in
lower-rated securities.
In seeking to achieve a Fund's investment objective, there will be times, such
as during periods of rising interest rates, when depreciation and realization of
capital losses on securities in a Fund's portfolio will be unavoidable.
Moreover, medium- and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market conditions. Such
fluctuations after a security is acquired do not affect the cash income received
from that security but are reflected in the net asset value of a Fund.
Certain lower-rated securities may contain call or buy-back features that permit
the issuers thereof to call or repurchase such securities. Such securities may
present risks based on prepayment expectations. If an issuer exercises such a
provision, a Fund may have to replace the called security with a lower-yielding
security, resulting in a decreased rate of return to the Fund.
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.
Mortgage-Backed Securities
Investing in Mortgage-Backed Securities involves certain unique risks in
addition to those risks associated with investment in the real estate industry
in general. These risks include the failure of a counterparty to meet its
commitments, adverse interest rate changes and the effects of prepayments on
mortgage cash flows. When interest rates decline, the value of an investment in
fixed rate obligations can be expected to rise. Conversely, when interest rates
rise, the value of an investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on investments in such loans will gradually align
themselves to reflect changes in market interest rates, causing the value of
such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
Further, the yield characteristics of Mortgage-Backed Securities differ from
those of traditional fixed-income securities. The major differences typically
include more frequent interest and principal payments (usually monthly), the
adjustability of interest rates, and the possibility that prepayments of
principal may be made substantially earlier than their final distribution dates.
Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social, and other factors, and cannot be
predicted with certainty. Both adjustable
17
<PAGE>
rate mortgage loans and fixed rate mortgage loans may be subject to a greater
rate of principal prepayments in a declining interest rate environment and to a
lesser rate of principal prepayments in an increasing interest rate environment.
Early payment associated with Mortgage-Backed Securities causes these securities
to experience significantly greater price and yield volatility than that
experienced by traditional fixed-income securities. Under certain interest rate
and prepayment rate scenarios, the Fund may fail to recoup fully its investment
in Mortgage-Backed Securities notwithstanding any direct or indirect
governmental or agency guarantee. When the Fund reinvests amounts representing
payments and unscheduled prepayments of principal, it may receive a rate of
interest that is lower than the rate on existing adjustable rate mortgage
pass-through securities. Thus, Mortgage-Backed Securities, and adjustable rate
mortgage pass-through securities in particular, may be less effective than other
types of U.S. Government securities as a means of "locking in" interest rates.
--------------------------------------------------------------------------------
MANAGEMENT OF THE FUNDS
--------------------------------------------------------------------------------
ADVISER AND FUND MANAGER
As noted above, the Fund's investment adviser is Alliance Capital Management
L.P., 1345 Avenue of the Americas, New York, NY 10105. Alliance is a leading
international investment adviser supervising client accounts with assets as of
June 30, 2000 totaling more than $388 billion (of which approximately $185
billion represented assets of investment companies). As of June 30, 2000, the
Adviser managed retirement assets for many of the largest public and private
employee benefit plans (including 29 of the nation's Fortune 100 companies), for
public employee retirement funds in 33 states, for investment companies, and for
foundations, endowments, banks and insurance companies worldwide. The 52
registered investment companies, with more than 122 separate portfolios, managed
by the Adviser currently have over 6.1 million shareholder accounts.
Alliance provides investment advisory services and order placement facilities to
the Funds. For these advisory services, each of the Alliance Conservative
Investors Fund and the Alliance Growth Investors Fund paid Alliance .47% and
.75%, respectively, of its average daily net assets during the most recent
fiscal year (which amounts are stated net of any fee waivers and/or
reimbursements).
Portfolio Manager
Nicholas D. P. Carn is the person principally responsible for the day-to-day
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 1995.
--------------------------------------------------------------------------------
PURCHASE AND SALE OF SHARES
--------------------------------------------------------------------------------
HOW THE FUNDS VALUE THEIR SHARES
The Funds' net asset value or NAV is calculated at 4 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 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 received in proper form 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
next section of this Prospectus, Distribution Arrangements, 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:
o Initial $250
o Subsequent $ 50
o 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 Shareholder Application. 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.
A Fund may refuse any order to purchase shares. In particular, the Funds reserve
the right to restrict purchases of shares (including through exchanges) when
they appear to evidence a pattern of frequent purchases and sales made in
response to short-term considerations.
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 the next determined NAV, without
sales or service charges. You may request an exchange by mail or telephone. You
must call by 4 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.
18
<PAGE>
HOW TO SELL SHARES
You may "redeem" your shares (i.e., sell your shares to a 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 sales request in proper form. Normally, proceeds will be sent
to you within 7 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).
o Selling Shares Through Your Broker
Your broker must receive your sales request by 4 p.m., Eastern time, and submit
it to the Fund by 5 p.m., Eastern time, for you to receive that day's NAV, less
any applicable CDSC. Your broker is responsible for submitting all necessary
documentation to the Fund and may charge you for this service.
o Selling Shares Directly to the Fund
BY MAIL
-- Send a signed letter of instruction or stock power 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.
If you have any questions about these procedures, contact AFS.
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 received by 4 p.m., Eastern
time, for you to receive that day's NAV, less any applicable CDSC.
-- If you have selected electronic funds transfer in your Shareholder
Application, the redemption proceeds will 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 nominee or
"street name" accounts or retirement plan accounts or shares held by
a shareholder who has changed his or her address of record within
the previous 30 calendar days.
--------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS
AND TAXES
--------------------------------------------------------------------------------
Income dividends and capital gains distributions, 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.
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.
Distributions of long-term capital gains generally will be taxable to you as
long-term capital gains. A Fund's distributions also may be subject to certain
state and local taxes.
While it is the intention of each Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and time of any dividend or distribution will depend
on the realization by the 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. Shareholders
generally will not be entitled to claim a credit or deduction with respect to
foreign 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
19
<PAGE>
shares of a Fund. If that basis is reduced to zero (which could happen if the
shareholder does not reinvest distributions and returns of capital are
significant), any further returns of capital will be taxable as capital gains.
See the Funds' SAI for a further explanation of these tax issues.
The Fund's investments in certain debt obligations may cause them to recognize
taxable income in excess of the cash generated by such obligations. Thus, the
Funds could be required to sell other investments in order to satisfy their
distribution requirements.
If you buy shares just before a Fund deducts a distribution from its net asset
value, you will pay the full price for the shares and then receive a portion of
the price back as a taxable distribution.
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
--------------------------------------------------------------------------------
Share Classes. The Funds offer three classes of shares:
Class A Shares--Initial Sales Charge Alternative
You can purchase Class A shares at NAV with an initial sales charge, as follows:
Initial Sales Charge
Commission
to Dealer/
Agent as
As % of As % of % of
Net Amount Offering Offering
Amount Purchased Invested Price Price
--------------------------------------------------------------------------------
Up to $100,000 4.44% 4.25% 4.00%
$100,000 up to $250,000 3.36 3.25 3.00
$250,000 up to $500,000 2.30 2.25 2.00
$500,000 up to $1,000,000 1.78 1.75 1.50
You pay no initial sales charge on purchases of Class A shares in the amount of
$1,000,000 or more, but may pay a 1% CDSC if you redeem your shares within 1
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 under a Fund's Combined Purchase Privilege, Cumulative
Quantity Discount, Statement of Intention, Privilege for Certain Retirement
Plans, Reinstatement Privilege and Sales at Net Asset Value Programs. Consult
the Shareholder Application and the SAI for additional information about these
options.
Class B Shares--Deferred Sales Charge Alternative
You can purchase Class B shares at NAV without an initial sales charge. A Fund
will thus receive the full amount of your purchase. Your investment, however,
will be subject to a CDSC if you redeem shares within 4 years of purchase. The
CDSC varies depending on the number of years you hold the shares. The CDSC
amounts are:
Year Since Purchase CDSC
--------------------- ----
First 4%
Second 3%
Third 2%
Fourth 1%
Fifth None
If you exchange your shares for the Class B shares of another Alliance Mutual
Fund, the CDSC also will apply to those Class B shares. The CDSC period begins
with the date of your original purchase, not the date of exchange for the other
Class B shares.
The Funds' Class B shares purchased for cash automatically convert to Class A
shares eight years after the end of the month of your purchase. If you purchase
shares by exchange for the Class B shares of another Alliance Mutual Fund, the
conversion period runs from the date of your original purchase.
Class C Shares--Asset-Based Sales Charge Alternative
You can purchase Class C shares at NAV without an initial sales charge. A Fund
will thus receive the full amount of your purchase. Your investment, however,
will be subject to a 1% CDSC if you redeem your shares within 1 year. If you
exchange your shares for the Class C shares of another Alliance Mutual Fund, the
1% CDSC also will apply to those Class C shares. The 1-year period for the CDSC
begins with the date of your original purchase, not the date of the exchange for
the other Class C shares. Class C shares do not convert to any other class of
shares of the Fund.
Asset-Based Sales Charge or Rule 12b-1 Fees
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 Percentage 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 each 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 on-going 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 eight 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.
20
<PAGE>
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 smaller 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.
You should consult your financial agent to assist in choosing a class of Fund
shares.
Application of the CDSC
The CDSC is applied to the lesser of the original cost of shares being redeemed
or NAV at the time of redemption (or, as to Fund shares required through an
exchange, the cost of the Alliance Mutual Fund shares originally purchased for
cash). Shares obtained from dividend or distribution reinvestment are not
subject to the CDSC. The CDSC is deducted from the amount of the redemption and
is paid to AFD. The CDSC will be waived on redemptions of shares following the
death or disability of a shareholder, to meet the requirements of certain
qualified retirement plans or under a monthly, bi-monthly or quarterly
systematic withdrawal plan. See the Fund's SAI for further information about
CDSC waivers.
Other
A transaction, service, administrative or other similar fee may be charged by
your broker-dealer, agent, financial intermediary, or other financial
representative with respect to the purchase, sale, or exchange of Class A, Class
B, or Class C shares made through your financial representative. The financial
intermediaries also may impose requirements on the purchase, sale, or exchange
of shares that are different from, or in addition to, those imposed by a Fund,
including requirements as to the minimum initial and subsequent investment
amounts.
--------------------------------------------------------------------------------
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 in
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephone 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 telephone 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. You also may request a shareholder's manual explaining all
available services by calling 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, 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.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand each Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single share of each Fund. 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.
21
<PAGE>
<TABLE>
<CAPTION>
Income from Investment Operations Less: Dividends and Distributions
----------------------------------------- --------------------------------------------
Net Realized Net
Net Asset and Unrealized Increase Dividends Distributions
Value, Net Gain on in Net Asset from Net in Excess of Distributions
Beginning Investment Investment Value from Investment Net Investment from Net
Fiscal Year or Period of Year Income Transactions Operations Income Income Realized Gains
--------------------- ------- ------ ------------ ---------- ------ ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alliance Growth
Investors Fund
Class A
Year Ended April 30, 2000 $15.80 $.29(a) $ 1.05 $ 1.34 $ (.29) $ -0- $(2.05)
Year Ended April 30, 1999 15.09 .17(a) 2.20 2.37 (.16) (.09) (1.41)
Year Ended April 30, 1998 13.12 .12(a) 3.34 3.46 (.16) -0- (1.33)
Year Ended April 30, 1997 14.08 .16(a)(b) .76 .92 (.19) -0- (1.69)
Year Ended April 30, 1996 12.08 .10(b) 2.75 2.85 (.26) -0- (.59)
Class B
Year Ended April 30, 2000 $15.88 $.18(a) $ 1.05 $ 1.23 $ (.12) $ -0- $(2.05)
Year Ended April 30, 1999 15.12 .06(a) 2.21 2.27 (.07) (.03) (1.41)
Year Ended April 30, 1998 13.11 .01(a) 3.35 3.36 (.02) -0- (1.33)
Year Ended April 30, 1997 14.08 .06(a)(b) .77 .83 (.11) -0- (1.69)
Year Ended April 30, 1996 12.09 .06(b) 2.70 2.76 (.18) -0- (.59)
Class C
Year Ended April 30, 2000 $15.88 $.18(a) $ 1.06 $ 1.24 $ (.12) $ -0- $(2.05)
Year Ended April 30, 1999 15.13 .06(a) 2.20 2.26 (.07) (.03) (1.41)
Year Ended April 30, 1998 13.12 .02(a) 3.34 3.36 (.02) -0- (1.33)
Year Ended April 30, 1997 14.09 .06(a)(b) .77 .83 (.11) -0- (1.69)
Year Ended April 30, 1996 12.10 .06(b) 2.70 2.76 (.18) -0- (.59)
Alliance Conservative
Investors Fund
Class A
Year Ended April 30, 2000 $11.88 $.44(a)(b) $ .07 $ .51 $ (.40) $ -0- $ (.66)
Year Ended April 30, 1999 11.97 .38(a)(b) .61 .99 (.38) (.05) (.65)
Year Ended April 30, 1998 11.31 .39(a)(b) 1.54 1.93 (.43) -0- (.84)
Year Ended April 30, 1997 11.14 .41(a)(b) .46 .87 (.45) -0- (.25)
Year Ended April 30, 1996 10.38 .51(b) .80 1.31 (.55) -0- -0-
Class B
Year Ended April 30, 2000 $12.12 $.36(a)(b) $ .07 $ .43 $ (.32) $ -0- $ (.66)
Year Ended April 30, 1999 12.19 .30(a)(b) .63 .93 (.31) (.04) (.65)
Year Ended April 30, 1998 11.49 .32(a)(b) 1.55 1.87 (.33) -0- (.84)
Year Ended April 30, 1997 11.31 .34(a)(b) .46 .80 (.37) -0- (.25)
Year Ended April 30, 1996 10.51 .43(b) .82 1.25 (.45) -0- -0-
Class C
Year Ended April 30, 2000 $12.13 $.36(a)(b) $ .07 $ .43 $ (.32) $ -0- $ (.66)
Year Ended April 30, 1999 12.19 .30(a)(b) .64 .94 (.31) (.04) (.65)
Year Ended April 30, 1998 11.49 .32(a)(b) 1.55 1.87 (.33) -0- (.84)
Year Ended April 30, 1997 11.31 .34(a)(b) .46 .80 (.37) -0- (.25)
Year Ended April 30, 1996 10.52 .41(b) .83 1.24 (.45) -0- -0-
</TABLE>
--------------------------------------------------------------------------------
Please refer to the footnotes on page 23.
22
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
------------- -------------------------------------------------
Total Ratios to Average Net Assets of:
Total Net Asset Investment Expenses, Expenses,
Dividends Value, Return Based Net Assets, Net of Before
and End of on Net Asset End of Year Waivers/ Waivers/
Fiscal Year or Period Distributions Year Value (c) (000's Omitted) Reimbursements Reimbursements
--------------------- ------------- ---- --------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Alliance Growth
Investors Fund
Class A
Year Ended April 30, 2000 $ (2.34) $ 14.80 9.19% $54,509 1.46%(d) 1.46%
Year Ended April 30, 1999 (1.66) 15.80 16.81 47,917 1.56(d) 1.56
Year Ended April 30, 1998 (1.49) 15.09 27.96 33,222 1.60(d) 1.60
Year Ended April 30, 1997 (1.88) 13.12 6.69 27,453 1.56(d) 1.73
Year Ended April 30, 1996 (.85) 14.08 23.87 30,608 1.40 1.65
Class B
Year Ended April 30, 2000 $ (2.17) $ 14.94 8.39% $78,762 2.18%(d) 2.18%
Year Ended April 30, 1999 (1.51) 15.88 15.96 77,554 2.29(d) 2.29
Year Ended April 30, 1998 (1.35) 15.12 27.04 72,618 2.31(d) 2.31
Year Ended April 30, 1997 (1.80) 13.11 5.98 61,709 2.27(d) 2.44
Year Ended April 30, 1996 (.77) 14.08 23.06 59,978 2.10 2.35
Class C
Year Ended April 30, 2000 $ (2.17) $ 14.95 8.45% $11,414 2.17%(d) 2.17%
Year Ended April 30, 1999 (1.51) 15.88 15.88 9,618 2.28(d) 2.28
Year Ended April 30, 1998 (1.35) 15.13 27.02 8,336 2.30(d) 2.30
Year Ended April 30, 1997 (1.80) 13.12 5.97 6,033 2.28(d) 2.43
Year Ended April 30, 1996 (.77) 14.09 23.04 5,915 2.10 2.36
Alliance Conservative
Investors Fund
Class A
Year Ended April 30, 2000 $ (1.06) $ 11.33 4.50% $21,648 1.41%(d) 1.67%
Year Ended April 30, 1999 (1.08) 11.88 8.59 18,493 1.41(d) 1.74
Year Ended April 30, 1998 (1.27) 11.97 17.87 11,715 1.41(d) 1.91
Year Ended April 30, 1997 (.70) 11.31 7.90 11,860 1.40(d) 1.90
Year Ended April 30, 1996 (.55) 11.14 12.69 14,161 1.40 1.73
Class B
Year Ended April 30, 2000 $ (.98) $ 11.57 3.73% $34,952 2.11%(d) 2.40%
Year Ended April 30, 1999 (1.00) 12.12 7.82 31,177 2.11(d) 2.48
Year Ended April 30, 1998 (1.17) 12.19 17.04 28,432 2.11(d) 2.61
Year Ended April 30, 1997 (.62) 11.49 7.10 28,037 2.10(d) 2.61
Year Ended April 30, 1996 (.45) 11.31 11.95 31,979 2.10 2.44
Class C
Year Ended April 30, 2000 $ (.98) $ 11.58 3.72% $ 6,464 2.11%(d) 2.39%
Year Ended April 30, 1999 (1.00) 12.13 7.91 5,688 2.11(d) 2.47
Year Ended April 30, 1998 (1.17) 12.19 17.04 4,162 2.11(d) 2.61
Year Ended April 30, 1997 (.62) 11.49 7.10 4,150 2.10(d) 2.60
Year Ended April 30, 1996 (.45) 11.31 11.84 5,326 2.10 2.45
<CAPTION>
Ratios/Supplemental Data
------------------------
Ratio of Net
Investment
Income
to Average Portfolio
Fiscal Year or Period Net Assets Turnover Rate
--------------------- ---------- -------------
<S> <C> <C>
Alliance Growth
Investors Fund
Class A
Year Ended April 30, 2000 1.93% 155%
Year Ended April 30, 1999 1.12 84
Year Ended April 30, 1998 .81 137
Year Ended April 30, 1997 1.14 133
Year Ended April 30, 1996 2.02 209
Class B
Year Ended April 30, 2000 1.20% 155%
Year Ended April 30, 1999 .39 84
Year Ended April 30, 1998 .10 137
Year Ended April 30, 1997 .42 133
Year Ended April 30, 1996 1.15 209
Class C
Year Ended April 30, 2000 1.21% 155%
Year Ended April 30, 1999 .40 84
Year Ended April 30, 1998 .11 137
Year Ended April 30, 1997 .42 133
Year Ended April 30, 1996 1.15 209
Alliance Conservative
Investors Fund
Class A
Year Ended April 30, 2000 3.75%(b) 54%
Year Ended April 30, 1999 3.17(b) 105
Year Ended April 30, 1998 3.33(b) 138
Year Ended April 30, 1997 3.66(b) 174
Year Ended April 30, 1996 4.43(b) 267
Class B
Year Ended April 30, 2000 3.05%(b) 54%
Year Ended April 30, 1999 2.48(b) 105
Year Ended April 30, 1998 2.63(b) 138
Year Ended April 30, 1997 2.96(b) 174
Year Ended April 30, 1996 3.72(b) 267
Class C
Year Ended April 30, 2000 3.05%(b) 54%
Year Ended April 30, 1999 2.47(b) 105
Year Ended April 30, 1998 2.63(b) 138
Year Ended April 30, 1997 2.96(b) 174
Year Ended April 30, 1996 3.71(b) 267
</TABLE>
(a) Based on average shares outstanding.
(b) Net of fees waived and expenses reimbursed by Adviser.
(c) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charges or
contingent deferred sales charges are not reflected in the calculation of
total investment return. Total investment return calculated for a period
of less than one year is not annualized.
(d) Ratios reflect expenses grossed up for expense offset arrangement with the
transfer agent. For the periods shown below the net expense ratios were as
follows:
<TABLE>
<CAPTION>
Alliance Growth Investors Alliance Conservative Investors
-------------------------------------- --------------------------------------
Year Ended April 30, Year Ended April 30,
-------------------------------------- --------------------------------------
2000 1999 1998 1997 2000 1999 1998 1997
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A......... 1.45% 1.54% 1.59% 1.55% 1.40% 1.40% 1.40% 1.40%
Class B......... 2.17% 2.27% 2.29% 2.26% 2.10% 2.10% 2.10% 2.10%
Class C......... 2.16% 2.27% 2.29% 2.26% 2.10% 2.10% 2.10% 2.10%
</TABLE>
23
<PAGE>
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 significantly
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 and the
auditor's report and financial statements in the Funds' most recent annual
report to shareholders are 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,
or make inquiries concerning the Funds, 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:
o Call the Commission at 1-202-942-8090 for information on the operation of
the Public Reference Room.
o Reports and other information about the Fund are available on the EDGAR
Database on the Commission's Internet site at http://www.sec.gov
o Copies of the information may be obtained, after paying a duplicating fee,
by electronic request at [email protected], or by writing the
Commission's Public Reference Section, Wash. DC 20549-0102
On the Internet: www.sec.gov
You also may find more information about Alliance and the Funds on the Internet
at: www.Alliancecapital.com.
Investment Company Act File No. 811-05088.
24
==========================
Alliance Asset Allocation
Funds Subscription
Application
==========================
Conservative Investors Fund
Growth Investors Fund
To Open Your New Alliance Account...
Please complete the application and mail it to:
Alliance Fund Services
P.O. Box 786003
San Antonio, TX 78278-6003
For certified or overnight deliveries, send to:
Alliance Fund Services
8000 IH 10 W, Suite 1400
San Antonio, TX 78230
Section 1 Your Account Registration
(Required)
Complete one of the available choices. To ensure proper tax reporting to the
IRS:
> Individuals, Joint Tenants, Transfer on Death and Gift/Transfer to a
Minor:
o Indicate your name(s) exactly as it appears on your social
security card.
> Transfer on Death:
o Ensure that your state participates
> Trust/Other:
o Indicate the name of the entity exactly as it appeared on the
notice you received from the IRS when your Employer
Identification number was assigned.
Section 2 Your Address (Required)
Complete in full.
> Non-Resident Alien:
o Indicate your permanent country of residence.
Section 3 Your Initial Investment (Required)
For each fund in which you are investing: (1) Write the three digit fund number
in the column titled 'Indicate three digit fund number located below'. (2) Write
the dollar amount of your initial purchase in the column titled 'Indicate Dollar
Amount'. (If you are eligible for a reduced sales charge, you must also complete
Section 4F). (3) Check off a distribution option for your dividends. (4) Check
off a distribution option for your capital gains. All distributions (dividends
and capital gains) will be reinvested into your fund account unless you direct
otherwise. If you want distributions sent directly to your bank account, then
you must complete Section 4D and attach a preprinted, voided check for that
account. If you want your distributions sent to a third party you must complete
Section 4E.
Section 4 Your Shareholder Options
(Complete only those options you want)
A. Automatic Investment Plans (AIP) - You can make periodic investments into any
of your Alliance Funds in one of three ways. First, by a periodic withdrawal
($25 minimum) directly from your bank account and invested into an Alliance
Fund. Second, you can direct your distributions (dividends and capital gains)
from one Alliance Fund into another Fund. Or third, you can automatically
exchange monthly ($25 minimum) shares of one Alliance Fund for shares of another
Fund. To elect one of these options, complete the appropriate portion of Section
4A & 4D. If more than one dividend direction or monthly exchange is desired,
please call our Literature Center to obtain a Shareholder Account Services
Options Form for completion.
B. Telephone Transactions via EFT - Complete this option if you would like to be
able to transact via telephone between your fund account and your bank account.
C. Systematic Withdrawal Plans (SWP) - Complete this option if you wish to
periodically redeem dollars from one of your fund accounts. Payments can be made
via Electronic Funds Transfer (EFT) to your bank account or by check.
D. Bank Information - If you have elected any options that involve transactions
between your bank account and your fund account or have elected cash
distribution options and would like the payments sent to your bank account,
please tape a preprinted, voided check of the account you wish to use to this
section of the application.
E. Third Party Payment Details - If you have chosen cash distributions and/or a
Systematic Withdrawal Plan and would like the payments sent to a person and/or
address other than those provided in section 1 or 2, complete this option.
Medallion Signature Guarantee is required if your account is not maintained by a
broker dealer.
F. Reduced Charges (Class A only) - Complete if you would like to link fund
accounts that have combined balances that might exceed $100,000 so that future
purchases will receive discounts. Complete if you intend to purchase over
$100,000 within 13 months.
Section 5 Shareholder Authorization (Required) All owners must sign. If it is a
custodial, corporate, or trust account, the custodian, an authorized officer, or
the trustee respectively must sign.
If We Can Assist You In Any Way, Please Do Not Hesitate To Call Us At: (800)
221-5672 or (201) 553-3300.
Or Visit Our Website At: www.alliancecapital.com
===================================
For Literature Call: (800) 227-4618
===================================
<PAGE>
Alliance Asset Allocation Funds Subscription Application
================================================================================
1. Your Account Registration (Please Print in Capital Letters and Mark
Check Boxes Where Applicable)
================================================================================
|_| Individual Account { |_| Male |_| Female } - or - |_| Joint Account - or -
|_| Transfer On Death { |_| Male |_| Female } - or - |_| Gift/Transfer to a
Minor
|_||_||_||_||_||_||_||_||_||_| |_| |_||_||_||_||_||_||_||_||_||_|
Owner or Custodian (First Name) (MI) (Last Name)
|_||_||_||_||_||_||_||_||_||_| |_| |_||_||_||_||_||_||_||_||_||_|
(First Name) Joint Owner*, (MI) (Last Name)
Transfer On Death Beneficiary
or Minor
|_||_||_| - |_||_| - |_||_||_||_| If Uniform Gift/Transfer to
Social Security Number of Owner Minor Account:
or Minor (required to open account)
If Joint Tenants Account: * The Account |_||_| Minor's State of
will be registered "Joint Tenants with Residence
right of Survivorship" unless you indicate
otherwise below:
|_| In Common |_| By Entirety |_| Community Property
|_| Trust - or - |_| Corporation - or - |_| Other______________________________
|_||_||_||_||_||_||_||_||_||_| |_| |_||_||_||_||_||_||_||_||_||_|
Name of Trustee if applicable (MI) (Last Name)
(First Name)
|_||_||_||_||_||_||_||_||_||_||_||_||_||_||_||_||_||_||_||_||_||_||_||_|
Name of Trust or Corporation or Other Entity
|_||_||_||_||_||_||_||_||_||_||_||_||_||_||_||_||_||_||_||_||_||_||_||_|
Name of Trust or Corporation or Other Entity continued
|_||_||_||_||_||_||_||_| |_||_||_||_||_||_||_||_||_|
Trust Dated (MM,DD,YYYY) Tax ID Number (required to open account)
|_| Employer ID Number - OR - |_| Social Security
Number
================================================================================
2. Your Address
================================================================================
|_||_||_||_||_||_||_| |_||_||_||_||_||_||_||_||_||_||_||_||_||_|
Street Number Street Name
|_||_||_||_||_||_||_||_||_||_||_||_||_| |_||_| |_||_||_||_||_|
City State Zip code
|_||_||_||_||_||_||_||_||_| |_||_||_| - |_||_||_| - |_||_||_||_|
If Non-U.S., Specify Country Daytime Phone Number
|_| U.S. Citizen |_| Resident Alien |_| Non-Resident Alien
--------------------------------------------
--------------------------------------------
e-mail address
1
<PAGE>
================================================================================
3. Your Initial Investment The minimum investment is $250 per fund.
The maximum investment in Class B is $250,000;
Class C is $1,000,000.
================================================================================
I hereby subscribe for shares of the following Alliance Asset Allocation Fund(s)
and elect distribution options as indicated.
Dividend and Capital Gain Distribution
Options:
R Reinvest distributions into my fund
account.
-------------------------------------- C Send my distributions in cash to the
Broker/Dealer Use Only: Wire Confirm # address I have provided in Section
2. (Complete Section 4D for direct
|_||_||_||_||_||_||_||_| deposit to your bank account.
-------------------------------------- Complete Section 4E for payment to a
third party)
D Direct my distributions to another
Alliance fund. Complete the
appropriate portion of Section 4A to
direct your distributions (dividends
and capital gains) to another
Alliance Fund (the $250 minimum
investment requirement applies to
Funds into which distributions are
directed).
----------- -------------- ---------------------- --------------------------
Distributions Options
*Check One*
Indicate three --------------------------
digit Fund --------- --------------
number located Indicate Dollar Amount Dividends Capital Gains
Make all below R C D R C D
checks* -------------- ---------------------- --------- --------------
payable to: |_||_||_| $_____________________ |R||C||D| |R||C||D|
Alliance |_||_||_| $_____________________ |R||C||D| |R||C||D|
Funds
-----------
-------------------------
Total Investment $_____________________
-------------------------
* Cash and money orders are not accepted
================================================================================
Alliance Asset Allocation Fund Names and Numbers
================================================================================
----------------------------------------------
Contingent
Initial Sales Deferred Sales Asset-Based
Charge Charge Sales Charge
A B C
--------------------------------------------------------------------------------
Conservative Investors Fund 42 53 342
--------------------------------------------------------------------------------
Growth Investors Fund 47 59 347
--------------------------------------------------------------------------------
2
<PAGE>
================================================================================
4. Your Shareholder Options
================================================================================
A. Automatic Investment Plans (AIP)
|_| Withdraw From My Bank Account Via EFT*
I authorize Alliance to draw on my bank account for investment in my fund
account(s) as indicated below (Complete Section 4D also for the bank
account you wish to use).
1- |_||_||_| |_||_||_||_| |_||_|,|_||_||_|.00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
2- |_||_||_| |_||_||_||_| |_||_|,|_||_||_|.00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- |_||_||_| |_||_||_||_| |_||_|,|_||_||_|.00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
M = monthly
Q = quarterly
A = Annually
* Electronic Funds Transfer. Your bank must be a member of the
National Automated Clearing House Association (NACHA)
|_| Direct My Distributions As indicated in Section 3, I would like my
dividends and/or capital gains directed to the same class of shares of
another Alliance Fund.
FROM: |_||_||_| |_||_||_||_||_||_||_||_||_||_| - |_|
Fund Number Account Number (If existing)
TO: |_||_||_| |_||_||_||_||_||_||_||_||_||_| - |_|
Fund Number Account Number (If existing)
|_| Exchange My Shares Monthly I authorize Alliance to transact monthly
exchanges, within the same class of shares, between my fund accounts as
listed below.
FROM: |_||_||_| |_||_||_||_||_||_||_||_||_||_| - |_|
Fund Number Account Number (If existing)
|_||_|,|_||_||_|.00 |_||_|
Amount Day of Exchange**
TO: |_||_||_| |_||_||_||_||_||_||_||_||_||_| - |_|
Fund Number Account Number (If existing)
** Shares exchanged will be redeemed at the net asset value on the "Day
of Exchange" (If the "Day of Exchange" is not a fund business day,
the exchange transaction will be processed on the next fund business
day). The exchange privilege is not available if stock certificates
have been issued.
B. Purchases and Redemptions Via EFT
You can call our toll-free number 1-800-221-5672 and instruct Alliance
Fund Services, Inc. in a recorded conversation to purchase, redeem or
exchange shares for your account. Purchase and redemption requests will be
processed via electronic funds transfer (EFT) to and from your bank
account.
Instructions: > Review the information in the Prospectus about telephone
transaction services.
> If you select the telephone purchase or redemption
privilege, you must write "VOID" across the face of a
check from the bank account you wish to use and attach it
to Section 4D of this application.
|_| Purchases and Redemptions via EFT
I hereby authorize Alliance Fund Services, Inc. to effect the purchase
and/or redemption of Fund shares for my account according to my telephone
instructions or telephone instructions from my Broker/Agent, and to
withdraw money or credit money for such shares via EFT from the bank
account I have selected.
================================================================================
For shares recently purchased by check or electronic funds transfer
redemption proceeds will not be made available until the Fund is
reasonably assured the check or electronic funds transfer has been
collected, normally 15 calendar days after the purchase date.
================================================================================
3
<PAGE>
================================================================================
4. Your Shareholder Options (CONTINUED)
================================================================================
C. Systematic Withdrawal Plans (SWP)
In order to establish a SWP, you must reinvest all dividends and capital gains.
|_| I authorize Alliance to transact periodic redemptions from my fund account
and send the proceeds to me as indicated below.
1- |_||_||_| |_||_||_||_| |_||_|,|_||_||_|.00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
2- |_||_||_| |_||_||_||_| |_||_|,|_||_||_|.00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- |_||_||_| |_||_||_||_| |_||_|,|_||_||_|.00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
M = monthly
Q = quarterly
A = Annually
Please send my SWP proceeds to:
|_| My Address of Record (via check)
|_| The Payee and address specified in section 4E (via check) (Medallion
Signature Guarantee required)
|_| My checking account-via EFT (complete section 4D) Your bank must be a
member of the National Automated Clearing House Association (NACHA) in
order for you to receive SWP proceeds directly into your bank account.
Otherwise payment will be made by check
D. Bank Information This bank account information will be used for:
|_| Distributions (Section 3) |_| Telephone Transactions
(Section 4B)
|_| Automatic Investments |_| Withdrawals (Section 4C)
(Section 4A)
================================================================================
Please Tape a Pre-printed Voided Check Here*
================================================================================
[GRAPHIC OF VOIDED CHECK OMITTED]
* The above services cannot be established without a pre-printed voided check.
For EFT transactions, the fund requires signatures of bank account owners
exactly as they appear on bank records. If the registration at the bank differs
from that on the Alliance mutual fund, all parties must sign in Section 5.
|_||_||_||_||_||_||_||_||_| |_||_||_||_||_||_||_||_||_||_||_||_||_|
Your Bank's ABA Routing Number Your Bank Account Number
|_| Checking Account |_| Savings Account
4
<PAGE>
================================================================================
4. Your Shareholder Options (CONTINUED)
================================================================================
E. Third Party Payment Details Your signature(s) in Section 5 must be
Medallion Signature Guaranteed if your account is not maintained by a
broker/dealer. This third party payee information will be used for:
|_| Distributions (Section 3) |_| Systematic
Withdrawals
(Section 4C)
|_||_||_||_||_||_||_||_||_||_| |_| |_||_||_||_||_||_||_||_||_||_|
Name (First Name) (MI) (Last Name)
|_||_||_||_||_||_||_| |_||_||_||_||_||_||_||_||_||_||_||_||_||_|
Street Number Street Name
|_||_||_||_||_||_||_||_||_||_||_||_||_||_| |_||_| |_||_||_||_||_|
City State Zip code
F. Reduced Charges (Class A only) If you, your spouse or minor children own
shares in other Alliance funds, you may be eligible for a reduced sales
charge. Please complete the Right of Accumulation section or the Statement
of Intent section.
|_| A. Right of Accumulation
Please link the tax identification numbers or account numbers listed
below for Right of Accumulation privileges, so that this and future
purchases will receive any discount for which they are eligible.
________________________ ________________________ ________________________
Tax ID or Account Number Tax ID or Account Number Tax ID or Account Number
|_| B. Statement of Intent
I want to reduce my sales charge by agreeing to invest the following
amount over a 13-month period:
|_| $100,000 |_| $250,000 |_| $500,000 |_| $1,000,000
If the full amount indicated is not purchased within 13 months, I
understand that an additional sales charge must be paid from my
account.
================================================================================
Dealer/Agent Authorization - For selected Dealers or Agents ONLY.
================================================================================
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee the
signature(s) set forth in Section 5, as well as the legal capacity of the
shareholder.
_________________________________ ____________________________
| | | |
|_________________________________| |____________________________|
Dealer/Agent Firm Authorized Signature
____________________________ _ ____________________________
| | | | | |
|____________________________| |_| |____________________________|
Representative First Name MI Last Name
_________________________________ ____________________________
| | | |
|_________________________________| |____________________________|
Dealer/Agent Firm Number Representative Number
_________________________________ ____________________________
| | | |
|_________________________________| |____________________________|
Branch Number Branch Telephone Number
__________________________________________________________________
| |
|__________________________________________________________________|
Branch Office Address
_________________________________ _ _ _____________________
| | | || | | |
|_________________________________| |_||_| |_____________________|
City State Zip Code
5
<PAGE>
================================================================================
5. Shareholder Authorization -- This section MUST be completed
================================================================================
Telephone Exchanges and Redemptions by Check
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an
authorized employee of an investment dealer or agent requesting a
redemption or exchange on my behalf. (NOTE: Telephone exchanges may only
be processed between accounts that have identical registrations.)
Telephone redemption checks will only be mailed to the name and address of
record; and the address must not have changed within the last 30 days. The
maximum telephone redemption amount is $50,000 for redemptions by check.
|_| I do not elect the telephone exchange service
|_| I do not elect the telephone redemption by check service
By selecting any of the above telephone privileges, I agree that neither
the Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund
Services, Inc. or other Fund Agent will be liable for any loss, injury,
damage or expense as a result of acting upon telephone instructions
purporting to be on my behalf, that the Fund reasonably believes to be
genuine, and that neither the Fund nor any such party will be responsible
for the authenticity of such telephone instructions. I understand that any
or all of these privileges may be discontinued by me or the Fund at any
time. I understand and agree that the Fund reserves the right to refuse
any telephone instructions and that my investment dealer or agent reserves
the right to refuse to issue any telephone instructions I may request.
For non-residents only: Under penalties of perjury, I certify that to the
best of my knowledge and belief, I qualify as a foreign person as
indicated in Section 2.
I am of legal age and capacity and have received and read the Prospectus
and agree to its terms.
I certify under penalty of perjury that the number shown in Section 1 of
this form is my correct tax identification number or I am waiting for a
number to be issued to me and that I have not been notified that this
account is subject to backup withholding.
The Internal Revenue Service does not require your consent to any
provision of this document other than the certification required to avoid
backup withholding.
_______________________________________________________ ______
| | | |
|_______________________________________________________| |______|
Signature Date
_______________________________________________________ ______
| | | |
|_______________________________________________________| |______|
Signature Date
__________________________________________
Medallion Signature Guarantee required if
completing Section 4E and your mutual
fund is not maintained by a broker dealer
Alliance Capital [LOGO](R)
The Investment Professional's Choice
ASSETPRO900
6
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, 2000
_______________________________________________________________________________
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Funds' current Prospectus (the "Prospectus") dated
September 1, 2000, as revised or supplemented from time to time. A copy of the
Prospectus may be obtained by contacting Alliance Fund Services, Inc. at the
address or the "For Literature" telephone number shown above.
TABLE OF CONTENTS
INVESTMENT POLICIES AND RESTRICTIONS............................. 2
ADDITIONAL INVESTMENT TECHNIQUES OF THE FUNDS.................... 3
INVESTMENT RESTRICTIONS.......................................... 22
MANAGEMENT OF THE FUNDS.......................................... 24
PORTFOLIO TRANSACTIONS........................................... 30
EXPENSES OF THE FUNDS............................................ 32
PURCHASE OF SHARES............................................... 37
REDEMPTION AND REPURCHASE OF SHARES.............................. 53
SHAREHOLDER SERVICES............................................. 55
NET ASSET VALUE.................................................. 61
DIVIDENDS, DISTRIBUTIONS AND TAXES............................... 63
GENERAL INFORMATION.............................................. 66
FINANCIAL STATEMENTS............................................. 71
APPENDIX......................................................... 73
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(R) This registered service mark used under license from the owner,
Alliance Capital Management L.P.
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INVESTMENT POLICIES AND RESTRICTIONS
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The following investment policies and restrictions supplement and should be
read in conjunction with the information set forth in the Prospectus of
Alliance Conservative Investors Fund (the "Conservative Investors Fund") and
Alliance Growth Investors Fund (the "Growth Investors Fund"), each a series of
The Alliance Portfolios (the "Trust").
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.
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.
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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 engage in such "cross hedging" activities when it believes that
such transactions provide significant hedging opportunities for a Fund.
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ADDITIONAL INVESTMENT TECHNIQUES OF THE FUNDS
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Repurchase Agreements
The repurchase agreements referred to in the Funds' Prospectus are
agreements by which a Fund purchases a security and obtains a simultaneous
commitment from the seller to repurchase the security at an agreed upon price
and date. The resale price is in excess of the purchase price and reflects an
agreed upon market rate unrelated to the coupon rate on the purchased security.
The purchased security serves as collateral for the obligation of the seller to
repurchase the security and the value of the purchased security is initially
greater than or equal to the amount of the repurchase obligation and the seller
is required to furnish additional collateral on a daily basis in order to
maintain with the purchaser securities with a value greater than or equal to
the amount of the repurchase obligation. Such transactions afford the Funds the
opportunity to earn a return on temporarily available cash. While at times the
underlying security may be a bill, certificate of indebtedness, note, or bond
issued by an agency, authority or instrumentality of the U.S. Government, the
obligation of the seller is not guaranteed by the U.S. Government and there is
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a risk that the seller may fail to repurchase the underlying security, whether
because of the seller's bankruptcy or otherwise. In such event, the Funds would
attempt to exercise their rights with respect to the underlying security,
including possible disposition in the market. However, the Funds may incur
various expenses in the attempted enforcement and may be subject to various
delays and risks of loss, including (a) possible declines in the value of the
underlying security, (b) possible reduced levels of income and (c) lack of
access to and 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 present, bank time deposits
maturing in more than seven days are not considered by the Adviser to be
readily marketable.
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Commercial Paper. Commercial paper consists of short-term (usually from 1
to 270 days) unsecured promissory notes issued 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
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
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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. At the time a Fund intends to enter into a forward
commitment, it will record the transaction and thereafter reflect the value of
the security purchased or, if a sale, the proceeds to be received, in
determining its net asset value. Any unrealized appreciation or depreciation
reflected in such valuation of a "when, as and if issued" security would be
canceled in the event that the required conditions did not occur and the trade
was canceled.
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
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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 may write call and put options and may
purchase call and put options on securities. Each Fund intends to write only
covered options. This means that so long as a Fund is obligated as the writer
of a call option, it will own the underlying securities subject to the option
or securities convertible into such securities without additional consideration
(or for additional cash consideration held in a segregated account by the
custodian). In the case of call options on U.S. Treasury Bills, a Fund might
own U.S. Treasury Bills of a different series from those underlying the call
option, but with a principal amount and value corresponding to the option
contract amount and a maturity date no later than that of the securities
deliverable under the call option. A Fund will be considered "covered" with
respect to a put option it writes, if, so long as it is obligated as the writer
of a put option, it deposits and maintains with its custodian in a segregated
account liquid assets having a value equal to or greater than the exercise
price of the option.
Effecting a closing transaction in the case of a written call option will
permit a Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case of
a written put option will permit a Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or short-
term securities. Such transactions permit a Fund to generate additional premium
income, which may partially offset declines in the value of portfolio
securities or increases in the cost of 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.
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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.
A Fund may purchase a security and then write a call option against that
security or may purchase a security and concurrently write an option on it. The
exercise price of the call a Fund determines to write will depend upon the
expected price movement of the underlying security. The exercise price of a
call option may be below ("in-the-money"), equal to ("at-the-money") or above
("out-of-the-money") the current value of the underlying security at the time
the option is written. In-the-money call options may be used when it is
expected that the price of the underlying security will decline moderately
during the option period. Out- of-the-money call options may be written when it
is expected that the premiums received from writing the call option plus the
appreciation in the market price of the underlying security up to the exercise
price will be greater than the appreciation in the price of the underlying
security alone. If the call options are exercised in such transactions, a
Fund's maximum gain will be the premium received by it for writing the option,
adjusted 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
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the underlying security at a below market price. This loss may be offset,
however, in whole or part, by the premiums received on the writing of the two
options. Conversely, if the price of the security declines by a sufficient
amount, the put will likely be exercised. The writing of straddles will likely
be effective, therefore, only where the price of the security remains stable
and neither the call nor the put is exercised. In those instances where one of
the options is exercised, the loss on the purchase or sale of the underlying
security may exceed the amount of the premiums received.
By writing a call option, a Fund limits its opportunity to profit from any
increase in the market value of the underlying security above the exercise
price of the option. By writing a put option, a Fund assumes the risk that it
may be required to purchase the underlying security for an exercise price above
its then current market value, resulting in a capital loss unless the security
subsequently appreciates in value. Where options are written for hedging
purposes, such transactions constitute only a partial hedge against declines in
the value of portfolio securities or against increases in the value of
securities to be acquired, up to the amount of the premium.
Each of the Funds may purchase put options to hedge against a decline in
the value of portfolio securities. If such decline occurs, the put options will
permit the Fund to sell the securities at the exercise price or to close out
the options at a profit. By using put options in this way, a Fund will reduce
any profit it might otherwise have realized on the underlying security by the
amount of the premium paid for the put option and by transaction costs.
A Fund may purchase call options to hedge against an increase in the price
of securities that the Fund anticipates purchasing in the future. If such
increase occurs, the call option will permit the Fund to purchase the
securities at the exercise price, or to close out the options at a profit. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by a Fund upon exercise of the option, and, unless
the price of the underlying security rises sufficiently, the option may expire
worthless to the Fund and the Fund will suffer a loss on the transaction to the
extent of the premium paid.
Each Fund may purchase or write options on securities of the types in which
it is permitted to invest in privately negotiated (i.e., over-the-counter)
transactions. Each Fund will effect such transactions only with investment
dealers and other financial institutions (such as commercial banks or savings
and loan institutions) deemed creditworthy by the Adviser, and the Adviser has
adopted procedures for monitoring the creditworthiness of such entities.
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 expected by
the Adviser to replicate substantially the movement of the index or indexes
upon which the options written by the Fund are based. A put option on a
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securities index written by a Fund will be considered covered if, so long as it
is obligated as the writer of the put option, the Fund maintains with its
custodian in a segregated account liquid assets having a value equal to or
greater than the exercise price of the option.
A Fund may also purchase put options on securities indexes to hedge its
investments against a decline in the value of portfolio securities. By
purchasing a put option on a securities index, a Fund will seek to offset a
decline in the value of securities it owns through appreciation of the put
option. If the value of a Fund's investments does not decline as anticipated,
or if the value of the option does not increase, the Fund's loss will be
limited to the premium paid for the option. The success of this strategy will
largely depend on the accuracy of the correlation between the changes in value
of the index and the changes in value of a Fund's security holdings.
The purchase of call options on securities indexes may be used by a Fund to
attempt to reduce the risk of missing a broad market advance, or an advance in
an industry or market segment, at a time when the Fund holds uninvested cash or
short-term debt securities awaiting investment. When purchasing call options
for this purpose, a Fund will also bear the risk of 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 whole or in part, offset increases in the cost of securities that the Fund
intends to purchase. As such purchases are made, the corresponding positions in
stock or bond index futures contracts will be closed out.
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Interest rate futures contracts are purchased or sold for hedging purposes
to attempt to protect against the effects of interest rate changes on a Fund's
current or intended investments in fixed income securities. For example, if a
Fund owned long- term bonds and interest rates were expected to increase, that
Fund might sell interest rate futures contracts. Such a sale would have much
the same effect as selling some of the long-term bonds in that Fund's
portfolio. However, since the futures market is more liquid than the cash
market, the use of interest rate futures contracts as a hedging technique
allows a Fund to hedge its interest rate risk without having to sell its
portfolio securities. If interest rates were to increase, the value of the debt
securities in the portfolio would decline, but the value of that Fund's
interest rate futures contracts would be expected to increase at approximately
the same rate, thereby keeping the net asset value of that Fund from declining
as much as it otherwise 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 in order to protect against fluctuations in currency exchange
rates. Such fluctuations could reduce the dollar value of portfolio securities
denominated in foreign currencies, or increase the cost of foreign-denominated
securities to be acquired, even if the value of such securities in the
currencies in which they are denominated remains constant. 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. If such a decline were to occur, the resulting
adverse effect on the value of foreign-denominated securities may be offset, in
whole or in part, by gains on the futures contracts. However, if the value of
the foreign currency increases relative to the dollar, the Fund's loss on the
foreign currency futures contract may or may not be offset by an increase in
the value of the securities because a decline in the price of the security
stated in terms of the foreign currency may be greater than the increase in
value as a result of the change in exchange rates.
Conversely, the Funds could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing futures contracts
on the relevant currency, which could offset, in whole or in part, the
increased cost of such securities resulting from a rise in the dollar value of
the underlying currencies. When a Fund purchases futures contracts under such
circumstances, however, and the price of securities to be acquired instead
declines as a result of appreciation of the dollar, the Fund will sustain
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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 were to occur, it may be offset, in
whole or part, by a profit on the option. If the market decline were not to
occur, the Fund will suffer a loss equal to the price of the put. Where it is
projected that the value of securities to be acquired by a Fund will increase
prior to acquisition, due to a market advance or changes in interest or
exchange rates, a Fund could purchase call options on Futures Contracts, rather
than purchasing the underlying Futures Contracts. If the market advances, the
increased cost of securities to be purchased may be offset by a profit on the
call. However, if the market declines, the Fund will suffer a loss equal to the
price of the call, but the securities which the Fund intends to purchase may be
less expensive.
Forward Foreign Currency Exchange Contracts
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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 at least equal to
the Fund's obligations under any Forward Contracts.
Options on Foreign Currencies
Each Fund may purchase and write options on foreign currencies for hedging
purposes. For example, a decline in the dollar value of a foreign currency in
which portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of 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
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extent anticipated, a Fund could sustain losses on transactions in foreign
currency options which would require it to forego a portion or all of the
benefits of advantageous changes in such rates.
Each Fund may write options on foreign currencies for the same types of
hedging purposes or to increase return. For example, where the Fund anticipates
a decline in the dollar value of foreign-denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the option will most likely not be exercised, and the diminution in value of
portfolio securities could be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, a Fund
could write a put option on the relevant currency, which, if rates move in the
manner projected, will expire unexercised and allow the Fund to hedge such
increased cost up to the amount of the premium. As in the case of other types
of options, however, the writing of a foreign currency option will constitute
only a partial hedge up to the amount of the premium, and only if rates move in
the expected direction. If this does not occur, the option may be exercised and
the Fund will be required to purchase or sell the underlying currency at a loss
which may not be offset by the amount of the premium. Through the writing of
options on foreign currencies, a Fund also may be required to forego all or a
portion of the benefits which might otherwise have been obtained from favorable
movements in exchange rates.
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 because 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
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differences in margin requirements, the liquidity of such markets and the
participation of speculators in the futures market. In this regard, trading by
speculators in futures and options has in the past occasionally resulted in
market distortions, which may be difficult or impossible to predict,
particularly near the expiration of such contracts.
The trading of options on Futures Contracts also entails the risk that
changes in the value of the underlying Futures Contract will not be fully
reflected in the value of the option.
Further, with respect to options on securities, options on foreign
currencies, options on stock indexes and options on Futures Contracts, the
Funds are subject to the risk of market movements between the time that the
option is exercised and the time of performance thereunder. This could increase
the extent of any loss suffered by a Fund in connection with such transactions.
If a Fund purchases futures or options in order to hedge against a possible
increase in the price of securities before the Fund is able to invest its cash
in such securities, the Fund faces the risk that the market may instead
decline. If the Fund does not then invest in such securities because of concern
as to possible further market declines or for other reasons, the Fund may
realize a loss on the futures or option contract that is not offset by a
reduction in the price of securities purchased.
In writing a call option on a security, foreign currency, index or Futures
Contract, a Fund also incurs the risk that changes in the value of the assets
used to cover the position will not correlate closely with changes in the value
of the option or underlying index or instrument. For example, when a Fund
writes a call option on a stock index, the securities used as "cover" may not
match the composition of the index, and the Fund may not be fully covered. As a
result, the Fund could suffer a loss on the call which is not entirely offset
or 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
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may be required to forego the benefits which might otherwise have been obtained
from an increase in the value of portfolio securities or a decline in the value
of securities to be acquired.
In the event of the occurrence of any of the foregoing adverse market
events, a Fund's overall return may be lower than if it had not engaged in the
transactions described above.
With respect to the writing of straddles on securities, a Fund incurs the
risk that the price of the underlying security will not remain stable, that one
of the options written will be exercised and that the resulting loss will not
be offset by the amount of the premiums received. Such transactions, therefore,
while creating an opportunity for increased return by providing a Fund with two
simultaneous premiums on the same security, nonetheless involve additional
risk, because the Fund may have an option exercised against it regardless of
whether the price of the security increases or decreases.
If any of the foregoing adverse market events occurs, a Fund's overall
return may be lower than if it had not engaged in the transactions described
above.
Potential Lack of a Liquid Secondary Market. Prior to exercise or
expiration, a futures or option position can be terminated only by entering
into a closing transaction. This requires a secondary market for such
instruments on the exchange, if any, on which the initial transaction was
entered into. There can be no assurance that a liquid secondary 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
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brokerage firm or clearing house or other disruptions of normal trading
activity, which could at times make it difficult or impossible to liquidate
existing positions or to recover excess variation margin payments.
The staff of the SEC has taken the position that over-the- counter options
and the assets used as cover for over-the-counter options are illiquid
securities, unless certain arrangements are made with the other party to the
option contract, permitting the prompt liquidation of the option position. The
Funds will enter into those special arrangements only with primary U.S.
Government securities dealers recognized by the Federal Reserve Bank of New
York ("primary dealers"). Under these special arrangements, the Trust will
enter into contracts with primary dealers which provide that each Fund has the
absolute right to repurchase an option it writes at any time at a repurchase
price which represents fair market value, as determined in good faith through
negotiation between the parties, but which in no event will exceed a price
determined pursuant to a formula contained in the contract. Although the
specific details of the formula may vary between contracts with different
primary dealers, the formula will generally be based on a multiple of the
premium received by the Fund for writing the option, plus the amount, if any,
by which the option is "in-the-money." The formula will also include a factor
to account for the difference between the price of the security and the strike
price of the option if the option is written "out-of-the-money." Under such
circumstances, the Fund only needs to treat as illiquid that amount of the
"cover" assets equal to the amount by which (i) the formula price exceeds (ii)
any amount by which the market value of the security subject to the option
exceeds the exercise price of the option (the amount by which the option is
"in-the-money"). Although each agreement will provide that the Fund's
repurchase price shall be determined in good faith (and that it shall not
exceed the maximum determined pursuant to the formula), the formula price will
not necessarily reflect the market value of the option written; therefore, the
Fund might pay more to repurchase the option contract than the Fund would pay
to close out a similar exchange-traded option.
Margin. Because of low initial margin deposits made upon the opening of a
futures position and the writing of an option, such transactions involve
substantial leverage. As a result, relatively small movements in the price of
the contract can result in substantial unrealized gains or losses. However, to
the extent the Funds purchase or sell Futures Contracts and options on Futures
Contracts and purchase and write options on securities and securities indexes
for hedging purposes, any losses incurred in connection therewith should, if
the hedging strategy is successful, be offset, in whole or in part, by
increases in the value of securities held by the Fund or decreases in the
prices of securities the Fund intends to acquire. When a Fund writes options on
securities or options on stock indexes for other than hedging purposes, the
margin requirements associated with such transactions could expose the Fund to
greater risk.
Trading and Position Limits. The exchanges on which futures and options are
traded may impose limitations governing the maximum number of positions on the
same side of the market and involving the same underlying instrument which may
be held by a single investor, whether acting alone or in concert with others
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(regardless of whether such contracts are held on the same or different
exchanges or held or written in one or more accounts or through one or more
brokers). In addition, the Commodity Futures Trading Commission (the "CFTC")
and the various contract markets have established limits referred to as
"speculative position limits" on the maximum net long or net short position
which any person may hold or control in a particular futures or option
contract. An exchange may order the liquidation of positions found to be in
violation of these limits and may impose other sanctions or restrictions.
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 conformity with any U.S. or foreign restrictions and regulations
regarding the maintenance of foreign banking relationships and fees, taxes or
other charges.
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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 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
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existence of open positions in options on foreign currencies could limit the
ability of the Fund to enter into desired transactions in other options or
futures contracts.
While Forward Contracts are not presently subject to regulation by the
CFTC, the CFTC may in the future assert or be granted authority to regulate
such instruments. In such event, the Fund's ability to utilize Forward
Contracts in the manner set forth above could be restricted.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options Clearing
Corporation ("OCC"), thereby reducing the risk of counterparty default.
Further, a liquid secondary market in options traded on a national securities
exchange may be more readily available than in the over-the-counter market,
potentially permitting a Fund to liquidate open positions at a profit prior to
exercise or expiration, or to limit losses in the event of adverse market
movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements, the
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, if the OCC determines that
foreign governmental restrictions or taxes would prevent the orderly settlement
of foreign currency option exercises, or would result in undue burdens on the
OCC or its clearing member, the OCC may impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
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, that Fund is required to
segregate liquid assets with its custodian 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.
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Each Fund has adopted the additional restriction that it will not enter
into a Futures Contract if, immediately thereafter, the value of securities and
other obligations underlying all such Futures Contracts would exceed 50% of the
value of such Fund's total assets. Moreover, a Fund will not purchase put and
call options if as a result more than 10% of its total assets would be invested
in such options.
Economic Effects and Limitations
Income earned by a Fund from its hedging activities will be treated as
capital gain and, if not offset by net realized capital losses incurred by a
Fund, will be distributed to shareholders in taxable distributions. Although
gain from such transactions may hedge against a decline in the value of a
Fund's portfolio securities, that gain, to the extent not offset by losses,
will be distributed in light of certain tax considerations and will constitute
a distribution of that portion of the value preserved against decline.
No Fund will "over-hedge," that is, a Fund will not maintain open short
positions in futures or options contracts if, in the aggregate, the market
value of its open positions exceeds the current market value of its securities
portfolio plus or minus the unrealized gain or loss on such open positions,
adjusted for the historical volatility relationship between the portfolio and
futures and options contracts.
Each Fund's ability to employ the options and futures strategies described
above will depend in part on the availability of liquid markets in such
instruments. Markets in financial futures and related options are still
developing. It 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 accelerate or
adversely affect the character of the income earned on such contracts. In
addition, differences between each Fund's book income (upon the basis of which
distributions are generally made) and taxable income arising from its hedging
activities may result in return of capital distributions, and in some
circumstances, distributions in excess of the Fund's book income may be
required to be made in order to meet tax requirements.
Future Developments
The foregoing discussion relates to each Fund's proposed use of Futures
Contracts, Forward Contracts, options and options on Futures Contracts
currently available. As noted above, the relevant markets and related
regulations are evolving. In the event of future regulatory or market
developments, each Fund may also use additional types of futures contracts or
options and other investment techniques for the purposes set forth above.
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_______________________________________________________________________________
INVESTMENT RESTRICTIONS
_______________________________________________________________________________
Except as described below and except as otherwise specifically stated in
the Prospectus or this Statement of Additional Information, the investment
policies of each Fund set forth in the Prospectus and in this Statement of
Additional Information are not fundamental and may be changed without
shareholder approval.
The following is a description of the fundamental restrictions on the
investments to be made by the Funds, which restrictions may not be changed
without the approval of a majority of the outstanding voting securities of the
relevant Fund.
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.)
Neither Fund may: (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.
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It is also a fundamental policy of each Fund that it may purchase and sell
futures contracts and related options.
In addition, the following is a description of operating policies which the
Trust has adopted on behalf of the Funds but which are not fundamental and are
subject to change without shareholder approval.
Neither of the Funds will:
(a) Pledge, mortgage, hypothecate or otherwise encumber an amount of its assets
taken at current value in excess of 15% of its total assets (taken at the lower
of cost or current value) and then only to secure borrowings permitted by
restriction (1) above. For the purpose of this restriction, the deposit of
securities and other collateral arrangements 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.
(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%.
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(g) Purchase securities issued by any other registered open-end investment
company or investment trust except (A) by purchase in the open market where no
commission or profit to a sponsor or dealer results from such purchase other
than the customary broker's commission, or (B) where no commission or profit to
a sponsor or dealer results from such purchase, or (C) when such purchase,
though not made in the open market, is part of a plan of merger or
consolidation; provided, however, that a Fund will not purchase such securities
if such purchase at the time thereof would cause more than 5% of its total
assets (taken at market value) to be invested in the securities of such
issuers; and, provided further, that a Fund's purchases of securities issued by
such open-end investment company will be consistent with the provisions of the
1940 Act.
(h) Make investments for the purpose of exercising control or management.
(i) Participate on a joint or joint and several basis in any trading account in
securities.
(j) Invest in interests in oil, gas, or other mineral exploration or
development programs, although each Fund may purchase securities which are
secured by such interests and may purchase securities of issuers which invest
in or deal in oil, gas or other mineral exploration or development programs.
(k) Purchase warrants, if, as a result, a Fund would have more than 5% of its
total assets invested in warrants or more than 2% of its total assets invested
in warrants which are not listed on the 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
_______________________________________________________________________________
24
<PAGE>
The Adviser
Alliance Capital Management L.P., (the "Adviser") a Delaware limited
partnership with principal offices at 1345 Avenue of the Americas, New York,
New York 10105, has been retained under an investment advisory agreement (the
"Investment Advisory Contract") to provide investment advice and, in general,
to conduct the management and investment program of the Trust under the
supervision of the Trust's Board of Trustees.
The Adviser is a leading international investment adviser managing client
accounts with assets as of June 30, 2000 totaling more than $388 billion (of
which approximately $185 billion represented assets of investment companies).
As of June 30, 2000, the Adviser managed retirement assets for many of the
largest public and private employee benefit plans (including 29 of the nation's
Fortune 100 companies), for public employee retirement funds in 33 out of the
50 states, for investment companies, and for foundations, endowments, banks and
insurance companies worldwide. The 52 registered investment companies, with
more than 122 separate portfolios, managed by the Adviser currently have over
6.1 million shareholder accounts.
Alliance Capital Management Corporation ("ACMC") is the general partner of
the Adviser and a wholly owned subsidiary of The Equitable Life Assurance
Society of the United States ("Equitable"). Equitable, one of the largest life
insurance companies in the United States, is the beneficial owner of an
approximately 55.4% partnership interest in the Adviser. Alliance Capital
Management Holding L.P. ("Alliance Holding") owns an approximately 41.9%
partnership interest in the Adviser.1 Equity interests in Alliance Holding are
traded on the New York Stock Exchange in the form of units. Approximately 98%
of such interests are owned by the public and management or employees of the
Adviser and approximately 2% are owned by Equitable. Equitable is a wholly
owned subsidiary of AXA Financial, Inc. ("AXA Financial"), a Delaware
corporation whose shares are traded on the New York Stock Exchange. AXA
Financial serves as the holding company for the Adviser, Equitable and
Donaldson, Lufkin & Jenrette, Inc., an integrated investment and merchant bank.
As of June 30, 1999, AXA, a French insurance holding company, owned
approximately 58.2% of the issued and outstanding shares of common stock of AXA
Financial.
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 contractually 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 after giving effect to any expense
offset arrangements exceed an annual rate of 1.40% for Class A shares and 2.10%
25
<PAGE>
for Class B and Class C shares. The management fees for each Fund are higher
than those paid by most mutual funds.
The Adviser is, under the Investment Advisory Contract, responsible for
certain expenses incurred by the Funds, including, for example, office
facilities and certain administrative services.
During the period May 1, 1999 through April 30, 2000, the Adviser earned
$457,144 in management fees from the Conservative Investors Fund ($169,640 of
which was waived) and $1,037,700 from the Growth Investors Fund. During the
period May 1, 1998 through April 30, 1999, the Adviser earned $355,320 in
management fees from the Conservative Investors Fund ($167,387 of which was
waived) and $895,036 from the Growth Investors Fund. During the period May 1,
1997 through April 30, 1998, the Adviser earned $332,496 in management fees
from the Conservative Investors Fund ($219,865 of which was waived) and
$788,159 from the Growth Investors Fund.
The Investment Advisory Contract provides that it will continue in effect
for two years from its date of execution and thereafter from year to year if
its continuance is approved at least annually (i) by the Board of Trustees or
by vote of a majority of the outstanding voting securities of the relevant
Fund, and (ii) by vote of a majority of the Trustees who are not interested
persons of the Adviser cast in person at a meeting called for the purpose of
voting on such approval. Any amendment to the Investment Advisory Contract must
be approved by vote of a majority of the outstanding voting securities of the
relevant Fund and by vote of a majority of the Trustees who are not such
interested persons, cast in person at a meeting called for the purpose of
voting on such approval. The Investment Advisory Contract may be terminated
without penalty by the Adviser, by vote of the Trustees or by vote of a
majority of the outstanding voting securities of the relevant Fund upon sixty
days' written notice, and it terminates automatically in the event of its
assignment. The Adviser controls the word "Alliance" in the names of the Trust
and each Fund, and if Alliance should cease to be the investment manager of any
Fund, the Trust and such Fund may be required to change their names to delete
the word "Alliance" from their names.
The Investment Advisory Contract provides that the Adviser shall not be
subject to any liability in connection with the performance of its services
thereunder in the absence of willful misfeasance, bad faith, gross negligence
or reckless disregard of its obligations and duties.
Trustees and Officers
The Trustees are responsible for generally overseeing the conduct of Fund
business. In accordance with each Fund's investment objectives, policies,
restrictions and such policies as the Trustees may determine from time to time,
the Adviser furnishes a continuing investment program for each Fund and makes
investment decisions on its behalf. Subject to the control of the Trustees, the
Adviser also manages the Funds' other affairs and business. 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. Each such Trustee and officer is also a trustee, director
or officer of other registered investment companies sponsored by the Adviser.
Unless otherwise specified, the address of each such person is 1345 Avenue of
the Americas, New York, New York 10105.
TRUSTEES
26
<PAGE>
JOHN D. CARIFA(2), 55, Chairman of the Board, is the President, Chief
Operating Officer and a Director of Alliance Capital Management Corporation,
the general partner of the Adviser ("ACMC"), with which he has been associated
since prior to 1994.
RUTH BLOCK, 69, was formerly an Executive Vice President and the Chief
Insurance Officer of Equitable. She is a Director of Ecolab Incorporated
(specialty chemicals) and Amoco Corporation (oil and gas). Her address is P.O.
Box 4623, Stamford, Connecticut 06903.
DAVID H. DIEVLER, 70, is an independent consultant. He was formerly a
Senior Vice President of ACMC until December 1994. His address is P.O. Box 167,
Spring Lake, New Jersey 07762.
JOHN H. DOBKIN, 58, has been the President of Historic Hudson Valley
(historic preservation) since prior to 1994. Previously, he was Director of the
National Academy of Design. His address is 150 White Plains Road, Tarrytown,
New York 10591.
WILLIAM H. FOULK, JR., 67, is an Investment Adviser and an independent
consultant. He was formerly Senior Manager of Barrett Associates, Inc., a
registered investment adviser, with which he had been associated since 1986.
His address is Room 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
BRENTON W. HARRIES, 71, is a Director of Enhance Reinsurance Co. and was
formerly the President and Chief Executive of Global Electronic Markets
Company. His address is 14 Point Road, Wilson Point, South Norwalk, Connecticut
06854.
DR. JAMES M. HESTER, 76, is President of the Harry Frank Guggenheim
Foundation, with which he has been associated since prior to 1994. He was
formerly President of New York University, the New York Botanical Garden and
Rector of the United Nations University. His address is 25 Cleveland Lane,
Princeton, New Jersey 08540.
CLIFFORD L. MICHEL, 61, is a member of the law firm of Cahill Gordon &
Reindel, with which he has been associated since prior to 1994. He is President
and Chief Executive Officer of Wenonah Development Company (investments) and a
Director of Placer Dome, Inc. (mining). His address is St. Bernard's Road,
Gladstone, New Jersey 07934.
DONALD J. ROBINSON, 66, is Senior Counsel to the law firm of Orrick,
Herrington & Sutcliffe and was formerly a senior partner and a member of the
Executive Committee of that firm. He was also a Trustee of the Museum of the
City of New York from 1977 to 1995. His address is 98 Hell's Peak Road, Weston,
Vermont 05161.
_________________________
2. An "interested person" of the Fund, as defined in the 1940 Act.
27
<PAGE>
OFFICERS
JOHN D. CARIFA, PRESIDENT (see biography, above).
Edmund P. Bergan, Jr., 49, Clerk, is a Senior Vice President and the
General Counsel of Alliance Fund Distributors, Inc. ("AFD") and Alliance Fund
Services, Inc. ("AFS"), with which he has been associated since prior to 1995.
His address is 1345 Avenue of the Americas, New York, New York 10105.
Mark D. Gersten, 49, Treasurer and Chief Financial Officer, is a Senior
Vice President of AFS and a Vice President of AFD, with which he has been
associated since prior to 1995. His address is 500 Plaza Drive, Secaucus, New
Jersey 07094.
Vincent S. Noto, 35, Controller and Chief Accounting Officer, is a Vice
President of AFS, with which he has been associated since prior to 1995. His
address is 500 Plaza Drive, Secaucus, New Jersey 07094.
Bruce W. Calvert, 53, Senior Vice President, is the Vice Chairman and Chief
Executive Officer and a Director of ACMC, with which he has been associated
since prior to 1995. His address is 1345 Avenue of the Americas, New York 10105.
Kathleen A. Corbet, 39, Senior Vice President, is an Executive Vice
President of ACMC, with which she has been associated since prior to 1995. Her
address is 1345 Avenue of the Americas, New York, New York 10105.
Wayne D. Lyski, 58, Senior Vice President, is an Executive Vice President
of ACMC, with which he has been associated since prior to 1995. His address is
1345 Avenue of the Americas, New York, New York 10105.
Tyler J. Smith, 62, Vice President, is a Senior Vice President of ACMC,
with which he has been associated since prior to 1995. His address is 1345
Avenue of the Americas, New York, New York 10105.
Andrew L. Gangolf, 45, Assistant Clerk, is a Vice President and Assistant
General Counsel of AFD, with which he has been associated since prior to 1995.
His address is 1345 Avenue of the Americas, New York, New York 10105.
Domenick Pugliese, 38, Assistant Clerk, is a Vice President and Assistant
General Counsel of AFD, with which he has been associated since May 1995. Prior
thereto, he was Vice President and General Counsel of Concorde Holding
Corporation since prior to 1995. His address is 1345 Avenue of the Americas,
New York, New York 10105.
28
<PAGE>
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, 2000, the aggregate compensation paid to each of the Trustees during
calendar year 1999 by all of the registered investment companies to which the
Adviser provides investment advisory services (collectively, the "Alliance Fund
Complex") and the total number of registered investment companies (and separate
portfolios within the companies) in the Alliance Fund Complex with respect to
which each Trustee serves as a director or trustee, are set forth below.
Neither of the Funds nor any other registered investment company 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
Total Number
Number of
of Investment
Investment Portfolios
Companies in Within the
the Alliance Alliance
Fund Fund
Total Complex, Complex,
Compensation Including Including
from the the Fund, the Fund,
Alliance as to as to
Fund which the which the
Compensation Complex, Trustee Trustee
from Compensation Including is a is a
Conservative from Growth the Fund, Director Director
Name of Investors Investors During or or
Trustee Fund Fund 1999 Trustee Trustee
--------------- ------------ ------------ ------------ ------------ ----------
John D. Carifa $ 0 $ 0 $ 0 50 103
Ruth Block $ 1,736 $ 1,736 $ 154,263 38 80
David H.
Dievler $ 1,735 $ 1,735 $ 210,188 45 87
John H. Dobkin $ 1,735 $ 1,735 $ 206,463 42 84
William H.
Foulk, Jr. $ 1,735 $ 1,735 $ 246,413 45 98
Brenton W.
Harries $ 5,959 $ 5,959 $ 83,500 1 4
James M.
Hester $ 1,736 $ 1,736 $ 164,138 39 81
Clifford L.
29
<PAGE>
Michel $ 1,736 $ 1,736 $ 183,388 39 96
Donald J.
Robinson $ 1,730 $ 1,730 $ 154,313 41 92
As of August 11, 2000, the Trustees and officers of the Fund as a group
owned less than 1% of the shares of the Fund.
The Trust undertakes to provide assistance to shareholders in
communications concerning the removal of any Trustee of the Trust in accordance
with Section 16 of the 1940 Act.
_______________________________________________________________________________
PORTFOLIO TRANSACTIONS
_______________________________________________________________________________
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
30
<PAGE>
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, 2000 were as follows: with respect to the Conservative
Investors Fund, $31,996,272 and, in connection therewith, brokerage commissions
of $23,897 (89%) were allocated to persons or firms supplying research
information; and with respect to the Growth Investors Fund, $255,787,463 and,
in connection therewith, brokerage commission of $151,398 (74%) were allocated
to persons or firms supplying research information. Aggregate securities
transactions for the Funds during the fiscal year ended April 30, 1999 were as
follows: with respect to the Conservative Investors Fund, $27,239,048 and, in
connection therewith, brokerage commissions of $28,900 (100%) were allocated to
persons or firms supplying research information; and with respect to the Growth
Investors Fund, $110,523,432 and, in connection therewith, brokerage commission
of $142,555 (100%) were allocated to persons or firms supplying research
information. Aggregate securities transactions for the Funds during the fiscal
year ended April 30, 1998 were as follows: with respect to the Conservative
Investors Fund, $52,451,646 and, in connection therewith, brokerage commissions
of $61,480 (100%) were allocated to persons or firms supplying research
information; and with respect to the Growth Investors Fund, $223,737,310 and,
in connection therewith, brokerage commissions of $342,009 (100%) were
allocated to persons or firms supplying research information.
For the fiscal year ended April 30, 2000, the Conservative Investors Fund
paid an aggregate of $26,619 in brokerage commissions; and the Growth Investors
Fund paid an aggregate of $203,338 in brokerage commissions. For the fiscal
year ended April 30, 1999, the Conservative Investors Fund paid an aggregate of
$28,900 in brokerage commissions; and the Growth Investors Fund paid an
aggregate of $142,555 in brokerage commissions. For the fiscal year ended April
30, 1998, the Conservative Investors Fund paid an aggregate of $61,480 in
brokerage commissions; and the Growth Investors Fund paid an aggregate of
$342,009 in brokerage commissions.
The extent to which commissions that will be charged by broker-dealers
selected by the Funds may reflect an element of value for research cannot
presently be determined. To the extent that research services of value are
provided by broker-dealers with or through whom the Funds place portfolio
transactions, the Adviser may be relieved of expenses which it might otherwise
bear. Research services furnished by broker-dealers could be useful and of
value to the Adviser in servicing its other clients as well as the Funds; on
the other hand, certain research services obtained by the Adviser as a result
of the placement of portfolio brokerage of other clients could be useful and of
value to it in servicing the Funds. Consistent with the Conduct Rules of the
National Association of Securities Dealers, Inc. and subject to seeking best
execution, the Funds may consider sales of shares of the Funds or other
investment companies managed by the Adviser as a factor in the selection of
broker-dealers to execute portfolio transactions for the Funds.
The Funds may from time to time place orders for the purchase or sale of
securities (including listed call options) with Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") and with brokers which may have their
31
<PAGE>
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, 2000, April 30, 1999 and
April 30, 1998, are set forth below:
% of Fund's
% of Fund's Aggregate
Fiscal Year Amount of Aggregate Dollar
Ended Brokerage Brokerage Amount of
April 30, Commissions Commissions Transactions
---------- ------------------------ ------------ ------------- ------------
2000 Conservative Investors $0 0% 0%
2000 Growth Investors $0 0% 0%
1999 Conservative Investors $0 0% 0%
1999 Growth Investors $0 0% 0%
1998 Conservative Investors $0 0% 0%
1998 Growth Investors $0 0% 0%
The annual portfolio turnover rates of the Conservative Investors Fund and
the Growth Investors Fund for the fiscal years ended April 30, 2000, April 30,
1999 and April 30, 1998 were 54%, 105% and 138% for Conservative Investors and
155%, 84% and 137% for Growth Investors, respectively.
_______________________________________________________________________________
EXPENSES OF THE FUNDS
_______________________________________________________________________________
In addition to the payments to the Adviser under the Investment Advisory
Contract described above, the Trust pays certain other costs including (a)
brokerage and commission expenses, (b) federal, state and local taxes,
including issue and transfer taxes incurred by or levied on a Fund, (c)
interest charges on borrowing, (d) fees and expenses of registering the 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
32
<PAGE>
reports to shareholders, (f) costs of proxy solicitations, (g) transfer agency
fees described below, (h) charges and expenses of the Trust's custodian, (i)
compensation of the Trust's officers, Trustees and employees who do not devote
any part of their time to the affairs of the Adviser or its affiliates, (j)
costs of stationery and supplies, and (k) such promotional expenses as may be
contemplated by the Distribution Services Agreement described below.
Distribution Arrangements
Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment
company to directly or indirectly pay expenses associated with the distribution
of its shares in accordance with a duly adopted and approved plan. The Trust
has adopted a plan for each class of shares of the Funds pursuant to Rule
12b-1 (each a "Plan" and collectively the "Plans"). Pursuant to the Plans, each
Fund pays Alliance Fund Distributors, Inc. (the "Principal Underwriter") a Rule
12b-1 distribution services fee which may not exceed an annual rate of 0.50% of
a Fund's aggregate average daily net assets attributable to the Class A shares,
1.00% of a Fund's aggregate average daily net assets attributable to the Class
B shares and 1.00% of a Fund's aggregate average daily net assets attributable
to the Class C shares to compensate the Principal Underwriter for distribution
expenses. The Trustees currently limit payments under the Class A Plan to 0.30%
of a Fund's aggregate average daily net assets attributable to the Class A
shares. The Plans provide that a portion of the distribution services fee in an
amount not to exceed 0.25% of the aggregate average daily net assets of a Fund
attributable to each of the Class A, Class B and Class C shares constitutes a
service fee that the Principal Underwriter will use for personal service and/or
the maintenance of shareholder accounts. The Plans also provide that the
Adviser may use its own resources, which may include management fees received
by the Adviser from the Trust or other investment companies which it manages
and the Adviser's past profits, to finance the distribution of the Funds'
shares.
In approving the Plans, the Trustees determined that there was a reasonable
likelihood that the Plans would benefit each Fund and its shareholders. The
distribution services fee of a particular class will not be used to subsidize
the provision of distribution services with respect to any other class.
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
33
<PAGE>
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. Each plan is of a type known as a "compensation
plan", which means that it compensates the distributor regardless of its
expenses.
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 $61,487 and $152,573 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, 2000. For services
rendered by the Principal Underwriter in connection with the distribution of
Class A shares pursuant to the Plan applicable to such shares, the Principal
Underwriter received $43,449 and $115,391 with respect to the Class A shares of
the Conservative Investors Fund and the Growth Investors Fund, respectively,
during the fiscal year ended April 30, 1999. For services rendered by the
Principal Underwriter in connection with the distribution of Class A shares
pursuant to the Plan applicable to such shares, the Principal Underwriter
received $35,259 and $90,118 with respect to the Class A shares of the
Conservative Investors Fund and the Growth Investors Fund, respectively, during
the fiscal year ended April 30, 1998.
For services rendered by the Principal Underwriter in connection with the
distribution of Class B shares pursuant to the Plan applicable to such shares,
the Principal Underwriter received $345,694 and $765,406 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, 2000. For services
rendered by the Principal Underwriter in connection with the distribution of
Class B shares pursuant to the Plan applicable to such shares, the Principal
Underwriter received $280,866 and $721,138 with respect to the Class B shares
of the Conservative Investors Fund and the Growth Investors Fund, respectively,
during the fiscal year ended April 30, 1999. For services rendered by the
Principal Underwriter in connection with the distribution of Class B shares
pursuant to the Plan applicable to such shares, the Principal Underwriter
received $285,077 and $679,834 with respect to the Class B shares of the
Conservative Investors Fund and the Growth Investors Fund, respectively, during
the fiscal year ended April 30, 1998.
34
<PAGE>
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 $58,875 and $109,616 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, 2000. For services
rendered by the Principal Underwriter in connection with the distribution of
Class C shares pursuant to the Plan applicable to such shares, the Principal
Underwriter received $48,065 and $87,608 with respect to the Class C shares of
the Conservative Investors Fund and the Growth Investors Fund, respectively,
during the fiscal year ended April 30, 1999. For services rendered by the
Principal Underwriter in connection with the distribution of Class C shares
pursuant to the Plan applicable to such shares, the Principal Underwriter
received $40,720 and $70,649 with respect to the Class C shares of the
Conservative Investors Fund and the Growth Investors Fund, respectively, during
the fiscal year ended April 30, 1998.
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, 2000:
CONSERVATIVE INVESTORS FUND
Amount of Expense and Allocated Cost
Category
of Expense Class A Shares Class B Shares Class C Shares
------------------ ---------------- ---------------- ----------------
Advertising/
Marketing $ 30,192 $ 66,828 $ 13,481
Printing and
Mailing of
Prospectuses
and Semi-Annual
and Annual
Reports to Other
than Current
Shareholders $ 3,182 $ 26,001 $ 1,800
Compensation to
Underwriters $ 74,307 $ 177,481 $ 29,477
Compensation to
Dealers $108,731 $ 624,494 $ 78,992
Compensation to
Sales
Personnel $ 9,174 $ 10,913 $ 1,816
Interest, Carrying or
Other
Financing Charges $ O $ 55,746 $ (1,122)
35
<PAGE>
Other (includes
personnel costs
of those home
office employees
involved in the
distribution effort
and the travel-
related expenses
incurred by the
marketing personnel
conducting
seminars) $158,509 $ 321,126 $ 51,228
Total $384,095 $1,282,589 $175,672
Growth Investors Fund
Amount of Expense and Allocated Cost
Category
of Expense Class A Shares Class B Shares Class C Shares
------------------ ---------------- ---------------- ----------------
Advertising/
Marketing $ 43,744 $ 56,801 $ 18,289
Printing and
Mailing of
Prospectuses
and Semi-Annual
and Annual
Reports to Other
than Current
Shareholders $ 7,535 $ 19,002 $ 7,608
Compensation to
Underwriters $111,717 $ 144,970 $ 46,459
Compensation to
Dealers $209,814 $ 759,181 $145,619
Compensation to
Sales
Personnel $ 14,617 $ 10,656 $ 3,734
Interest, Carrying or
Other
Financing Charges $ 0 $ 57,625 <$ 1,657>
Other (includes
personnel costs
of those home
36
<PAGE>
office employees
involved in the
distribution effort
and the travel-
related expenses
incurred by the
marketing personnel
conducting
seminars) $ 223,129 $ 262,913 $ 84,314
Total $ 610,556 $1,311,148 $ 304,366
Custodial Arrangements
State Street Bank and Trust Company, 225 Franklin Street, Boston, MA, 02110
("State Street Bank") acts as the Trust's custodian, but plays no part in
deciding the purchase or sale of portfolio securities. Subject to the
supervision of the Fund's Trustees, State Street may enter into subcustodial
agreements for the 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 located at 500 Plaza Drive, Secaucus, New Jersey 07094, receives
a transfer agency fee per account holder of each of the Class A, Class B and
Class C shares of the Trust, plus reimbursement for out-of-pocket expenses. The
transfer agency fee with respect to the Class B and Class C shares is higher
than the transfer agency fee with respect to the Class A shares, reflecting the
additional costs associated with the Class B and Class C contingent deferred
sales charge. For the fiscal year ended April 30, 2000, the Alliance
Conservative Investors Fund and Alliance Growth Investors Fund paid AFS $79,994
and $197,912 in transfer agency fees.
_______________________________________________________________________________
PURCHASE OF SHARES
_______________________________________________________________________________
The following information supplements that set forth in the Prospectus
under the heading "Purchase and Sale of Shares -- How To Buy Shares."
General
Shares of the Funds are offered on a continuous basis at a price equal to
their net asset value plus an initial sales charge at the time of purchase (the
"Class A shares"), with a contingent deferred sales charge (the "Class B
shares"), without any initial sales charge, as long as the shares are held for
one year or more, or without any contingent deferred sales charge (the "Class C
shares"), in each case as described below. Shares of the Funds that are
37
<PAGE>
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.
Investors may purchase shares of the Funds either through selected
broker-dealers, agents, financial intermediaries or other financial
representatives, or directly through the Principal Underwriter. A transaction,
service, administrative or other similar fee may be charged by your
broker-dealer, agent, financial intermediary or other financial representative
with respect to the purchase, sale or exchange of Class A, Class B or Class C
shares made through such financial representative. Such financial
representative may also impose requirements with respect to the purchase, sale
or exchange of shares that are different from, or in addition to, those imposed
by the Fund, including requirements as to the minimum initial and subsequent
investment amounts. Sales personnel of selected dealers and agents distributing
the Funds' shares may receive differing compensation for selling Class A, Class
B or Class C shares.
Shares may also be sold in foreign countries where permissible. The Funds
may refuse any order for the purchase of shares. The Funds reserve the right to
suspend the sale of their shares to the public in response to conditions in the
securities markets or for other reasons.
The public offering price of shares of the Funds is their net asset value,
plus, in the case of Class A shares, a sales charge which will vary depending
on the amount of the purchase alternative chosen by the investor, as shown in
the table in the Prospectus under "Purchase and Sales of Shares." On each Fund
business day on which a purchase or redemption order is received by a Fund and
trading in the types of securities in which the Fund invests might materially
affect the value of Fund shares, the per share net asset value is computed in
accordance with the Trust's Agreement and Declaration of Trust and By-Laws as
of the next close of regular trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m. Eastern time) by dividing the value of the
total assets attributable to a class, less its liabilities, by the total number
of its shares then outstanding. A Fund business day is any day on which the
Exchange is open for trading.
The respective per share net asset values of the Class A, Class B and Class
C shares are expected to be substantially the same. Under certain
circumstances, however, the per share net asset values of the Class B and Class
C shares may be lower than the per share net asset value of the Class A shares,
as a result of the differential daily expense accruals of the distribution and
transfer agency fees applicable with respect to those classes of shares. Even
under those circumstances, the per share net asset values of the four classes
eventually will tend to converge immediately after the payment of dividends,
which will differ by approximately the amount of the expense accrual
differential among the classes.
38
<PAGE>
The Funds will accept unconditional orders for their shares to be executed
at the public offering price equal to their net asset value next determined
(plus, if applicable, Class A sales charges) as described below. Orders
received by the Principal Underwriter prior to the close of regular trading on
the Exchange on each day the Exchange is open for trading are priced at the net
asset value computed as of the close of regular trading on the Exchange on that
day (plus, if applicable, Class A sales charges). In the case of orders for
purchase of shares placed through selected dealers, agents or financial
representatives, as applicable, the applicable public offering price will be
the net asset value as so determined, but only if the selected dealer, agent or
financial representative receives the order prior to the close of regular
trading on the Exchange and transmits it to the Principal Underwriter prior to
5:00 p.m. Eastern time. The selected dealer, agent or financial representative,
as applicable, is responsible for transmitting such orders by 5:00 p.m. Eastern
time (certain selected dealers, agents or financial representatives may enter
into operating agreements permitting them to transmit purchase information to
the Principal Underwriter after 5:00 p.m. Eastern time and receive that day's
net asset value). If the selected dealer, agent or financial representative, as
applicable, fails to do so, the investor's right to purchase shares at that
day's closing price must be settled between the investor and the selected
dealer, agent or financial representatives, as applicable. If the selected
dealer, agent or financial representative, as applicable, either receives the
order after the close of regular trading on the Exchange, the price will be
based on the net asset value determined as of the close of regular trading on
the Exchange on the next day it is open for trading.
Following the initial purchase of Fund shares, a shareholder may place
orders to purchase additional shares by telephone if the shareholder has
completed the appropriate portion of the Subscription Application or an
"Autobuy" application, both of which may be obtained by calling the "For
Literature" telephone number shown on the cover of this Statement of Additional
Information. Except with respect to certain omnibus accounts, telephone
purchase orders may not exceed $500,000. Payment for shares purchased by
telephone can be made only by electronic funds transfer from a bank account
maintained by the shareholder at a bank that is a member of the National
Automated Clearing House Association ("NACHA"). If a shareholder's telephone
purchase request is received before 3:00 p.m. Eastern time on a Fund business
day, the order to purchase shares is automatically placed the following Fund
business day, and the applicable public offering price will be the public
offering price determined as of the close of business on such following
business day.
Full and fractional shares are credited to a subscriber's account in the
amount of his or her subscription. As a convenience to the subscriber, and to
avoid unnecessary expense to the Fund, share certificates representing shares
of the Fund are not issued except upon written request to the Fund by the
shareholder or his or her authorized selected dealer or agent. This facilitates
later redemption and relieves the shareholder of the responsibility for and
inconvenience of lost or stolen certificates. No certificates are issued for
fractional shares, although such shares remain in the shareholder's account on
the books of the Fund.
39
<PAGE>
In addition to the discount or commission paid to dealers or agents, the
Principal Underwriter from time to time pays additional cash or other
incentives to dealers or agents in connection with the sale of shares of the
Funds. Such additional amounts may be utilized, in whole or in part, to provide
additional compensation to registered representatives who sell shares of the
Funds. On some occasions, such cash or other incentives 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 to locations within or outside the United States. Such
dealer or agent may elect to receive cash incentives of equivalent amount in
lieu of such payments.
Class A, Class B and Class C shares each represent an interest in the same
portfolio of investments of a Fund, have the same rights and are identical in
all respects, except that (i) Class A shares bear the expense of the initial
sales charge (or contingent deferred sales charge, when applicable) and Class B
and Class C shares generally bear the expense of the deferred sales charge,
(ii) Class B shares and Class C shares each bear the expense of a higher
distribution services fee than that borne by Class A shares, (iii) Class B and
Class C shares bear higher transfer agency costs than those borne by Class A
shares, (iv) each Class A, Class B and Class C shares has exclusive voting
rights with respect to provisions of the Rule 12b-1 Plan pursuant to which its
distribution services fee is paid and other matters for which separate class
voting is appropriate under applicable law, provided that, if the Fund submits
to a vote of Class A shareholders, an amendment to the Rule 12b-1 Plan that
would materially increase the amount to be paid thereunder with respect to the
Class A shares, the Class A shareholders and the Class B shareholders will vote
separately by Class, and (v) Class B shares are subject to a conversion
feature. Each class has different exchange privileges and certain different
shareholder service options available.
The Trustees of the Trust have determined that currently no conflict of
interest exists between or among the Class A, Class B and Class C shares. On an
ongoing basis, the Trustees of the Trust, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no such conflict
arises.
Alternative Retail Purchase Arrangements -- Class A, Class B and Class C Shares
The alternative purchase arrangements available with respect to Class A
shares, Class B shares and Class C shares permit an investor to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the anticipated life
of their investment in the Funds, the accumulated distribution services fee and
contingent deferred sales charges on Class B shares prior to conversion, or the
accumulated distribution services fee and contingent deferred sales charge on
Class C shares, would be less than the initial sales charge and accumulated
distribution services fee on Class A shares purchased at the same time, and to
what extent such differential would be offset by the higher return of Class A
40
<PAGE>
shares. Class A shares will normally be more beneficial than Class B shares to
the investor who qualifies for reduced initial sales charges on Class A shares,
as described below. In this regard, the Principal Underwriter will reject any
order (except orders from certain retirement plans) for more than $250,000 for
Class B shares. Class C shares will normally not be suitable for the investor
who qualifies to purchase Class A shares at net asset value. For this reason,
the Principal Underwriter will reject any order for more than $1,000,000 for
Class C shares.
Class A shares are subject to a lower distribution services fee and,
accordingly, pay correspondingly higher dividends per share than Class B shares
or Class C shares. However, because initial sales charges are deducted at the
time of purchase, investors purchasing Class A shares would not have all their
funds invested initially and, therefore, would initially own fewer shares.
Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time might consider
purchasing Class A shares because the accumulated continuing distribution
charges on Class B shares or Class C shares may exceed the initial sales charge
on Class A shares during the life of the investment. Again, however, such
investors must weigh this consideration against the fact that, because of such
initial sales charges, not all their funds will be invested initially.
Other investors might determine, however, that it would be more
advantageous to purchase Class B shares or Class C shares in order to have all
their funds invested initially, although remaining subject to higher continuing
distribution charges and being subject to a contingent deferred sales charge
for a four- year and one-year period, respectively. For example, based on
current fees and expenses, an investor subject to the 4.25% initial sales
charge on Class A shares would have to hold his or 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.
During the fiscal years ended April 30, 2000, 1999 and 1998, the aggregate
amounts of underwriting commissions payable with respect to shares of the
Alliance Conservative Investors Fund were $97,062, $45,483 and $57,838,
respectively. Of those amounts, the Principal Underwriter retained $27,135,
$5,299 and $1,084, respectively, during fiscal years 2000, 1999 and 1998,
representing that portion of the sales charges paid on Class A shares which was
not reallocated to selected dealers. During the Fund's fiscal years ended April
30, 2000, 1999 and 1998, the Principal Underwriter received contingent deferred
41
<PAGE>
sales charges of $0, $0 and $1,568, respectively, on Class A shares, $67,160,
$37,588 and $53,864, respectively, on Class B shares, and $2,767, $2,596 and
$2,405, respectively, on Class C shares.
During the fiscal years ended April 30, 2000, 1999 and 1998, the aggregate
amounts of underwriting commissions payable with respect to shares of the
Alliance Growth Investors Fund were $149,792, $71,999 and $85,908,
respectively. Of those amounts, the Principal Underwriter retained $53,762,
$12,401 and $901, respectively, during fiscal years 2000, 1999 and 1998,
representing that portion of the sales charges paid on Class A shares which was
not reallocated to selected dealers. During the Fund's fiscal years ended April
30, 2000, 1999 and 1998, the Principal Underwriter received contingent deferred
sales charges of $0, $0 and $5,511, respectively, on Class A shares, $90,968,
$56,535 and $77,308, respectively, on Class B shares, and $5,062, $3,063 and
$3,089, respectively, on Class C shares.
Class A Shares
The public offering price of Class A shares is the net asset value plus a
sales charge, as set forth below:
Discount or
Commission to
As % of the Dealers or Agents
Amount of As % of Net Public Offering as a % of
Purchase Amount Invested Price Offering Price
------------------ ---------------- ---------------- ----------------
Less than
$100,000 4.44% 4.25% 4.00%
$100,000 but
less than
$250,000 3.36 3.25 3.00
$250,000 but
less than
$500,000 2.30 2.25 2.00
$500,000 but
less than
$1,000,000* 1.78 1.75 1.50
____________________
* There is no initial sales charge on transactions of $1,000,000 or more.
With respect to purchases of $1,000,000 or more, Class A shares redeemed
within one year of purchase will be subject to a contingent deferred sales
charge equal to 1% of the lesser of the cost of the shares being redeemed or
42
<PAGE>
their net asset value at the time of redemption. Accordingly, no sales charge
will be imposed on increases in net asset value above the initial purchase
price. In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The contingent
deferred sales charge on Class A shares will be waived on certain redemptions,
as described below under "Class B Shares." In determining the contingent
deferred sales charge applicable to a redemption of Class A shares, it will be
assumed that the redemption is, first, of any shares that are not subject to a
contingent deferred sales charge (for example, because an initial sales charge
was paid with respect to the shares, or they have been held beyond the period
during which the charge applies or were acquired upon the reinvestment of
dividends or distributions) and, second, of shares held longest during the time
they are subject to the sales charge. Proceeds from the contingent deferred
sales charge on Class A shares are paid to the Principal Underwriter and are
used by the Principal Underwriter to defray the expenses of the Principal
Underwriter related to providing distribution-related services to the Funds in
connection with sales of Class A shares, such as the payment of compensation to
selected dealers and agents for selling Class A shares. With respect to
purchases of $1,000,000 or more made through selected dealers or agents, the
Adviser may, pursuant to the Rule 12b-1 Plans described above, pay such dealers
or agents from its own resources a fee of up to 1% of the amount invested to
compensate such dealers or agents for their distribution assistance in
connection with such purchases.
No initial sales charge is imposed on Class A shares issued (i) pursuant to
the automatic reinvestment of income dividends or capital gains distributions,
or (ii) in exchange for Class A shares of other Alliance Mutual Funds (as that
term is defined under "Combined Purchase Privilege" below), except that an
initial sales charge will be imposed on Class A shares issued in exchange for
Class A shares of AFD Exchange Reserves ("AFDER") that were purchased for cash
without the payment of an initial sales charge and without being subject to a
contingent deferred sales charge, or (iii) upon the automatic conversion of
Class B shares as described below under "Class B Shares--Conversion Feature".
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 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.
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.
43
<PAGE>
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.
-U.S. Government Portfolio
-Corporate Bond Portfolio
-Quality Bond Portfolio
Alliance Capital Reserves
-Alliance Capital Reserves Portfolio
-Alliance Money Reserves Portfolio
Alliance Disciplined Value Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
-Alliance Government Reserves
-Alliance Treasury Reserves Portfolio
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance Health Care Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Institutional Funds, Inc.
Alliance International Fund
-Alliance Real Estate Investment Institutional Fund
-Alliance Premier Growth Institutional Fund
-Alliance Quasar Institutional Fund
-Alliance Special Equity Institutional Fund
Alliance Institutional Reserves, Inc.
44
<PAGE>
-Prime Portfolio
-Government Portfolio
-Tax-Free Portfolio
-Treasury Portfolio
-Trust Portfolio
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Money Market Fund
-Prime Portfolio
-Government Portfolio
-General Municipal Portfolio
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-National Portfolio
-Insured National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-New Jersey Portfolio
-Pennsylvania Portfolio
-Ohio Portfolio
-Minnesota Portfolio
-Florida Portfolio
-Michigan Portfolio
-Massachusetts Portfolio
-Virginia Portfolio
-Arizona Portfolio
Alliance Municipal Trust
-Connecticut Portfolio
-California Portfolio
-Florida Portfolio
-New York Portfolio
-General Portfolio
-New Jersey Portfolio
-Virginia Portfolio
-Massachusetts Portfolio
-Pennsylvania Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Select Investors Series, Inc.
-Premier Portfolio
-Technology Portfolio
-Biotechnology Portfolio
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
45
<PAGE>
Alliance Variable Products Series Fund, Inc.
-Conservative Investors Portfolio
-Global Bond Portfolio
-Global Dollar Government Portfolio
-Growth and Income Portfolio
-Growth Portfolio
-Growth Investors Portfolio
-High Yield Portfolio
-International Portfolio
-Money Market Portfolio
-North American Government Income Portfolio
-Premier Growth Portfolio
-Quasar Portfolio
-Real Estate Investment Portfolio
-Short-Term Multi-Market Portfolio
-Technology Portfolio
-Total Return Portfolio
-U.S. Government/High Grade Securities Portfolio
-Utility Income Portfolio
-Worldwide Privatization Portfolio
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Growth 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.
46
<PAGE>
Cumulative Quantity Discount (Right of Accumulation). An investor's
purchase of additional Class A shares of a Fund may qualify for a Cumulative
Quantity Discount. The applicable sales charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on
the previous day) of (a) all Class A, Class B and
Class C shares of the Fund held by the investor and
(b) all shares of any other Alliance Mutual Fund
held by the investor; and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder
eligible to combine his or her purchase with that
of the investor into a single "purchase" (see
above).
For example, if an investor owned shares of an Alliance Mutual Fund worth
$200,000 at their then current net asset value and, subsequently, purchased
Class A shares of the Fund worth an additional $100,000, the initial sales
charge for the $100,000 purchase would be at the rate 2.25% applicable to a
single $300,000 purchase of shares of the Fund, rather than the 3.25% rate.
To qualify for the Combined Purchase Privilege or to obtain the Cumulative
Quantity Discount on a purchase through a selected dealer or agent, the
investor or selected dealer or agent must provide the Principal Underwriter
with sufficient information to verify that each purchase qualifies for the
privilege or discount.
Statement of Intention. Class A investors may also obtain the reduced
initial sales charges shown in the Prospectus by means of a written Statement
of Intention, which expresses the investor's intention to invest not less than
$100,000 within a period of 13 months in Class A shares (or Class A, Class B
and/or Class C shares) of a Fund or any other Alliance Mutual Fund. Each
purchase of shares under a Statement of Intention will be made at the public
offering price or prices applicable at the time of such purchase to a single
transaction of the dollar amount indicated in the Statement of Intention. At
the investor's option, a Statement of Intention may include purchases of shares
of a Fund or any other Alliance Mutual Fund made not more than 90 days prior to
the date that the investor signs the Statement of Intention; however, the
13-month period during which the Statement of Intention is in effect will begin
on the date of the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege described above
may purchase shares of the Alliance Mutual Funds under a single Statement of
Intention. For example, if at the time an investor signs a Statement of
Intention to invest at least $100,000 in Class A shares of a Fund, the investor
and the investor's spouse each purchase shares of the Fund worth $20,000 (for a
total of $40,000), it will only be necessary to invest only a total of $60,000
during the following 13 months in shares of the Fund or any other Alliance
Mutual Fund to qualify for the 3.25% sales charge on the total amount being
invested, the sales charge applicable to an investment of $100,000).
47
<PAGE>
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 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
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the redemption or repurchase transaction. Investors may exercise the
reinstatement privilege by written request sent to a Fund at the address shown
on the cover of this Statement of Additional Information.
Sales at Net Asset Value. The Funds may sell their Class A shares at net
asset value (i.e., without any initial sales charge), and without any
contingent deferred sales charge to certain categories of investors including:
(i) investment management clients of the Adviser or its affiliates; (ii)
officers and present or former Trustees of the Trust; present or former
directors and trustees of other investment companies managed by the Adviser;
present or retired full-time employees of the Adviser; the Principal
Underwriter, AFS and their affiliates; officers and directors of ACMC, the
Principal Underwriter, AFS and their affiliates; officers, directors and
present and full-time employees of selected dealers or agents; 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,
the Principal Underwriter, AFS and their affiliates; certain employee benefit
plans for employees of the Adviser, the Principal Underwriter, AFS and their
affiliates;(iv) registered investment advisers or other financial
intermediaries who charge a management, consulting or other fee for their
service and who purchase shares through a broker or agent approved by the
Principal Underwriter and clients of such registered investment advisers or
financial intermediaries whose accounts are linked to the master account of
such investment adviser or financial intermediary on the books of such approved
broker or agent; (v) persons participating in a fee-based program, sponsored
and maintained by a registered broker-dealer or other financial intermediary
and approved by the Principal Underwriter, pursuant to which such persons pay
an asset-based fee to such broker-dealer or financial intermediary, or its
affiliate or agent, for service in the nature of investment advisory or
administrative services; (vi) 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.
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Proceeds from the contingent deferred sales charge on the Class B shares
are paid to the Principal Underwriter and are used by the Principal Underwriter
to defray the expenses of the Principal Underwriter related to providing
distribution-related services to the Funds in connection with the sale of the
Class B shares, such as the payment of compensation to selected dealers and
agents for selling Class B shares. The combination of the contingent deferred
sales charge and the distribution services fee enables the Funds to sell Class
B shares without a sales charge being deducted at the time of purchase. The
higher distribution services fee incurred by Class B shares will cause such
shares to have a higher expense ratio and to pay lower dividends than those
related to Class A shares.
Contingent Deferred Sales Charge. Class B shares that are redeemed within four
years of purchase will be subject to a contingent deferred sales charge at the
rates set forth below charged as a percentage of the dollar amount subject
thereto. The charge will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the time of
redemption. Accordingly, no sales charge will be imposed on increases in net
asset value above the initial purchase price. In addition, no charge will be
assessed on shares derived from reinvestment of dividends or capital gains
distributions.
To illustrate, assume that on or after November 19, 1993 an investor
purchased 100 Class B shares at $10 per share (at a cost of $1,000) and in the
second year after purchase the net asset value per share is $12 and, during
such time, the investor has acquired 10 additional Class B shares upon dividend
reinvestment. If at such time the investor makes his or her first redemption of
50 Class B shares (proceeds of $600), 10 Class B shares will not be subject to
charge because of dividend reinvestment. With respect to the remaining 40 Class
B shares, the charge is applied only to the original cost of $10 per share and
not to the increase in net asset value of $2 per share. Therefore, $400 of the
$600 redemption proceeds will be charged at a rate of 3.0% (the applicable rate
in the second year after purchase, as set forth below).
The amount of the contingent deferred sales charge, if any, will vary
depending on the number of years from the time of payment for the purchase of
Class B shares and the date of redemption of such shares.
Contingent Deferred Sales Charge as a % of Dollar Amount
Shares Purchased On
Years since or After August 2, Shares Purchased On or
Subject to 1993 but Before After November 19,
Purchase November 19, 1993 1993
-------------- -------------------- -----------------------
First 5.50% 4.00%
Second 4.50% 3.00%
Third 3.50% 2.00%
Fourth 2.50% 1.00%
Fifth 1.50% None
Thereafter 0.50% None
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In determining the contingent deferred sales charge applicable to a
redemption of Class B shares, it will be assumed that the redemption consists
first, of any shares were acquired upon the reinvestment of dividends or
distributions and, second, of shares held longest during the time they are
subject to the sales charge. When shares acquired in an exchange are redeemed,
the applicable contingent deferred sales charge and conversion schedules will
be the schedules that applied at the time of the purchase of shares of the
corresponding class of the Alliance Mutual Fund originally purchased by the
shareholder.
The contingent deferred sales charge is waived on redemptions of shares (i)
following the death or disability, as defined in the Internal Revenue Code of
1986, as amended, and the rules and regulations thereunder (the "Code"), of a
shareholder, (ii) to the extent that the redemption represents a minimum
required distribution from an individual retirement account or other retirement
plan to a shareholder who has attained the age of 70-1/2, (iii) that had been
purchased by present or former Trustees of the Trust, by the relative of any
such person, by any trust, individual retirement account or retirement plan
account for the benefit of any such person or relative, or by the estate of any
such person or relative, or (iv) pursuant to a systematic withdrawal plan (see
"Shareholder Services--Systematic Withdrawal Plan" below).
Conversion Feature. Class B shares will automatically convert to Class A
shares on the tenth Fund business day in the month following the month in which
the eighth anniversary date of the acceptance of the purchase order for the
Class B shares occurs and such shares will no longer be subject to a higher
distribution services fee. Such conversions will be on the basis of the
relative net asset values of the two classes, without the imposition of any
sales load, fee or other charge. The purpose of the conversion feature is to
reduce the distribution services fee paid by holders of Class B shares that
have been outstanding long enough for the Principal Underwriter to have been
compensated for distribution expenses incurred in the sale of such shares. See
"Shareholder Services--Exchange Privilege."
For purposes of conversion to Class A shares, Class B shares purchased
through the reinvestment of dividends and distributions paid in respect of
Class B shares in a shareholder's account will be considered to be held in a
separate sub-account. Each time any Class B shares in the shareholder's account
(other than those in the sub-account) convert to Class A shares, an equal
pro-rata portion of the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of an opinion of counsel to the effect that the
conversion of Class B shares to Class A shares does not constitute a taxable
event under federal income tax law. The conversion of Class B shares to Class A
shares may be suspended if such an opinion is no longer available at the time
such conversion is to occur. In that event, no further conversions of Class B
shares would occur, and shares might continue to be subject to the higher
distribution services fee for an indefinite period, which may extend beyond the
period ending eight years after the end of the calendar month in which the
shareholder's purchase order was accepted.
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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 dollar amount subject thereto. The charge will be assessed on an amount
equal to the lesser of the cost of shares being redeemed or their net asset
value at the time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price. In addition,
no charge will be assessed on shares derived from reinvestment of dividends or
capital gains distributions. The contingent deferred sales charge on Class C
shares will be waived on certain redemptions, as described above under "--Class
B Shares."
In determining the contingent deferred sales charge applicable to a
redemption of Class C shares, it will be assumed that the redemption is, first,
of any shares that are not subject to a contingent deferred sales charge (for
example, because the shares have been held beyond the period during which the
charge applies or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the time they are
subject to the sales charge.
Proceeds from the contingent deferred sales charge are paid to the
Principal Underwriter and are used by the Principal Underwriter to defray the
expenses of the Principal Underwriter related to providing distribution-related
services to the Fund in connection with the sale of the Class C shares, such as
the payment of compensation to selected dealers and agents for selling Class C
shares. The combination of the contingent deferred sales charge and the
distribution services fee enables the Fund to sell the Class C shares without a
sales charge being deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to have a higher
expense ratio and to pay lower dividends than those paid with respect to Class
A shares.
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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 will be made in cash. The value of a
shareholder's shares on redemption or repurchase may be more or less than the
cost of such shares to the shareholder, depending upon the market value of a
Fund's portfolio securities at the time of such redemption or repurchase.
Redemption proceeds will reflect the deduction of the applicable contingent
deferred sales charge, if any. Payment received by a shareholder upon
redemption or repurchase of his or her shares, assuming the shares constitute
capital assets in his or her hands, will result in long-term or short-term
capital gain (or loss), depending upon the shareholder's holding period and
basis in respect of the shares redeemed.
To redeem shares of a Fund for which no share certificates have been
issued, the registered owner or owners should forward a letter to the Fund
containing a request for redemption. The signature or signatures on the letter
must be guaranteed by an "eligible guarantor institution " as defined in 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
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<PAGE>
share certificate surrendered to the Fund for redemption must be signed by the
registered owner or owners exactly as the registered name appears on the face
of the certificate or, alternatively, a stock power signed in the same manner
may be attached to the share certificate or certificates or, where tender is
made by mail, separately mailed to the relevant Fund. The signature or
signatures on the assignment form must be guaranteed in the manner described
above.
Telephone Redemption By Electronic Funds Transfer. Each Fund shareholder is
entitled to request redemption by electronic funds transfer of shares for which
no share certificates have been issued by telephone at (800) 221-5672 by a
shareholder who has completed the appropriate portion of the Subscription
Application found in the Prospectus or, in the case of an existing shareholder,
an "Autosell" application obtained from AFS. A telephone redemption request by
electronic funds transfer may not exceed $100,000 (except for certain omnibus
accounts), and must be made by 4:00 p.m. Eastern time on a Fund business day as
defined above. Proceeds of telephone redemptions will be sent by electronic
funds transfer to a shareholder's designated bank account at a bank selected by
the shareholder that is a member of the NACHA.
Telephone Redemption By Check. Each Fund shareholder is eligible to request
redemption by check of Fund shares for which no share certificates have been
issued, by telephone at (800) 221-5672 before 4:00 p.m. Eastern time on a Fund
business day in an amount not exceeding $50,000. Proceeds of such redemptions
are remitted by check to the shareholder's address of record. A shareholder
otherwise eligible for telephone redemption by check may cancel the privilege
by written instruction to AFS, or by checking the appropriate box on the
Subscription Application found in the Prospectus.
Telephone Redemptions--General. During periods of drastic economic or
market developments, such as the market break of October 1987, it is possible
that shareholders would have difficulty in reaching AFS by telephone (although
no such difficulty was apparent at any time in connection with the 1987 market
break). If a shareholder were to experience such difficulty, the shareholder
should issue written instructions to AFS at the address shown on the cover of
this Statement of Additional Information. The Funds reserve the right to
suspend or terminate their telephone redemption service at any time without
notice. Telephone redemption is not available with respect to shares (i) for
which certificates have been issued, (ii) held in nominee or "street name"
accounts, (iii) held by a shareholder who has changed his or her address of
record within the preceding 30 calendar days or (iv) held in any retirement
plan account. Neither the Funds nor the Adviser, the Principal Underwriter nor
AFS will be responsible for the authenticity of telephone requests for
redemptions that a Fund reasonably believes to be genuine. AFS will employ
reasonable procedures in order to verify that telephone requests for
redemptions are 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
54
<PAGE>
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 or selected dealer or agent
is responsible for transmitting the request to the Principal Underwriter by
5:00 p.m. Eastern time (certain selected dealers, agents or financial
representatives may enter into operating agreements permitting them to transmit
purchase information to the Principal Underwriter after 5:00 p.m. Eastern time
and receive that day's net asset value). If the financial intermediary or
selected dealer or agent fails to do so, the shareholder's right to receive
that day's closing price must be settled between the shareholder and the
selected dealer or agent. A shareholder may offer shares of a Fund to the
Principal Underwriter either directly or through a selected dealer or agent.
Neither the Funds nor the Principal Underwriter charges a fee or commission in
connection with the repurchase of shares (except for the contingent deferred
sales charge, if any). Normally, if shares of the Funds are offered through a
financial intermediary, selected dealer or agent, the repurchase is settled by
the shareholder as an ordinary transaction with or through the selected dealer
or agent, who may charge the shareholder for this service. The repurchase of
shares of the Funds as described above is a voluntary service of the Funds and
the Funds may suspend or terminate this practice at any time.
General
The Funds reserve the right to close out an account that through redemption
has remained below $200 for 90 consecutive days. Shareholders will receive 60
days' written notice to increase the account value before the account is
closed. No contingent deferred sales charge will be deducted from the proceeds
of this redemption. In the case of a redemption or repurchase of shares of the
Funds recently purchased by check, redemption proceeds will not be made
available until the relevant Fund is reasonably assured that the check has
cleared, normally up to 15 calendar days following the purchase date.
_______________________________________________________________________________
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.
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<PAGE>
Automatic Investment Program
Investors may purchase shares of the Funds through an automatic investment
program utilizing electronic funds transfers drawn on the investor's own bank
account. Under such a program, pre-authorized monthly drafts for a fixed amount
(at least $25) are used to purchase shares through the selected dealer or agent
designated by the investor at the public offering price next determined after
the Principal Underwriter receives the proceeds from the investor's bank. In
electronic form, drafts can be made on or about a date each month selected by
the shareholder. Investors wishing to establish an automatic investment program
in connection with their initial investment should complete the appropriate
portion of the Subscription Application found in the Prospectus. Current
shareholders should contact AFS at the address or telephone numbers shown on
the cover of this Statement of Additional Information to establish an automatic
investment program.
Exchange Privilege
You may exchange your investment in the Funds for shares of the same class
of other Alliance Mutual Funds (including AFD Exchange Reserves, a money market
fund managed by the Adviser). In addition, (i) present officers and full-time
employees of the Adviser, (ii) present directors or trustees of any Alliance
Mutual Fund and (iii) certain employee benefit plans for employees of the
Adviser, the Principal Underwriter, AFS and their affiliates may, on a tax-free
basis, 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
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<PAGE>
the Alliance Mutual Fund whose shares are being exchanged of (i) proper
instructions and all necessary supporting documents as described in such fund's
prospectus, or (ii) a telephone request for such exchange in accordance with
the procedures set forth in the following paragraph. Exchanges involving the
redemption of shares recently purchased by check will be permitted only after
the Alliance Mutual Fund whose shares have been tendered for exchange is
reasonably assured that the check has cleared, normally up to 15 calendar days
following the purchase date. Exchanges of shares of Alliance Mutual Funds will
generally result in the realization of a capital gain or loss for federal
income tax purposes.
Each Fund shareholder, and the shareholder's selected dealer, agent or
financial representative, as applicable, are authorized to make telephone
requests for exchanges unless AFS receives written instruction to the contrary
from the shareholder, or the shareholder declines the privilege by checking the
appropriate box on the Subscription Application found in the Prospectus. Such
telephone requests cannot be accepted with respect to shares then represented
by share certificates. Shares acquired pursuant to a telephone request for
exchange will be held under the same account registration as the shares
redeemed through such exchange.
Eligible shareholders desiring to make an exchange should telephone AFS
with their account number and other details of the exchange at (800) 221-5672
before 4:00 p.m. Eastern time, on a Fund business day as defined above.
Telephone requests for exchanges received before 4:00 p.m. Eastern time on a
Fund business day will be processed as of the close of business on that day.
During periods of drastic economic or market developments, such as the market
break of October 1987, it is possible that shareholders would have difficulty
in reaching AFS by telephone (although no such difficulty was apparent at any
time in connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written instructions
to AFS at the address shown on the cover of this Statement of Additional
Information.
A shareholder may elect to initiate a monthly "Auto Exchange" whereby a
specified dollar amount's worth of his or her Fund shares (minimum $25) is
automatically exchanged for shares of another Alliance Mutual Fund. Auto
Exchange transactions normally occur on the 12th day of each month, or the Fund
business day prior thereto if the 12th day is not a Fund business day.
None of the Alliance Mutual Funds, the Adviser, the Principal Underwriter
or AFS will be responsible for the authenticity of telephone requests for
exchanges that a Fund reasonably believes to be genuine. AFS will employ
reasonable procedures in order to verify that telephone requests for exchanges
are genuine, including, among others, recording such telephone instructions and
causing written confirmations of the resulting transactions to be sent to
shareholders. If AFS did not employ such procedures, it could be liable for
losses arising from unauthorized or fraudulent telephone instructions. Selected
dealers, agents or financial representatives, as applicable, may charge a
commission for handling telephone requests for exchanges.
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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 to reject any order to acquire its shares through
exchange or, at any time on 60 days' notice to its shareholders, otherwise 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 reaches $5 million on or before December 15th in any
year, all Class B shares or Class C shares of the Fund held by such plan can be
exchanged, at the plan's request, without any sales charge, for Class A shares
of such Fund.
Simplified Employee Pension Plan ("SEP"). Sole proprietors, partnerships
and corporations may sponsor a SEP under which they make annual tax-deductible
contributions to an IRA established by each eligible employee within prescribed
limits based on employee compensation.
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403(b)(7) Retirement Plan. Certain tax-exempt organizations and public
educational institutions may sponsor retirement plans under which an employee
may agree that monies deducted from his or her compensation (minimum $25 per
pay period) may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a subsidiary of
Equitable, which serves as custodian or trustee under the retirement plan
prototype forms available from the Funds, charges certain nominal fees for
establishing an account and for annual maintenance. A portion of these fees is
remitted to AFS as compensation for its services to the retirement plan
accounts maintained with a Fund.
Distributions from retirement plans are subject to certain Code
requirements in addition to normal redemption procedures. For additional
information please contact AFS at the address or "For Literature" telephone
number shown on the cover of this Statement of Additional Information.
Dividend Direction Plan
A shareholder who already maintains, in addition to his or her Class A,
Class B or Class C Fund accounts, a Class A, Class B or Class C account with
one or more other Alliance Mutual Funds may direct that income dividends and/or
capital gains distributions paid on his or her Class A, Class B or Class C Fund
shares be automatically reinvested, in any amount, without the payment of any
sales or service charges, in shares of the same class of such other Alliance
Mutual Fund(s). Further information can be obtained by contacting AFS at the
address or the "For Literature" telephone number shown on the cover of this
Statement of Additional Information. Investors wishing to establish a dividend
direction plan in connection with their initial investment should complete the
appropriate section of the Subscription Application found in the Prospectus.
Current shareholders should contact AFS to establish a dividend direction plan.
Systematic Withdrawal Plan
General. Any shareholder who owns or purchases shares of a Fund having a
current net asset value of at least $4,000 (for quarterly or less frequent
payments), $5,000 (for bi-monthly payments) or $10,000 (for monthly
payments)may establish a systematic withdrawal plan under which the shareholder
will periodically receive a payment in a stated amount of not less than $50 on
a selected date. Systematic withdrawal plan participants must elect to have
their dividends and distributions from a Fund automatically reinvested in
additional shares of that Fund.
Shares of a Fund owned by a participant in the Fund's systematic withdrawal
plan will be redeemed as necessary to meet withdrawal payments and such
withdrawal payments will be subject to any taxes applicable to redemptions and,
except as discussed 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,
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<PAGE>
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 at least equivalent to three times the annual withdrawal
or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made by check or
electronically via the Automated Clearing House ("ACH") network. Investors
wishing to establish a systematic withdrawal plan in conjunction with their
initial investment in shares of a Fund should complete the appropriate portion
of the Subscription Application found in the Prospectus, while current Fund
shareholders desiring to do so can obtain an application form by contacting AFS
at the address or the "For Literature" telephone number shown on the cover of
this Statement of Additional Information.
CDSC Waiver for Class B Shares and Class C Shares. Under a systematic
withdrawal plan, up to 1% monthly, 2% bi-monthly or 3% quarterly of the value
at the time of redemption of the Class B or Class C shares in a shareholder's
account may be redeemed free of any contingent deferred sales charge.
With respect to Class B shares, the waiver applies only with respect to
shares acquired after July 1, 1995. Class B shares that are not subject to a
contingent deferred sales charge (such as shares acquired with reinvested
dividends or distributions) will be redeemed first and will count toward the
foregoing limitations. Remaining Class B shares that are held the longest will
be redeemed next. Redemptions of Class B shares in excess of the foregoing
limitations will be subject to any otherwise applicable contingent deferred
sales charge.
With respect to Class C shares, shares held the longest will be redeemed
first and will count toward the foregoing 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.
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_______________________________________________________________________________
NET ASSET VALUE
_______________________________________________________________________________
The per share net asset value is computed in accordance with the Trust's
Agreement and Declaration of Trust and By-Laws at the next close of regular
trading on the Exchange (ordinarily 4:00 p.m. Eastern time) following receipt
of a purchase or redemption order by a Fund on each Fund business day on which
such an order is received and on such other days as the Board of Trustees deems
appropriate or necessary in order to comply with Rule 22c-1 under the 1940 Act.
Each Fund's per share net asset value is calculated by dividing the value of
the Fund's total assets, less its liabilities, by the total number of its
shares then outstanding. A Fund business day is any weekday on which the
Exchange is open for trading.
In accordance with applicable rules under the 1940 Act, portfolio
securities are valued at current market value or at fair value as determined in
good faith by the Board of Trustees. The Board of Trustees has delegated to the
Adviser certain of the Board's duties with respect to the following procedures.
Readily marketable securities listed on the Exchange or on a foreign securities
exchange (other than foreign securities exchanges whose operations are similar
to those of the U.S. over-the-counter market) are valued, except as indicated
below, at the last sale price reflected on the consolidated tape at the close
of the Exchange or, in the case of a foreign securities exchange, at the last
quoted sale price, in each case on the business day as of which such value is
being determined. If there has been no sale on such day, the securities are
valued at the mean of the closing bid and asked prices on such day. If no bid
or asked prices are quoted on such day, then the security is valued in good
faith at fair value by, or in accordance with procedures established by, the
Board of Trustees. Readily marketable securities not listed on the Exchange or
on a foreign securities exchange but listed on other United States national
securities exchanges or traded on The Nasdaq Stock Market, Inc. are valued in
like manner. Portfolio securities traded on the Exchange and on one or more
foreign or other national securities exchanges, and portfolio securities not
traded on the Exchange but traded on one or more foreign or other national
securities exchanges are valued in accordance with these procedures by
reference to the principal exchange on which the securities are traded.
Readily marketable securities traded in the over-the-counter market,
securities listed on a foreign securities exchange whose operations are similar
to those of U.S. over-the-counter market, and securities listed on a U.S.
national securities exchange whose primary market is believed to be
over-the-counter (but excluding securities traded on The Nasdaq Stock Market,
Inc.), are valued at the mean of the current bid and asked prices as reported
by Nasdaq or, in the case of securities not quoted by Nasdaq, the National
Quotation Bureau or another comparable source.
Listed put or call options purchased by the Funds are valued at the last
sale price. If there has been no sale on that day, such securities will be
valued at the closing bid prices on that day.
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Open futures contracts and options thereon will be valued using the closing
settlement price or, in the absence of such a price, the most recent quoted bid
price. If there are no quotations available for the day of valuation, the last
available closing settlement price will be used.
U.S. Government securities and other debt instruments having 60 days or
less remaining until maturity are valued at amortized cost if their original
maturity was 60 days or less, or by amortizing their fair value as of the 61st
day prior to maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Trustees determines that this method does
not represent fair value).
Fixed-income securities may be valued on the basis of prices provided by a
pricing service when such prices are believed to reflect the fair market value
of such securities. The prices provided by pricing services take into account
many factors, including institutional size trading in similar groups of
securities and any developments related to specific securities.
All other assets of the Fund are valued in good faith at fair value by, or
in accordance with procedures established by, the Board of Trustees.
Trading in securities on Far Eastern and European securities exchanges and
over-the-counter markets is normally completed well before the close of
business of a Fund business day. In addition, trading in foreign markets may
not take place on all Fund business days. Furthermore, trading may take place
in various foreign markets on days that are not Fund business days. Each Fund's
calculation of the net asset value per share, therefore, does not always take
place contemporaneously with the most recent determination of the prices of
portfolio securities in these markets. Events affecting the values of these
portfolio securities that occur between the time their prices are determined in
accordance with the above procedures and the close of the Exchange will not be
reflected in the Funds' calculation of net asset value unless it is believed
that these prices do not reflect current market value, in which case the
securities may be valued in good faith at fair value by, or in accordance with
procedures established by, the Board of Trustees.
The Board of Trustees may suspend the determination of a Fund's net asset
value (and the offering and sale 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 the Fund to
dispose of securities owned by it or to determine fairly the value of its net
assets, or (3) for the protection of shareholders, the SEC by order permits a
suspension of the right of redemption or a postponement of the date of payment
on redemption.
For purposes of determining the Fund's net asset value per share, all
assets and liabilities initially expressed in a foreign currency will be
converted into U.S. dollars at the mean of the current bid and asked prices of
such currency against the U.S. dollar last quoted by a major bank that is a
regular participant in the relevant foreign exchange market or on the basis of
a pricing service that takes into account the quotes provided by a number of
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such major banks. If such quotations are not available as of the close of the
Exchange, the rate of exchange will be determined in good faith by, or under
the direction of, the Board of Trustees.
The assets attributable to the Class A shares, Class B shares and Class C
shares will be invested together in a single portfolio. The net asset value of
each class will be determined separately by subtracting the liabilities
allocated to that class from the assets belonging to that class in accordance
with the provisions of a plan adopted by the Fund in accordance with Rule 18f-3
under the 1940 Act.
_______________________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_______________________________________________________________________________
Dividends paid by the Funds, if any, with respect to Class A, Class B and
Class C shares will be calculated in the same manner at the same time on the
same day and will be in the same amount, except that the higher distribution
services applicable to Class A, Class B and Class C shares, and any incremental
transfer agency costs relating to Class B and Class C shares, will be borne
exclusively by the class to which they relate.
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 (the
"Code"), for each taxable year. In order to qualify as a regulated investment
company, each Fund must, among other things, (1) derive at least 90% of its
gross income from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of stock, securities or
foreign currencies, or other income (including gains from options, futures or
forward contracts) derived with respect to its business of investing in stock,
securities or currencies, and (2) diversify its holdings so that at the end of
each quarter of its taxable year, the following two conditions are met: (i) at
least 50% of the market value of the Fund's assets is represented by cash or
cash items, U.S. Government securities, securities of other regulated
investment companies, and other securities limited, in respect of any one
issuer, to an amount not greater than 5% of the value of the Fund's assets and
10% of the outstanding voting securities of such issuer, and (ii) not more than
25% of the value of its assets is invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other regulated
investment companies) or of two or more issuers that the Fund controls and that
are engaged in the same, similar, or related trades or businesses. These
requirements may limit the range of the Fund's investments.
If a Fund qualifies as a regulated investment company, it will not be
subject to federal income tax on the part of its income distributed to
shareholders, provided the Fund distributes during its taxable year at least
(a) 90% of its taxable net investment income (generally, dividends, interest,
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certain other income, and the excess, if any, of net short-term capital gain
over net long-term capital loss) and (b) 90% of the excess of (i) its
tax-exempt interest income less (ii) certain deductions attributable to that
income. Each Fund intends to make sufficient distributions to shareholders to
meet this requirement. Investors should consult their own counsel for a
complete understanding of the requirements the Funds must meet to qualify for
such treatment.
In addition, if a Fund fails to distribute in a calendar year substantially
all of its ordinary income for such year and substantially all of its capital
gain net income for the one-year period ending October 31 (or later if the Fund
is permitted so to elect and so elects), plus any retained amount from the
prior year, the Fund will be subject to a 4% excise tax on the undistributed
amounts. A dividend paid to shareholders by a Fund in January of a year
generally is deemed to have been paid by the Fund on December 31 of the
preceding year, if the dividend was declared and payable to shareholders of
record on a date in October, November or December of that preceding year. The
Funds intend generally to make distributions sufficient to avoid imposition of
the 4% excise tax.
The information set forth in the Funds' Prospectus and the following
discussion relates solely to federal income taxes on dividends and
distributions by a Fund and assumes that each Fund qualifies as a regulated
investment company. Investors should consult their own counsel for further
details and for the application of state and local tax laws to his or her
particular situation.
Dividends out of net ordinary income and distributions of net short-term
capital gains are taxable to shareholders as ordinary income. The
dividends-received deduction for corporations should also be applicable to each
Fund's dividends of net investment income, but only to the extent so designated
by the Fund. The amount of such dividends and distributions that may be
designated by a Fund as eligible for the dividends-received deduction is
limited to the amount of qualifying dividends from domestic corporations
received by the Fund during the fiscal year. Furthermore, provisions of the tax
law disallow the dividends-received deduction to the extent a corporation's
investment in shares of a Fund is financed with indebtedness. The
dividends-received deduction is also disallowed with respect to a dividend
unless the corporate shareholder held its shares without protection from risk
of loss on the ex-dividend date and for at least 45 more days during the 90-day
period beginning 45 days prior to the ex-dividend date.
Distributions of net capital gains designated by a Fund as such (i.e., the
excess of net long-term capital gain over net short-term capital loss) are
taxable as long-term capital gain (generally at a 20% rate for noncorporate
shareholders), regardless of how long a shareholder has held shares in the Fund.
Capital gains distributions are not eligible for the dividends-received
deduction for corporate shareholders. Any dividend or distribution received by
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a shareholder on shares of the Fund (even if received shortly after the
purchase of such shares by such shareholder) will have the effect of reducing
the net asset value of such shares by the amount of such dividend or
distribution. A loss on the sale of shares held for six months or less will be
treated as a long-term capital loss for federal income tax purposes to the
extent of any capital gain distribution of net capital gain made with respect
to such shares.
Dividends and distributions are taxable in the manner described above
regardless of whether they are paid to the shareholder in cash or are
reinvested in additional shares of a Fund.
A dividend or capital gains distribution with respect to shares of either
Fund held by a tax-deferred or qualified plan, such as an IRA, 403(b)(7)
retirement plan or corporate pension or profit-sharing plan, generally will not
be taxable to the plan. Distributions from such plans will be taxable to
individual participants under applicable tax rules without regard to the
character of the income earned by the qualified plan.
Dividends and distributions on a Fund's shares are generally subject to
federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when a Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed, even when a Fund's net asset value also reflects unrealized losses.
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's hedging transactions, including hedging transactions in
options, futures contracts and straddles, or other similar transactions, will
subject the Fund to special tax rules (including mark-to-market, straddle, wash
sale and short sale rules), the effect of which may be to accelerate income to
the Fund, defer losses to the Fund, cause adjustments in the holding periods of
the Fund's securities, or convert short-term capital losses into long-term
capital losses. These rules could therefore affect the amount, timing and
character of distributions to shareholders. Each Fund will endeavor to make any
available elections pertaining to such transactions in a manner believed to be
in the best interest of the Fund.
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Each Fund's investments in foreign securities may be subject to foreign
withholding taxes. In that case, the Fund's yield on those securities would be
decreased. Neither Fund generally expects that shareholders will be able to
claim a credit or deduction with respect to foreign taxes. In addition, each
Fund's investments in foreign securities or foreign currencies may increase or
accelerate the Fund's recognition of ordinary income and may affect the timing
or amount of the Fund's distributions.
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 where 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 the shareholder has
under-reported income in the past.
For taxable years beginning after December 31, 2000, the maximum capital gain
tax rates for capital assets (including Fund shares) held by a non-corporate
shareholder for more than 5 years will be 8 percent and 18 percent (rather than
10 percent and 20 percent). The 18-percent rate applies only to assets the
holding period for which begins after December 31, 2000 (including by way of an
election to mark the asset to the market, and to pay the tax on any gain
thereon, as of January 2, 2001). The mark-to-market election may be
disadvantageous from a federal tax perspective, and shareholders should consult
their tax advisors before making such an election.
The foregoing discussion relates only to U.S. federal income tax law as it
affects U.S. shareholders. The effects of federal income tax law on non-U.S.
shareholders may be substantially different. Foreign investors should consult
their counsel for further information as to the U.S. tax consequences of
investing in a Fund.
_______________________________________________________________________________
GENERAL INFORMATION
_______________________________________________________________________________
Description of the Trust
The Trust is organized as a Massachusetts business trust under the laws of
The Commonwealth of Massachusetts by an Agreement and Declaration of Trust
("Declaration of Trust") dated March 26, 1987, a copy of which is on file with
the Secretary of State of The Commonwealth of Massachusetts. The Trust is a
"series" company as described in Rule 18f-2 under the 1940 Act, having three
separate portfolios, each of which is represented by a separate series of
shares. In addition to the Funds, the other portfolio of the Trust is 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
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thereof. The shares of each Fund and each class thereof do not have any
preemptive rights. Upon termination of any Fund or any class thereof, whether
pursuant to liquidation of the Trust or otherwise, shareholders of that Fund or
that class are entitled to share pro rata in the net assets of that Fund or
that class then available for distribution to such shareholders.
The assets received by the Trust for the issue or sale of the Class A,
Class B and Class C shares of each Fund and all income, earnings, profits,
losses and proceeds therefrom, subject only to the rights of creditors, are
allocated to, and constitute the underlying assets of, the appropriate class of
that Fund. The underlying assets of each Fund and each class of shares thereof
are segregated and are charged with the expenses with respect to that Fund and
that class and with a share of the general expenses of the Trust. While the
expenses of the Trust are allocated to the separate books of account of each
series and each class of shares thereof, certain expenses may be legally
chargeable against the assets of all series or a particular class of shares
thereof.
The Declaration of Trust provides for the perpetual existence of the Trust.
The Trust or any Fund, however, may be terminated at any time by vote of at
least a majority of the outstanding shares of each Fund affected. The
Declaration of Trust further provides that the Trustees may also terminate the
Trust upon written notice to the shareholders.
It is anticipated that annual shareholder meetings will not be held;
shareholder meetings will be held only when required by federal or state law.
Shareholders have available certain procedures for the removal of Trustees.
A shareholder will be entitled to share pro rata with other holders of the
same class of shares all dividends and distributions arising from the Fund's
assets and, upon redeeming shares, will receive the then-current net asset
value of the Fund represented by the redeemed shares less any applicable
contingent deferred sales charge. The Fund is empowered to establish, without
shareholder approval, additional portfolios, which may have different
investment objectives and policies than those of the Fund, and additional
classes of shares within the Fund. If an additional portfolio or class were
established in the Fund, each share of the portfolio or class would normally be
entitled to one vote for all purposes. Generally shares of each portfolio and
class would vote together as a single class on matters, such as the election of
Trustees, that affect each portfolio and class in substantially the same
manner. Class A, Class B and Class C shares have identical voting, dividend,
liquidation and other rights, except that each class bears its own transfer
agency expenses, each of Class A, Class B and Class C shares of the Fund bears
its own distribution expenses and Class B shares convert to Class A shares
under certain circumstances. Each class of shares of the Fund votes separately
with respect to the Fund's Rule 12b-1 distribution plan and other matters for
which separate class voting is appropriate under applicable law. Shares are
freely transferable, are entitled to dividends as determined by the Trustees
and, in liquidation of the Fund, are entitled to receive the net assets of the
Fund.
Capitalization
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Except as noted below under "Shareholder and Trustee Liability," all shares
of the Funds when duly issued will be fully paid and non-assessable.
At the close of business on August 11, 2000, there were 5,556,622 shares of
common stock of the Alliance Conservative Investors Fund outstanding including
1,988,588 Class A shares, 2,997,056 Class B shares and 570,978 Class C shares.
At the close of business on August 11, 2000, there were 9,999,468 shares of
common stock of the Alliance Growth Investors Fund outstanding including
3,809,366 Class A shares, 5,355,124 Class B shares and 834,978 Class C shares.
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
11, 2000:
ALLIANCE CONSERVATIVE INVESTORS FUND
CLASS A SHARES NO. OF SHARES % OF
-------------- ------------- ----
Merrill Lynch Smith Fenner 124,471 6.26%
For the sole Benefit of its Customers
Attn: Fund Administration (97885)
4800 Deer Lake Drive East 2nd Fl.
Jacksonville, Florida 32246-6484
CLASS B SHARES NO. OF SHARES % OF
-------------- ------------- ----
Merrill Lynch Smith Fenner 733,028 24.46%
For the sole Benefit of its Customers
Attn: Fund Administration (97886)
4800 Deer Lake Drive East 2nd Fl.
Jacksonville, Florida 32246-6484
CLASS C SHARES
--------------
Merrill Lynch Smith Fenner 81,123 14.21%
For the sole Benefit of its Customers
Attn: Fund Administration (97887)
4800 Deer Lake Drive East 2nd Fl.
Jacksonville, Florida 32246-6484
ALLIANCE GROWTH INVESTORS FUND
5% Beneficial Ownership
CLASS B SHARES
--------------
Merrill Lynch Smith Fenner 353,119 6.59%
For the sole Benefit of its Customers
Attn: Fund Administration (97879)
4800 Deer Lake Drive East 2nd Fl.
Jacksonville, Florida 32246-6484
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CLASS C SHARES
--------------
Merrill Lynch Smith Fenner 110,145 13.19%
For the sole Benefit of its Customers
Attn: Fund Administration (97880)
4800 Deer Lake Drive East 2nd Fl.
Jacksonville, Florida 32246-6484
Alliance Plan Div/F.T.C. 47,619 5.70%
For the Benefit of Diane B. Baker IRA
5024 Otisco Road
Tully, NY 13159-3082
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 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
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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 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.
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Independent Accountants
The financial statements of the Conservative Investors Fund and Growth
Investors Fund for the fiscal year ended April 30, 2000, which are incorporated
herein by reference to the Funds' Annual Report for the period ended April 30,
2000, 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 therein, and have been so
incorporated in reliance upon such report given upon the authority of that firm
as experts in accounting and auditing.
Total Return Quotations
From time to time, a Fund may advertise its "total return." Total return is
computed separately for Class A, Class B and Class C shares. Such
advertisements disclose a Fund's average annual compounded total return for
recent one-, five- and ten-year periods (or the life of a Fund or class, if
shorter). Total return for each such period is computed by finding, through the
use of a formula prescribed by the SEC, the average annual compounded rate of
return over such period that would equate an assumed initial amount invested to
the value of such investment at the end of the period. For purposes of
computing total return, income dividends and capital gains distributions paid
on shares of a Fund are assumed to have been reinvested when received and the
maximum sales charge applicable to purchases of Fund shares is assumed to have
been paid.
The average annual compounded total return for Class A shares of the
Conservative Investors and Growth Investors Funds was 4.50% and 9.19%,
respectively, for the one-year period ended April 30, 2000. The average annual
compounded total return for Class A shares of the Conservative Investors and
Growth Investors Funds was 8.49% and 13.58%, respectively, for the period May
4, 1992 (commencement of distribution of Class A shares) through April 30,
2000. The average annual compounded total return for Class B shares of the
Conservative Investors and Growth Investors Funds was 3.73% and 8.39%,
respectively, for the one year period ended April 30, 2000. The average annual
compounded total return for Class B shares of the Conservative Investors and
Growth Investors Funds was 7.72% and 12.77%, respectively, for the period May
4, 1992 (commencement of distribution of Class B shares) through April 30,
2000. The average annual compounded total return for Class C shares of the
Conservative Investors and Growth Investors Funds was 3.72% and 8.45%
respectively, for the one-year period ended April 30, 2000. The average annual
compounded total return for Class C shares of the Conservative Investors and
Growth Investors Funds was 7.05% and 12.22%, respectively, for the period
August 2, 1993 (commencement of distribution of Class C shares) through April
30, 2000.
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
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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, 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 Daily, Money Magazine, Changing Times, Business Week and
Forbes or other media on behalf of such Fund.
Additional Information
This Statement of Additional Information does not contain all the
information set forth in the Registration Statement filed by the Trust with the
SEC under the Securities Act of 1933. Copies of the Registration Statement may
be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the offices of the SEC in Washington, D.C.
_______________________________________________________________________________
FINANCIAL STATEMENTS
_______________________________________________________________________________
The Report of Independent Accountants and financial statements of the Funds
included in the Funds' Annual Report for the period ended April 30, 2000 (the
"Annual Report") are incorporated herein by reference to such Annual Report.
Copies of such Annual Report are available without charge upon request by
writing to Alliance Fund Services, Inc., P.O. Box 1520, Secaucus, NJ 07096-1520
or telephoning 1-800-227-4618.
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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 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.
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A-1
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, 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-2
1 Until October 29, 1999, Alliance Holding served as the investment adviser to
the Fund. On that date, Alliance Holding reorganized by transferring its
business to the Adviser. Prior thereto, the Adviser had no material business
operations. One result of the organization was that the Advisory Agreement,
then between the Fund and Alliance Holding, was transferred to the Adviser by
means of a technical assignment, and ownership of Alliance Fund Distributors,
Inc. and Alliance Fund Services, Inc., the Fund's principal underwriter and
transfer agent, respectively, also was transferred to the Adviser.
